It's been called the "exorbitant privilege"; it might also be termed "the indestructible curse." Americans are proud of the fact that the dollar — their money — is also the world's dominant international currency. But this very same global role also helps explain some of Americans' major complaints about the world economy: why we constantly run sizable trade deficits; and why U.S. manufacturers often are at a price disadvantage with foreign competitors.
It's not that other currencies (mainly the euro and yen) don't play a global role. They're also used to pay for imports and for cross-border borrowing and lending. The dollar simply overshadows them. Dollars constitute 63 percent of countries' foreign exchange reserves, almost triple the next closest currency, the euro (22 percent), says the International Monetary Fund.
Partly, the dollar's role reflects inertia. After World War II, with much of Europe and Asia in ruins, the U.S. currency dominated by default. Later, the dollar benefited from America's wealth and legal system. The United States is regarded as a safe haven, says economist Eswar Prasad in his book "The Dollar Trap." Foreigners can invest their dollars in the world's deepest stock and bond markets. And "the rule of law is firmly established. ... Foreign investors [know] they will be treated fairly if they invest in the U.S.," he writes.