Whimper for the buck

The book publishing industry seems to be making merry out of the global financial crunch. Almost every week sees a book release. A few will stand out once the skids smoothen. Biography of the Dollar will not be among them.

But it's entertaining read nevertheless, mainly for the nuggets of information. Sample this A man's angry wife once ran US $30,000 of his life's savings though a paper shredder. Fortunately help was at hand in a little-known corner of the US federal bureaucracy. Since 1862, the Mutilated Currency Division of the Bureau of Engraving and Printing has pieced together partially destroyed currency.

Karmin describes the dollar's wild youth. In the free banking era, 1837-1863, more than 700 banks could issue their own notes, and one-third of bills were fake.He documents the Federal Reserve's power, explores inner sanctums of foreign central banks, and takes us through the routine of a currency trader. We visit the hidden world of professional counterfeiting and the creation of sophisticated security features designed to thwart such activity. With its watermark, colour-shifting inks, and a presidential portrait that glows under ultraviolet light, the greenback has obsessed foreign governments, some of which have tried to counterfeit it. Even Saddam Hussein, who insisted on being paid in euros for oil, had US $750,000 when captured.

Did you know the US dollar is Eucador's official currency? It has dropped its own sucre and now uses only dollars. With out-of-control inflation, its economic planners felt shifting to the dollar was the only move that could make them legitimate players in the international markets. This decision in 2000 still arouses happiness and resentment among Ecuadorans--their economy has improved, but having no national currency is a blow to their pride.

These tidbits make the book a pleasure to read. But it is not a book one will return to. The analysis is weak. Karmin does not see the recent downturn as just another market tumble. He calls it "the early phase of an evolution in which the world's central banks and others will diversify their foreign currency holdings away from the greenback". Trade will be denominated not just in dollars but also in euros, yen, yuan and rupee.

But he tends to conflate two distinct threats--a fall in the dollar's exchange rate and a lessening of the degree to which international trad-ers and central bankers use the currency. A fall in its exchange rates need not upstage the greenback from its prime position. And even going by Karmin's account shows that a fall in exchange rates did not displace the dollar from its position in the past.

Hrishikesh Mattoo is working on a PhD on enterprises in early 20th century India from York University

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