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The dollar is, when you step back and look at it with some perspective, it's kind of the -- I think it's the greatest achievement in the annals of money.
Here it is, this piece of paper of no intrinsic value, which is held as value, which is used as invoicing currency, as a store of value the world over. And yet there is nothing behind this piece of paper except the bland assurances of the issuing government. And, of course, the wisdom of Congress. (Laughter.)
So there have been, since the late 19th century, currencies that have been, as they say in the economic quarterlies, the hegemonic currencies. The pound sterling ruled the roost for much of the 19th century, indeed, much into a half of the 20th century, the dollar's taken over.
Unique in the annals of money is a reserve currency that is uncollateralized.
You can exchange the dollar into pennies, nickels, dimes, and quarters, but into nothing else. And this historical anomaly is, I think, the thing that is now being tested. The world has accepted this piece of paper as value. I think the world is beginning to ask, in a still-inarticulate way, what there is, exactly, behind it.
And as Benn said, it's flattering that so many of our dollars wind up in the bank accounts of so many foreign creditors. It would be more flattering if these foreign creditors were profit-seeking individuals who bought dollars because they were thunderstruck by the value that the United States offers in its investment markets. Sadly, most of these dollars are absorbed by foreign central banks, and of course, the way that a foreign central bank absorbs -- or any central bank absorbs any asset is to create the wherewithal to buy it.
So as Benn said, until 1971, there was the Bretton Woods system. In this system currencies were exchangeable and the dollar was exchangeable into gold bullion at $35 per ounce. Since 1971, we have had kind of a faith-based world in which currencies are not exactly defined. Exchange rates may or may not float; some of them sink.
But the characteristic feature of our system today is that these dollars are absorbed by central banks that print money with which to buy them. So this is a kind of an awkward formulation, but our system today is the printing-money-with-which-to-buy-dollars system. And doesn't it sound just a little bit inflationary? (Laughter.)