America's "exorbitant privilege" of being able to pay its bills in the currency it prints at a zero marginal cost has been a matter of great controversy ever since the term was coined in the mid-1960s by the former French President Valéry Giscard d'Estaing, who was serving as a young finance minister at that time.
Various attempts have been made since then to provide alternatives to the dollar as the world's predominant transactions and reserve currency. One such instrument was created in 1969 in the form of a composite financial asset called special drawing rights (SDR). That was intended to offer a supplementary reserve asset and the IMF's unit of account.
The SDR basket currently consists of the dollar, the euro, the British pound, the Japanese yen and the Chinese renminbi. As of the end of last year, 204.1 billion SDRs (equivalent to $287.6 billion) have been allocated to IMF member countries. That represents only 3.4 percent in the pool of reserves held by the world's largest reserve holders.
In spite of that, some people just won't give up. SDRs as an alternative reserve asset were one of the topics of last Thursday's (March 28) meeting in Paris, attended by about 30 high-level financial officials from G20 countries, IMF and other (official) international organizations.
A perennial talking point
The SDR issue will also be tabled for discussion during the next G20 summit chaired by China in Hongzhou on September 4-5, 2016. The main analytic input for that meeting on SDRs and a number of other topics on global capital flows will be provided by an expert group led by France and South Korea.