Reserve Currencies and the Dollar’s Role in Containing Global Imbalances

The stability of the international reserve currency’s purchasing power is less a question of what serves as that currency and more a question of the international adjustment mechanism, as well as the compatibility of export-led development strategies with international payment balances. Export-led growth and free capital flows are the real causes of sustained international imbalances. The only way out of this predicament is to shift to domestic demand–led development strategies—and capital flows will have to be part of the solution.