Exorbitant Privilege

barry eichengreen

The exorbitant privilege is a term coined in the 1960s by Valéry Giscard d’Estaing, then the French Minister of Finance. This quote is generally misattributed to Charles de Gaulle, who is said to have had somewhat similar views. The term refers to the benefit the United States had in its Dollar being the international reserve currency: the US would not face a balance of payments crisis, because it purchased imports in its own currency.

‘Exorbitant privilege’ as a concept cannot refer to currencies that have a regional reserve currency role, only global reserve currencies. Recent McKinsey Global Institute research questions whether the benefit that the US enjoys is really that exorbitant, highlighting the countervailing loss of trade competitiveness from the high dollar (that typically results from its reserve status, all else equal). The phrase became the title of a 2010 book by economist Barry Eichengreen, examining the future prospects for the US Dollar’s dominance in international trade.

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