The fact the dollar is the dominant reserve currency inevitably reduces the world’s economic efficiency

The fact the dollar is the dominant reserve currency leads to a situation where the United States, which receives capital from the rest of the world, has a chronic external deficit and growing external debt. This is what has been called the “ exorbitant privilege” of the United States and the dollar. The upshot of this situation is an international monetary system that channels the world’s savings to the United States . This is highly inefficient and reduces global growth , since the United States has the highest per capita income . Rather, the world’s savings should be used to finance investment in poor countries. The fact that the country that issues the global reserve currency is a rich country therefore reduces global growth by reducing the allocative efficiency of global savings.