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The Dollar Trap:
How the U.S. Dollar Tightened Its Grip on Global Finance
Eswar S. Prasad

Winner of the 2015 Gold Medal in Economics, Axiom Business Book Awards
Honorable Mention for the 2015 PROSE Award in Business, Finance & Management, Association of American Publishers
One of Financial Times ( Best Economics Books of 2014, chosen by Martin Wolf
One of China Business News’ Financial Books of the Year for 2014

Hardcover | 2014 | $35.00 | ($21.00) / £24.95 | (£14.97) | ISBN: 9780691161129
432 pp. | 6 x 9 | 8 halftones. 17 line illus. 6 tables.
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The U.S. dollar’s dominance seems under threat. The near collapse of the U.S. financial system in 2008–2009, political paralysis that has blocked effective policymaking, and emerging competitors such as the Chinese renminbi have heightened speculation about the dollar’s looming displacement as the main reserve currency. Yet, as The Dollar Trap powerfully argues, the financial crisis, a dysfunctional international monetary system, and U.S. policies have paradoxically strengthened the dollar’s importance.

Eswar Prasad examines how the dollar came to have a central role in the world economy and demonstrates that it will remain the cornerstone of global finance for the foreseeable future. Marshaling a range of arguments and data, and drawing on the latest research, Prasad shows why it will be difficult to dislodge the dollar-centric system. With vast amounts of foreign financial capital locked up in dollar assets, including U.S. government securities, other countries now have a strong incentive to prevent a dollar crash.

Prasad takes the reader through key contemporary issues in international finance—including the growing economic influence of emerging markets, the currency wars, the complexities of the China-U.S. relationship, and the role of institutions like the International Monetary Fund—and offers new ideas for fixing the flawed monetary system. Readers are also given a rare look into some of the intrigue and backdoor scheming in the corridors of international finance.

The Dollar Trap offers a panoramic analysis of the fragile state of global finance and makes a compelling case that, despite all its flaws, the dollar will remain the ultimate safe-haven currency.

Eswar S. Prasad is a professor in the Dyson School at Cornell University and senior fellow at the Brookings Institution.


"Thoughtful."--Jeff Sommer, New York Times

"[A] surprising argument. . . . [L]ucid."--David Wessel, Wall Street Journal

"Richly detailed study of global finances, examining how and why the dollar became the favored currency of international trade."--Kirkus

"To understand how the world of international finance works, what the agendas are and what is at stake, this work is indispensable."--Henny Sender, Financial Times

"In his authoritative new book on the dollar, Eswar Prasad . . . argues that China and other foreign countries that own around half the outstanding US federal government debt are trapped in a risky game where the US may be tempted to renege on its debt obligations by printing more dollars."--John Plender, Financial Times

"A lively and compelling analysis on currency wars in the wake of the financial crisis--and the likely persistence of the U.S. dollar as the world's pre-eminent currency."--Harold James, Central Banking Journal

"Highly recommended especially for those interested in understanding the paradigm shifts that happened in the international monetary regime in the 1970s and 1980s."--Mehmet Kerem Caban, Asian Journal of Public Affairs


"As Eswar Prasad points out, there is something paradoxical about a world where the dollar strengthens with the U.S. financial crisis, capital flows from poor countries to rich ones, and more sophisticated finance often leads to greater risk. Prasad's book unpacks these paradoxes in a provocative and challenging way. It deserves the attention of all those who care about the future of the dollar and the international monetary system."--Lawrence H. Summers, Harvard University

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Table of Contents:

List of Figures and Tables ix
Preface xi
PART ONE Setting the Stage
1. Prologue 3
2. What Is So Special about the Dollar? 11
PART TWO Building Blocks
3. The Paradox of Uphill Capital Flows 31
4. Emerging Markets Get Religion 47
5. The Quest for Safety 63
6. A Trillion Dollar Con Game? 89
PART THREE Inadequate Institutions
7. Currency Wars 125
8. Seeking a Truce on Currency Wars 158
9. It Takes Twenty to Tango 171
10. The Siren Song of Capital Controls 188
11. Safety Nets with Gaping Holes 201
PART FOUR Currency Competition
12. Is the Renminbi Ready for Prime Time? 229
13. Other Contenders Nipping at the Dollar’s Heels 262
14. Could the Dollar Hit a Tipping Point and Sink? 283
15. Ultimate Paradox: Fragility Breeds Stability 299
Appendix 309
Notes 317
References 375
Acknowledgments 393
Index 395

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