Surprise Side Economics by Randall Forsyth - Article Example

The invasion of Iraq was mentioned by the author as an anecdotal introduction to understanding the potential changes in international finance in the near future. This paper will offer a summary of the article highlighting the main ideas presented by the author (Forsyth).

            The author of this article describes how quantitative bond easing is likely to affect the interest rates in different regions. The author mentions the outstanding roles of the federal reserves in creating a balance of situations and eliminating concerns about the fear gauge. China, for example, has declared a lowered bank reserve requirement while the bank of England will follow suit soon. This will happen after America announces its trimming of monthly purchases of bonds. The author places emphasis on the critical role held by the US in the global financial scene. This is specifically because of the dollar, which has been used as a reserve for global currencies since the 1920s. In the past, there has been evidence that the US makes use of its “exorbitant” privileges and eventually exploits other nations. This is because the dollar still remains the center of global currency. It is both a reserve in storehouses that serve other central banks and the primary currency used in finance and trade internationally (Forsyth). The globe also relies on the dollar as an effective medium when indulging in transactions and investments.

            The dollar has also been described as having made America’s banking and financial system very liquid and deep. Therefore, since only the US can produce the much-needed dollars that control the global finances, it enjoys an exorbitant privilege. As the author outlines, there are implications of such a privilege. An evident one is the fact that the US can print dollars and use such in exchange for goods produced in other regions. The US can also indulge in cheap borrowing because borrowing is done in the currency it produces. Other implications are evident to governments, corporations, and central banks because, despite the assets and liabilities they have, the dollar predominantly determines the fate of the balance sheets.

            In the final part of the article, the author describes certain limitations to the exorbitant privilege held by the US. Countries such as Russia and China have been making efforts of eliminating the dollar from their transactions. This is because, over the years, the economic policy of the US has only served to exploit other countries. This is because lowered values of the dollar make other currency values too high. In one of the evident moves, china has opted for Brazil as its leading trade partner replacing the US and eliminating the dollar in its dealings with Brazil. Other countries are likely to follow this example in a bid to free themselves from the exploitation of US economic policies (Forsyth). Therefore, the author suggests that the dollar regime is likely to decline very soon. This can happen because other dominant currencies have declined in the past. The emerging trends in international finance exhibit a pattern leading to the dollar’s downfall.