vanity - downsides to world reserve currency? aka, any reasons BRICS would NOT want to be world reserve?

Unless you are the world's largest, dominant economy of a superbly powerful nation like the US, having a major trade and reserve currency entails a loss of control over your money supply and over your export/import balance and your domestic economy. That is why Switzerland has avoided its franc becoming accepted as a reserve currency and finds its high value undesirable because it makes Swiss exports more expensive, imports more costly, and makes Switzerland one of the most expensive places to live.

Dollar critics tend to look at dollar's seigniorage as an unalloyed blessing. It is not and requires considerable dollar creation and constant monitoring and selling and buying of dollars and US Treasury debt to maintain and defend their value as predictable. These operations in turn require the support and coordination of the Fed and allied central banks and treasuries and international financial institutions like the IMF and World Bank.

For the BRIC nations, these issues are compounded by the problems inherent in coordinating a multinational currency. Unless the member nations are closely aligned economically and politically, it is impossible to manage a common currency without one or more members getting the short end of things. And although the euro does not work well as a global trade and reserve currency, it works as a regional currency only because of the central economic and regulatory control of the European Union and the dominant role of the German economy and central bank.

As much as the BRICs have a set of grievances and complaints and common interests against the US and the dollar, their political and economic interests are too separate and divergent for a common currency to work. At best, they will create and maintain a ledger system of sorts that reduces their need for dollars and enhances trade within the BRIC trading zone. Yet even then, they will carefully monitor the ledgers and the values of the participants' currencies so they do not get so far out of balance as to create a risk of someone getting stuck with credits or currency that has little value outside of the BRICs trading regime.

The Brice are not going to be a reserve currency. Not enough trade is done in that group.

Your assumption about running up debt being a function of the reserve currency is correct—but not for the reason you think. Because we are the reserve currency, we make the rules. Everyone is pegged to the dollar.

Once that slips away, debt is denominated in whatever comes next. It’s impossible to increase your debt a lot when that happens. Our exports would be cheap, but imports would skyrocket. The inflation we’ve seen over the past year would be considered tame compared to what would happen.

There isn’t a single currency that would take the place of the dollar. Yet. But that could change in short order if the large economies decide dump us.

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