Doubts about the international dominance of the dollar are only growing amid worries about tariffs, political dysfunction, and fraying international alliances. Will the dollar continue to reign supreme? In Money Beyond Borders, the leading authority on international currencies, Barry Eichengreen, puts the dollar鈥檚 prospects in deep historical perspective by chronicling the entire history of cross-border currencies, from the invention of coins in the seventh century BCE to the cryptocurrencies of today and the central bank digital currencies of tomorrow.
What inspired you to write a history of global currencies, and why did this feel like the right moment?
Barry Eichengreen: I wrote the book because of a confluence of two factors. First, angst about the global role of the U.S. dollar. The dollar is used, as everyone knows, not just in the United States but around the world. But now there are worries that the U.S. is squandering the benefits of the currency鈥檚 singular status. Some worries are familiar, such as those around the country鈥檚 soaring debts. But others are new, such as whether the U.S. is a reliable alliance partner. We see the Europeans actively seeking to move away from the dollar as a way of hedging their bets, as a way of limiting their exposure to the currency of an erratic foreign power. I thought that looking at these issues historically 鈥� at how geopolitics and not just economics have shaped the international influence of currencies 鈥� could shed light on our current predicament.
Second, we鈥檙e in the midst of a digital revolution where new financial technologies 鈥� cryptocurrencies, stablecoins, central bank digital currencies and the like 鈥� are radically reshaping the global financial landscape. Of course, the monetary and financial landscape has never stood still. There have been financial innovations before. But I thought that tracing the impact of such innovations on the rise and fall of monies, going back all the way to the invention of coinage itself, in Lydia in the 7th century BCE, could help us better understand what is coming.
Your book shows that currencies rise and fall for similar reasons. Is there a past example that really captures this pattern?
BE: My favorite example is probably by solidus of Byzantium, and not just because the historian Robert Lopez, writing 75 years ago, dubbed it 鈥渢he dollar of the Middle Ages.鈥� By the 5th century CE, the solidus was used in trade everywhere from India to Britain. Its wide acceptance rested on its stability 鈥� its value remained unchanged for 7 centuries. It rested on Byzantium鈥檚 prowess as a trading power 鈥� as an economy strategically positioned between Europe and Asia. It rested on the reputation of Byzantine officials for fiscal probity and fair administration of taxes.
But over the centuries, Byzantium鈥檚 economy decayed for a combination of internal and external reasons. Land became concentrated in the hands of large estate holders, who used their political leverage to extract concessions, including tax exemptions, from the imperial administration. Powerful enemies bogged down the Byzantines in endless military conflicts. Rising powers like the city-states of Genoa and Venice challenged seafaring Byzantine traders but also developed international currencies of their own. By the end of the 11th century, the gold solidus was history, as they say.
Many readers wonder about the dollar鈥檚 future. What signs do you see that suggest where it might be headed next?
BE: The dollar鈥檚 global dominance has been eroding very gradually, especially as form in which central banks hold their reserves. That鈥檚 not illogical. The U.S. is no longer, as it was after World War II, the only country with deep and liquid financial markets open to the rest of the world. Now Europe and the euro are a competitor. And those same new digital technologies, just mentioned, create an opening for other countries and currencies late to the game. Think China and its renminbi. Nor is this development undesirable for the world as a whole. Just as a healthy planet benefits from biodiversity, a healthy global monetary and financial order benefits from diverse sources of international liquidity, where other countries and currencies can step in when one falters.
It鈥檚 important to emphasize the very gradual, even glacial, nature of this diversification away from the dollar. But slowly moving processes can accelerate abruptly, and geopolitical tensions could trigger just such an acceleration. Glaciers have been known to crack and fall into the sea.
You highlight some fascinating international currencies鈥攆rom ancient coins to early paper money. Which story was the most surprising to uncover?
BE: Perhaps the most surprising case was that of Florence and the florin. Why a small city-state nestled in the hills of Tuscany should have become a monetary powerhouse whose currency used throughout Europe and even in the Levant (what today we would call the Middle East) was not obvious. The Florentines leveraged commercial their prowess 鈥� they wove and died wool sourced and imported from as far north as England 鈥� to build a formidable financial network. They developed what was in effect a multinational banking system to underwrite not just transactions in commodities and merchandise but also purely financial transactions. Their system ran on coined money but also on what today we would call bank credit. They became bankers to kings and popes. As they remained until a combination of military defeats and economic woes brought their system tumbling down.
How do you see cryptocurrencies and digital currencies fitting into the long story of cross border money?
BE: The long arc runs from commodity money (gold and silver ingots and coins) to bank money convertible into precious metal on demand, and from there to fiat (money only as good as the government says it is). Digital currencies, which circulate with lightning speed on a blockchain, are the next stage in this evolution.
But I would draw a strong distinction between plain vanilla cryptos like Bitcoin on the one hand, and central bank digital currencies on the other. Plain vanilla cryptos don鈥檛 fit into the story of money at all. They鈥檙e too volatile to serve as units of account, means of payment, and stores of value, which is what we mean by money. Central bank digital currencies 鈥� tokens or credits issued by the central bank that, aside from their digital form, are indistinguishable from paper currency 鈥� are the next stage in the evolution of money because they can run on a blockchain and are programmable. In other words, you can add a program known as a 鈥渟mart contract鈥� to specify exactly how and when they can be used and expect that program to execute automatically.
Stablecoins, cryptos that are designed to trade one-for-one to the dollar or another such currency, are in the middle. The GENIUS Act adopted by the U.S. last year authorizes banks, nonbank financial institutions, tech platforms and even big retailers to issue stablecoins. If they do in fact trade one-for-one with the dollar always and everywhere, they too will figure in the long arc of money. But if not, not. As I describe in the book, there is a long, unhappy history of private monies. So I have my doubts.
After tracing this long history, what do you hope readers carry away from their reading?
BE: The ability to mint a global currency has enormous benefits for a country. But this status is not forever; to endure, it has to be carefully and consistently nurtured. It can鈥檛 be taken for granted. And it is not something to squander.
Barry Eichengreen is the George C. and Helen N. Pardee Chair and Distinguished Professor of Economics and Political Science at the University of California, Berkeley. He is the author and coauthor of many books, including Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System; How Global Currencies Work (快色直播); and Globalizing Capital (快色直播).