U.S. Dollar Reserve Status Debated as Economic Burden Not Boon

The U.S. dollar’s status as the world’s primary reserve currency—often described as an “exorbitant privilege”—is being questioned as a potential burden rather than an advantage. Critics argue that the privilege has enabled the U.S. to run large trade and fiscal deficits while continuing to export dollars in exchange for goods and services. This system, while beneficial in the short term, may be hollowing out the U.S. economy over time by allowing foreign entities to accumulate U.S. assets with the very currency the U.S. prints [1].

The term “exorbitant privilege” itself has French origins, a fact that some use to highlight the irony of the U.S. benefiting from a concept it did not originate. The current system allows the U.S. to print dollars that are used globally, effectively giving the U.S. access to free money. However, this also requires the U.S. to maintain a persistent balance-of-payments deficit, exporting liquidity to maintain demand for the dollar. Over time, this has resulted in the inflow of foreign capital, which is often used to purchase U.S. assets, further shifting wealth away from domestic production [1].

A comparative analysis of the dollar’s performance against the euro, British pound, and Japanese yen over the past 15 years shows that the U.S. dollar has appreciated by 20–25% against the euro and the pound, and nearly doubled against the yen. Yet this strength is not attributed to sound fiscal policies or balanced economic management but is instead a byproduct of the dollar’s reserve status. The U.S. has leveraged this status to accumulate significant debt and maintain trade deficits, which have contributed to long-term economic vulnerabilities [1].

Critics also note that the benefits of the dollar’s reserve status are overstated when compared to other nations. For instance, Japan, despite a far higher debt-to-GDP ratio, maintains even lower government borrowing costs. The U.K. similarly runs trade deficits without experiencing currency collapse. However, the U.S. model is unique in that it relies on unbacked liquidity—essentially, the ability to print money without commensurate assets. China, meanwhile, has printed twice as much liquidity as the U.S. but has retained significant assets in return, reinforcing the argument that unbacked currency eventually loses its value [1].

The long-term implications of the dollar’s reserve status are becoming increasingly clear. As the U.S. continues to export liquidity in exchange for foreign goods and assets, its domestic production base is weakened, and its economy becomes increasingly dependent on financial engineering rather than real economic output. The sustainability of this model is being called into question as global demand for the dollar faces headwinds and the U.S. debt-to-GDP ratio continues to rise.

China, despite having the economic capacity to become the new global reserve currency, has shown no interest in doing so. This is partly because China’s strategy relies on exporting goods, accepting U.S. liquidity, and using it to acquire American assets. In this way, China avoids the liabilities associated with reserve currency status while maintaining economic leverage over the U.S. [1].

The debate over whether the dollar’s reserve status is a privilege or a curse is becoming more urgent. While it has provided short-term advantages, the structural imbalances it has created are now reaching critical levels. The U.S. may need to rethink its economic strategy before the long-term costs of the current model outweigh its benefits.

Source: [1] The Exorbitant Curse: Why The Dollar’s Reserve Status May Be America’s Biggest Liability (https://www.forbes.com/sites/digital-assets/2025/08/04/the-exorbitant-curse-why-the-dollars-reserve-status-may-be-americas-biggest-liability/)