The U.S. has unleashed weapons of financial destruction, and economists are watching for long-term fallout

A group of economists was asked to contemplate a question about sanctions on Russia and their potential for deep, long-term consequences on the United States.

At issue is a source of American power so ubiquitous it’s been assumed for generations to be unshakeable: The almighty dollar and its role as a global reserve currency.

Imagine being able to run up massive deficits every year; spend more on your military and government programs; enjoy cheaper interest rates on debt; and still never worry about your currency collapsing because it’s used everywhere.

Now imagine also being able to punish your enemies by cutting off access to this currency, making it illegal to transfer any money through U.S. banks.

The U.S. need not imagine this exorbitant privilege, to borrow a term from a former French leader: It’s been the reality since the Second World War, when the U.S. dollar became the dominant international currency.

Around the world it’s popular with people, companies and governments, in everything from cross-border sales to the central bank holdings other countries use to stabilize their economies.

“It’s a pretty great deal,” said David Laidler, professor emeritus at Western University and University of Chicago-trained monetary economist.

“It’s international money, is what it is.”

Central banks hold assets in lots of foreign currencies to stabilize their own. None comes close to the popularity of assets in U.S. dollars. (IMF)

Now the steward of that…

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