Macro Musings with David Beckworth · Monday, August 3, 2026
Barry Eichengreen posits that a nation's international currency status is influenced by both economic prowess and political stability. He highlights that countries with significant economic activity, stable currencies, and liquid financial markets tend to have dominant currencies. Additionally, internal political stability, rule of law, and external geopolitical alliances where partners trust the issuing country are crucial.
“So that history elucidates the economic and financial prerequisites for international currency status that I think will be familiar to economists. That they tend to be the currencies of countries with considerable economic, commercial, financial prowess, their big exporters and importers, big foreign investors and so forth, that possess stable currencies and liquid financial markets.”
“But I emphasize also that there are important political prerequisites for international currency status. Internal and external.”
“Internally, they tend to be the currencies of countries with a separation of powers, rule of law, control of corruption.”
“Externally, they tend to be the currencies of countries that have well-established geopolitical alliances where their alliance partners regard the issuing country as a reliable steward of their foreign reserves, where the alliance partners are more than willing to hold and use that currency as a show of good faith in their geopolitical partners.”