It is one of the great paradoxes of the financial crisis that while the private sector scrambles for dollars, central banks are stuffed full of them. Ever since the Asian financial crisis in 1997, central banks have rapidly accumulated foreign-currency reserves, principally dollars. Today, international reserves stand at about $7 trillion, of which 70% is estimated to be in US dollars. In contrast the total market value of treasury bonds outstanding, according to JP Morgan’s government bond index, comes to a face value of $2.6 trillion.
By placing their reliance on the dollar to such a degree, central banks have contributed to the financial crisis. By...
