The concept of this privilege appears frequently in economic literature, also in its French version (privilège exorbitant). It was because of the envious French, whose later president Valéry Giscard d’Estaing criticized the special position and possibilities of the American political economy as early as the 1960s. At that time, he was still Minister of Finance of the 5th Republic.
Giscard was concerned about the uniqueness that the dollar provided to post-war America. The situation was even different then, because – according to the agreements made at Bretton Woods in 1944 – the dollar became the world’s official reserve currency, exchangeable for gold. All other currencies were to be “pegged” to the dollar. This whole dollar-gold system ended in August 1971, when President Nixon unilaterally separated the dollar from gold. Thus began the emergence of a new system of floating exchange rates, in which the dollar (and not gold) is a kind of beacon towards which the rest of the world’s monetary authorities try (more or less) to orient themselves.
In the new system, the dollar also enjoys a “galactic privilege.” According to the three economists, its current position is due to two things. First, the dollar is the world’s largest reserve currency, held by foreign governments, corporations, and ordinary people. Although it has many competitors, it is still preferred because of its enormous liquidity (dollars can be sold at any time and without problems) and because the US currency is widely accepted as collateral for any transaction. Second, this unique position of the dollar allows the government in Washington to issue debt securities that are considered super safe. As a result, America has an essentially unlimited capacity for borrowing. And the issue of deficits and debt only concerns the United States if the local political class sees it that way.