Foreign currency is required by the world economy.
Since the end of the Second World War, the U.S. has established the critical axis for global trade and finance. And that also made America need to behave to the world as a friendly lender.
Partly as a result, through its trade deficits, the US continues to make a net annual contribution of half a trillion dollars to the rise of global demand, revenue, and jobs. The major beneficiaries of this dollar-based international monetary system are the European Monetary Union (i.e., the euro area) and Japan; they are now taking over $600 billion in net annual trade revenue from the rest of the world.
Nevertheless, the Europeans continue to talk about the “exorbitant wealth” of America, a deadly serious joke credited to French finance minister (and then president) Valery Giscard d’Estaing in the 1960s. The “privilege” in question was that America was free in its currency to pay its bills.
It seems that the Europeans have nothing to say about the other side of the coin: the $10.6 trillion U.S. net foreign debt that has provided the world economy with a tool of growth.
Reading the Federal Reserve’s remarks last week, they’re likely to say that the U.S. doesn’t care about its debt because, being a key currency economy, it can go on its merry road of “deficits without crying.” It’s disappointing that the Fed used the key currency claim to suggest that it helped avoid issues with a growing debt burden – a song for the ears of lawmakers, many of whom were using the key currency argument.