But the world soon became awash in dollars.

America absorbs Chinese imports, pays China in dollars, and China holds dollars, amassing 2.5 trillion in foreign exchange reserves, much of it held in US Treasury securities.

Likewise, international oil companies sell most of their oil in dollars, but they operate in various countries and pay some of their costs in local currencies.

Owing to a mistake by Coop Bank, this payment was made in United States dollars to the Bank of New York.

The US accuses China of undervaluing its currency, while China blames loose US monetary policy for flooding emerging markets with US dollars.

While oil exporting countries receive revenues in dollars (or their euro equivalent), they use different currencies to import goods and services from various countries.

D Estaing was incensed that the US seemed to be able to flood the world with dollar currency and debt without ever seeming to pay a price in terms of higher inflation or interest rates.

In earlier decades, countries held dollars because they needed to have a highly liquid and widely accepted currency to bridge the financing gap if their imports exceeded their exports.

(What are the Chinese planning to do with all their ever growing 1.4 trillion in reserves? Do they intend to give foreign athletes paper bags stuffed with dollars as a welcoming present at the Olympic village?)

Although inflation is now low in the United States, Europe, and Japan, households and institutional investors have reason to worry that the low interest rates and the extensive creation of bank reserves could lead to inflation when economic recovery takes hold. And the declining value of the dollar down more than 10 against the euro in the past 12 months is a legitimate cause of concern for non US investors who now hold dollars.

Now, when I went to look at the figures of the U.S. money supply, the U.S. money supply is the amount of dollars that the Federal Reserve prints every year in order to satisfy the increase in the demand for dollars, which, of course, reflects the growth of the economy.

In earlier decades, countries held dollars because they needed to have a highly liquid and widely accepted currency to bridge the financing gap if their imports exceeded their exports. The obvious candidate for this reserve fund was US Treasury bills.

The US debt ceiling fiasco has raised doubts in the minds of central bankers about the advisability of holding dollars, while Europe s failure to resolve its sovereign debt crisis continues to fuel doubt that the euro can survive.

But the world soon became awash in dollars. So, instead of becoming the principal reserve asset of the global system, the proportion of SDRs in global reserves shrank to a tiny fraction, rendering the SDR the monetary equivalent of Esperanto.

While oil exporting countries receive revenues in dollars (or their euro equivalent), they use different currencies to import goods and services from various countries. Any change in the exchange rate of the dollar affects the purchasing power of these countries, and therefore their real income.

Former French president Valéry Giscard d Estaing once famously complained about America s exorbitant privilege. D Estaing was incensed that the US seemed to be able to flood the world with dollar currency and debt without ever seeming to pay a price in terms of higher inflation or interest rates.