Reserve currency status, a badge of America’s preeminence, has been both a blessing and a curse.
The U.S. dollar’s status as the world’s reserve currency has shielded the United States from the consequence of persistent and growing trade imbalances.
The Bretton Woods accords made the U.S. dollar the currency used by other governments and institutions to settle their foreign exchange accounts and to transact trade in certain vital commodities, such as gold and oil. It thus behooved countries involved in international trade to accumulate dollars and build ample reserves.
That the dollar was originally accepted by the world as its reserve currency was due to America’s unequaled industrial might, its status as both the world’s leading exporter of manufactured goods and its greatest creditor, and the fact that its currency was fully backed by, and redeemable in, a fixed quantity of gold.
None of these attributes currently exist, and the dollar would not qualify for comparable status were a similar accord attempted today.
Peter Schiff, Crash Proof 2.0