The Unchallenged Currency

MUMBAI, February 19, 2014 - For most of the modern age, the American Dollar has stood unchallenged as the world’s dominant currency amidst an environment of increasingly globalized markets. The dominance of the dollar has functioned as a necessary assumption to garner an understanding of international finance and economics and the basis on which individuals, businesses and governments determine their course of action in those spheres. However, in recent history, the near collapse of the U.S. financial system during the Global Financial Crisis and the emergence of competitor currencies have called the dollar’s dominance into question. Experts continue to debate what the future will have in store for the US dollar and the world of international finance as we know it.

To analyze and address these pertinent dynamics in international finance today, Asia Society India Centre hosted a private round table discussion as a part of its BASIC (Breakfast at Asia Society India Centre) series with Professor Eswar S. Prasad, Tolani Senior Professor of Trade Policy at Cornell University, and Senior Fellow at the Brookings Institution, where he holds the New Century Chair in International Economics. The discussion was chaired by Ridham Desai, Managing Director and Head of India Research at Morgan Stanley.

The discussion began with opening remarks by Ridham Desai, in which he painted an elaborate picture of international finance, and the challenges that have been faced by the U.S. dollar in recent years. His remarks situated the conversation within a broader context of international monetary flows, and shifting economic dynamics in the global market, and paved the way for Professor Prasad’s comments, in which he outlined the thesis of his recent book “The Dollar Trap: How the U.S. Dollar Tightened Its Grip on Global Finance.” Prasad focused heavily on the paradoxical strengthening of the U.S. Dollar’s status as the leading global reserve currency, despite conventional wisdom that it would immediately weaken in the aftermath of the 2008 financial crisis. Professor Prasad maintained that the credibility of U.S. institutions was a major contributing factor to the vitality of the dollars as the world’s main reserve currency. Prasad then went on to elaborate further, painting a picture of a future in which the U.S. dollar’s primacy would continue to go unchallenged in the short-term, despite long-term trends that indicate its possible decline. The participants then engaged in a deeply informed discussion on the ways in which the dollar’s continued dominance would affect dynamics in India, the U.S., and the broader world of international finance. The analysis was full of personal insights and commentary, reflecting the diversity of expertise of both the speakers and the attendees. The conversation ended with all attendees eager to continue the dialogue outside the confines of the event, in order to further develop upon the insights they’d shared in regards to international business and global finance. 

Reported by Uditinder Thakur, Programme Assistant, Asia Society India Centre.