Pennings, A.J. (2026, Aug 07) The USD as the World’s “Exorbitant Privilege.” apennings.com. https://apennings.com/technologies-of-meaning/the-usd-as-the-worlds-exorbitant-privilege/

Introduction

This morning someone I know sent me an article from the Financial Times about the Japanese yen crisis that concluded with concerns about the future of the USD as the global reserve currency. My response ended with the phrase that the USD is the “world’s exorbitant privilege.” The post below explains my thinking and hopefully nuances away some of the more chauvinistic aspects of the assertion.[1] Also, I have outlined the tiered approach to USD and how countries worldwide work within the current global financial and trading structure, with differing structural implications.

In this post, I try to shift the discussion away from the familiar geopolitical question, “Does the United States benefit from dollar dominance?” to a more interesting economic and infrastructural question, “Why does the world continue to choose the dollar?” This framing aligns with my broader work on spreadsheet logic and global coordination. The US clearly enjoys unique advantages, especially seigniorage, lower borrowing costs, and geopolitical influence.

I try to acknowledge those benefits and then argue that the global network effects create even larger aggregate benefits for the rest of the world. To strengthen the network effects argument, I move away from emphasizing reserve currency status, and emphasize that the USD is a coordination technology. The world’s benefit comes from everyone using the same accounting unit and spreadsheet logic.

The US Side of the Ledger

The phrase “exorbitant privilege” has long been associated with the United States’ currency. Coined during the Bretton Woods era and popularized by French Finance Minister Valéry Giscard d’Estaing, it describes the unique advantages America derives from issuing the world’s dominant reserve currency. Because the dollar sits at the center of global finance, the United States can borrow in its own currency, finance persistent trade deficits, and issue Treasury securities that remain in constant demand.[2]

These advantages are real. Yet focusing exclusively on the American side of the ledger overlooks the larger architecture of the international monetary system and the benefit. The modern dollar (USD) is no longer simply a domestic American currency. It is a globally distributed financial network. Most dollar-denominated credit now exists outside the United States as Eurodollars.

These are the offshore dollar deposits, loans, and financial instruments created by commercial banks beyond the direct jurisdiction of the Federal Reserve (although influenced by interest rates).

A significant portion of this offshore system has historically been reinforced by petrodollars, the dollar revenues generated through international oil markets and recycled into global banking and US financial assets. Together, these offshore dollars constitute the principal working capital of global trade and finance.[2]

A Global Public Good?

Viewed from this perspective, the USD’s centrality is not merely an American privilege. It is also one of the world’s most valuable financial infrastructures. It has become a shared monetary network whose scale, liquidity, and network effects benefit virtually every participant in international commerce.

The United States unquestionably receives important advantages from issuing the world’s primary reserve asset. Strong international demand for Treasury securities lowers federal borrowing costs while allowing American consumers and businesses to purchase foreign goods in their own currency. During periods of financial stress, the Federal Reserve stabilizes international markets through dollar liquidity facilities and central bank swap lines, reinforcing confidence in dollar-denominated assets.

Yet, these benefits exist because the United States supplies the foundation for a much larger international system. The overwhelming majority of cross-border dollar lending is conducted not by the Federal Reserve but through the offshore Eurodollar market. International banks create dollar credit in London, Singapore, Hong Kong, Tokyo, UAE, and other financial centers to finance global trade, investment, and corporate borrowing.

Commodity markets, particularly energy markets, have historically reinforced this offshore dollar infosystem through petrodollar recycling, directing substantial pools of dollar liquidity back into Treasury securities and international capital markets.

The broader benefits therefore accrue to the world economy through powerful network effects. International commerce becomes dramatically more efficient when exporters, importers, banks, insurers, shipping companies, and investors conduct business using a common accounting unit organized with spreadsheet logic.

A Vietnamese electronics manufacturer selling to Brazil, a Chilean copper producer supplying Korea, or a Nigerian energy company purchasing European equipment can all invoice and settle transactions in dollars without repeatedly converting among multiple currencies. The result is lower transaction costs, reduced exchange-rate risk, simplified contracts, and greater certainty for long-term investment.[3]

Dollar liquidity also provides the world with an unparalleled reservoir of financial stability. Offshore Eurodollar markets, Treasury securities, and highly liquid dollar assets enable central banks, commercial banks, corporations, and institutional investors to obtain working capital, manage reserves, and respond quickly during financial crises.

The Treasury market functions as the world’s deepest repository of safe collateral, while the Eurodollar system supplies much of the day-to-day liquidity that sustains international trade and investment. Together, they constitute a global financial infrastructure that no competing currency has yet replicated.

Stablecoins and the Digital Extension of the Privilege

Equally important, the dollar serves as a common computational language for international finance. Commodity prices, syndicated loans, shipping contracts, derivatives, and trade finance are overwhelmingly denominated in dollars.

This shared accounting standard simplifies price discovery, risk management, and financial comparison across jurisdictions. In media-theoretical terms, the dollar is more than a currency. It is the dominant signifying infrastructure through which global economic relationships are recorded, compared, and coordinated.

The power of this system grows through network effects. Every additional bank issuing Eurodollar credit, every multinational corporation maintaining dollar accounts, every commodity contract priced in dollars, and every Treasury security held as collateral increases the value of the network for everyone else.

