Macroscope | True lesson of US dollar privilege won’t be lost on expanded Brics
- The global dominance of the US dollar has allowed America to finance government spending with debt that seemingly does not need to be repaid
- Expect the Brics 11 to know that a currency of their own will be good for more than trade
In his challenging new book The Power of Money, former Harvard economist Paul Sheard boldly says that “government debt never has to be repaid” provided the debt is denominated in the issuer’s own currency and that the currency is a widely acceptable one.
Governments are in the business of financing not only things such as health, welfare, education and other domestic spending but also areas such as defence and military power projection, as well as international development spending on infrastructure and foreign aid of many different types. The ability to do this by means of borrowing – which, according to Sheard, never needs to be repaid – is a coveted privilege which might transform the global balance of economic and financial as well as political and strategic power if it becomes more widely available.
By the same token that he rejects the notion that debt ever has to be repaid, Sheard dismisses the idea that such debt represents a burden on future generations. Numerous high-profile international economists who have endorsed his book appear to agree.
Government debt, he argues, looks similar to corporate or household debt but is fundamentally different. The banking reserves created by a government running a budget deficit no more have to be repaid than do banknotes, provided the government can issue debt in its own currency.