Exorbitant Privilege,” or, How Worrisome Is the U.S. Trade Deficit?
Back in the 1960s Charles de Gaulle would complain about the “exorbitant privilege” that accrued to the United States by virtue of its role as the key currency in the post-World War II Bretton Woods international monetary system. Other countries had to worry about their balances of payments: they had to constrain demand or go through the distress of a devaluation in order to balance their trade. But the United States did not: it could simply print extra dollars to cover whatever excess of desired imports over desired exports happened to exist. The Bretton Woods system is long gone. But the United States continues to reap “exorbitant privileges” from its role as key currency in the international monetary system. Today, however, they are different of exorbitant privileges. Look at the figure below, showing America’s net exports: measured net exports have been negative–often substantially negative–for nearly three decades. Some of these large trade deficits are the result of domestic ec
