The Links Between Security Provision and Reserve Currency Status

• In Event: Evaluating Grand Strategy

Abstract

A successful grand strategy requires some degree of coherence between international security and economic objectives. Does security provision promote reserve currency status in general and dollar primacy in particular? By creating the most comprehensive dataset on reserve currencies and dollar-denominated Treasury bonds to date, I show that while economic fundamentals determine a currency's international appeal, security considerations play a role. Countries who grow their military power and possess a large security network receive a boost in purchases of the currency they issue. However, I find no evidence that the specific US allies benefiting from defense guarantees support the US dollar. The paper explores this variation in how geopolitics impacts reserve currency status.

Author

• Carla Norrlof, University of Toronto