The future of the dollar? 1
The dollar has a unique status in the global financial system. Besides being a national currency that is used by US citizens, the dollar is the dominant 'international reserve currency' that is relied on world-wide to price and pay for commodities, global trade and debt. This chapter provides a distinct institutionalist explanation for why currencies attain international reserve status. It then applies the institutionalist explanation to debates about the future of the dollar compared to its potential rivals. The chapter reviews why the legitimacy and effectiveness of the dollar's reserve currency status have been challenged. It argues that the International Monetary Fund (IMF) and European Central Bank (ECB) are currently unable to perform these institutionalist functions. The institutionalist shortcomings of the ECB and IMF undermine the ability of the euro and SDR to challenge the reserve currency status of the dollar, at least for the foreseeable future.