Every few years, the economic and financial media run stories prophesying the end of the U.S. dollar’s role as a reserve currency, its replacement with the Chinese renminbi, and the supposed calamities to follow. What the doomsayers miss is that the dollar remains the global reserve currency for now largely due to a lack of convincing alternatives.

There are real economic reasons why the U.S. dollar must, one day, lose its reserve-currency status. Modern interpretations of the “Triffin dilemma” imply that a reserve-currency country that grows smaller relative to the global economy over time will become increasingly stretched in its borrowing. While reserve holdings, like Treasury obligations, are assets from the world’s perspective, from America’s perspective they’re liabilities. To supply them, the United States has to borrow from the world, running what economists call a current-account deficit. To export dollars and dollar assets, American consumers must live beyond their means (importing more than they export) and provide net demand—and thus economic growth—to the world.

If the American economy constitutes a large share of the global economy, these borrowings for the sake of reserve provision won’t affect Americans. But as the American economy has shrunk from almost 40 percent of global GDP in the 1960s to about 24 percent today, the borrowing necessary to supply reserve assets to the globe has become larger as a share of domestic GDP.

[We should be careful about losing the reserve currency status for one reason only: it’s basically the last standing discipline on our monetary policy. Apres ce, le deluge. — Ed]