Reuters Monitor, Bloomberg terminals, SWIFT messaging, CHIPS, CLS, and modern payment platforms all developed around this common financial grammar on their digital spreadsheets. Their value lies less in the technology itself than in the globally shared accounting infrastructure they coordinate and synchronize.

Stablecoins and the Digital Extension of the Privilege

Treasury-backed stablecoins represent the newest extension of this architecture. They do not replace Eurodollars so much as digitize and offer them on a retail level. Whereas Eurodollars created offshore dollar liquidity through commercial bank balance sheets, regulated stablecoins create tokenized dollar liquidity backed by short-term Treasury securities and distributed through blockchain networks on digital devices.

The result is a twenty-first century digital extension of the offshore dollar system that has existed since the Russians created Eurodollars in the 1950s. Dollar liquidity increasingly moves not only through correspondent banks but also through mobile wallets, blockchain networks, and programmable financial applications, making participation possible for billions of users, some of whom have never possessed traditional bank accounts.

A Shared System, Not a Zero-Sum Game

Critics often portray dollar centrality as a mechanism of American dominance. Certainly, it reflects American political and institutional power. Yet it also represents a mutually beneficial coordination system. The United States supplies credible monetary institutions, Treasury collateral, and legal frameworks. The offshore banking system supplies Eurodollar credit.

Global commodity markets reinforce dollar demand through petrodollar recycling. Businesses, governments, and households everywhere benefit from access to a common accounting unit, deep liquidity, and a highly developed financial infrastructure.

The future of the international monetary system therefore depends less on identifying a replacement currency than on understanding the coordination architecture that underlies global liquidity. Treasury-backed stablecoins, blockchain networks, and artificial intelligence are extending, not replacing, the Eurodollar system by making dollar liquidity more accessible, programmable, and globally distributed.

In an era of geopolitical tension and technological change, preserving the usefulness of that common currency, while managing its risks, remains one of the quiet foundations of the global economy. The privilege is real. It is also shared.

The dollar remains an exorbitant privilege. But that privilege extends far beyond the United States. It belongs to the worldwide network of institutions, markets, and individuals that collectively produce, circulate, and depend upon the largest monetary infrastructure in human history.

References

Bordo, M. D., & McCauley, R. N. (2019). Triffin: Dilemma or Myth? BIS Working Papers.
Cohen, B. J. (2015). Currency Power: Understanding Monetary Rivalry. Princeton University Press.
Eichengreen, B. (2011). Exorbitant Privilege: The Rise and Fall of the Dollar. Oxford University Press.
Gopinath, G. (2015). The International Price System. Jackson Hole Economic Policy Symposium.
Gopinath, G., & Stein, J. C. (2021). Banking, Trade, and the Making of a Dominant Currency. Quarterly Journal of Economics.
Gourinchas, P.-O., Rey, H., & Govillot, N. (2017). Exorbitant Privilege and Exorbitant Duty. IMF Working Paper.
Krugman, P. R. (1980). Scale Economies, Product Differentiation, and the Pattern of Trade. American Economic Review.
McCauley, R. N. (2020). The Dollar in Global Finance. Bank for International Settlements.
Varian, H. R. (1998). Markets for Information Goods. University of California, Berkeley.

Notes

[1] Barry Eichengreen is a leading intellectual on the topic of international money markets and political economy.
[2] I move away from emphasizing reserve currency status, and emphasize that the USD is a computation and coordination technology. The world’s benefit comes from everyone using the same accounting unit and spreadsheet logic. Then, I connect the conclusion to digitization. Stablecoins are not creating a new monetary order; they are extending the existing USD network into mobile phones and blockchain infrastructure.
[2] This stance is more consistent with my broader body of work because it reframes the “USD” as a layered system. Federal Reserve dollars provide the monetary base.
US Treasuries provide the world’s primary collateral and reserve asset. Eurodollars provide most of the offshore dollar liquidity used in global finance. Petrodollars reinforce demand for dollar assets through energy trade and capital recycling. Will Treasury-backed stablecoins emerge as the next remediation of the Eurodollar system, extending dollar liquidity into blockchain networks and digital wallets?
[3] This progression also fits neatly with my theory of spreadsheet logic where each layer expands the computational and accounting infrastructure that coordinates global liquidity rather than replacing the previous one.
AI Prompt(s) Let’s write today’s blog post addressing the title “The USD is the world’s exorbitant privilege,” While the USD gives the US some advantages in buying exports, it is the world that benefits from the network effects and availability of a globally accepted currency. Edit today’s blog post and suggest additional references. It addresses the title “The USD is the world’s exorbitant privilege.”

© ALL RIGHTS RESERVED

Not to be considered financial advice. AI is often used, and results are thoroughly interrogated. Links are used for some citations.

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Anthony J. Pennings, PhD is a Professor at the Department of Technology and Society, State University of New York, Korea and a Research Professor for Stony Brook University. He teaches AI and broadband policy. From 2002-2012 he taught digital economics and information systems management at New York University. He also taught in the Digital Media MBA at St. Edwards University in Austin, Texas, where he lives when not in Korea.

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Category: artificial intelligence, blockchain, cryptocurrencies, data analytics and meaning, democratic political economies, digital media economics, digital media management, enabling frameworks, food policy and security, geopolitical risk, global communications, public administration, smart new deal, spreadsheet logic, strategic communications, sustainable development, technologies of meaning
Tags: eurodollars > Exorbitant Privilege > Network effects > USD

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