Quote from: cypherdoc on April 28, 2011, 04:23:52 AM

can u explain the downsides of being the reserve currency?

Not well, but how about a quote and a link?

"This cost comes as a choice between rising unemployment and rising debt.　 The mechanism is fairly straightforward.　 Countries that seek to supercharge domestic growth by acquiring a larger share of global demand can do so by gaming the global system and actively stockpiling foreign currency, mainly in the form of, but not limited to, central bank reserves.　　 This allows them forcibly to accumulate domestic savings while relying on foreign demand to compensate for their own limited domestic demand."

http://globaleconomicanalysis.blogspot.com/2011/04/bogus-threats-to-us-reserve-currency.html

Basicly it's about the current account deficit. Foreign producers can export to the US and accumulate US $, but unlike under a gold standard, this requires that the US become a debtor nation. This works fine as long as the economy keeps humming along, but contributes to the public pain under a recession, like now. Prior to the US $ becoming an international reserve currency under Brenton-Woods, the vast majority of the debt of the federal government was held by wealthy private citizens rather than central banks of foreign nations or sovereign wealth funds of dictatorships. Of course, national debt is bad, because the 'debtor is slave to the lender'; but at least if the government is owned by the wealthy class of it's own citizenship, these same citizens have a vested interest in a stable social order and the legitimacy of the government. Foreign investors do not, always, mind the losses if they can sow difficulties in the 'great Satan'. Not all of them mind you, as China doesn't want to do it because it would harm China to a great degree, which was the strategic beauty of Clinton making China a 'most favored trade nation' back in the early 1990's. In this way, he led to the Chinese middle class becoming dependent upon the economic health of the United States; and he foresaw a future that China could become the only single nation on Earth capable of challenging the US military in a conventional ground war if only by shear numbers. Of course, he didn't foresee the adventurism of his successor nor the harm this has caused to the readiness of the US military; but if we were not presently in three major open conflicts at the same time, we would still be the most "effective" military on Earth.

And, of course, the present stability of the Chinese ruling class is highly dependent upon the quality of life of that same middle class.