Forty years ago Charles De Gaulle railed against the unfair gains that accrued to the US from dollar's hegemony and today an UN panel egged by Russians and Chinese is egging the world to move away from dollar as the reserve currency. It is ironic that this development is happening even as European banks have received billions from the Fed via AIG. That is the Fed has been subsidizing European governments effectively. It is not clear at all that the ordinary US taxpayer benefits much from the dollar's reserve status. If anything, the dollar's reserve status most likely visits some version of the Dutch disease on the average American worker, who has seen tardy improvement in living standards and considerably more career and income insecurity over the past two decades. I won't digress into that topic now. I want to focus on the free riding the rest of the world does.
The ECB and the Eurozone gets kudos from perennial hyperinflationistas and the usual American baiters who would like to see the US fall hard. But if the Fed took a leaf out of the ECB's book and the Federal government followed the European governments, then the world economy would be in a deepening crisis (not that it is out of the woods now by any stretch of imagination). And judging by the developments of the last two quarters, the rest of the world would have been considerably worse than the US. After all Japan, Korea, Germany among others have seen their activity fall off a cliff and at a much faster pace than the US. However, the moment the US succeeds in injecting a sense of stability, the dollar tanks, world equities outpace US stocks, and everybody gets to lecture the US on the crappy outlook for the dollar. While the US taxpayer is carrying the full burden of the stabilizing, they will capture only a small fraction of the upside (I know, I know, the US holds risky foreign assets, which will appreciate more in a stable world than safe dollar assets held by foreigners). Seems like a bad trade to me.
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