By Professor Ngaire Woods
Presenter, Analysis, BBC Radio 4
The dollar is becoming more of a problem for the US, Prof Woods argues.
We are living in economic chaos. Banks, homes, jobs, and businesses are at risk.
Yet curiously, the one thing that seems stable is the dollar.
It is a symbol - and a lever - of American power and leadership, itis the standard unit of account for much of the world's economic activity. And in times of crisis, it has often seemed a safe haven.
But in the longer term, some experts believe this crisis could mark a turning point in the dollar's fortunes, hastening a fall from power which has seen its value decline over several years before its recent rally.
"I think today's financial crisis is going to hasten the end of the dollar as the world's reserve currency", says Avinash Persaud, chairman of Intelligence Capital Limited.
"For the first time ever we're now seeing that in the financial markets it costs money to guarantee you against a US government default."
He wonders whether the combined cost of foreign wars and domestic bail-outs is being seen as "a burden too far" for the US.
But for the dollar to lose reserve currency status would end what has been in many ways a huge bonus for the US.
It is sometimes described as the ability to write cheques that no-one ever cashes.
So for the American government there is simply no such thing as living beyond its means. With the rest of the world demanding dollars, all the US has to do is to keep printing them.
This makes possible things that no other government could imagine - a power that America's rivals have historically denounced as an "exorbitant privilege".
In the early 1970s, US Treasury Secretary John Connally even told the outside world, brutally, that the dollar was "our currency, but your problem".
Since then, Europe has developed its own currency, the euro, which has taken on a global role.
As it grew in strength against the dollar it challenged some of the dollar's glamorous reputation. Supermodels in New York started asking for contracts in euros rather than dollars.
But European leaders are far from keen on seeing their currency become the world's reserve money.
Chinese exports have helped it build up huge dollar reserves
"Europe has got a much less vast set of ambitions than America has ever had", says David Marsh, a banker who is just finishing a book charting the birth of the euro. Adopting the currency, he adds, was a "flight into a lack of ambition".
Potential to undermine
So might a rising economic power like China supply the dollar's eventual global successor?
At present, China lacks the open markets or institutions to support that role. But Avinash Persaud points out that similarly dismissive things were said about the US a century ago.
The US did not have a Central Bank until 1913, yet within a few decades the dollar was challenging sterling for world domination.
For now, China has a huge stake in what happens to the dollar, as it has built up well over a trillion dollars' worth of assets in the US currency thanks to its recent export boom.
That gives China a vested interest in a strong dollar. But it also gives Beijing the power to undermine the US currency should it choose to move its money.
This has been called by one former US Treasury Secretary the "balance of financial terror".
"It's like the idea of mutually assured deterrence" says leading US political scientist Barry Eichengreen. "We hope that everybody becomes respectful of the financial power of the other side, but that such destructive power won't be deployed."
So a new kind of American economic diplomacy has to emerge, particularly with the Gulf States. They're not only holding dollars, but pricing their oil in "petrodollars".
The US government is torn. Dollar-rich foreign states may demand a strong US currency, but that is bad for American exporters.
A strong dollar makes US exports expensive
It makes every American car or computer sold abroad more expensive. That is why the dollar has been quietly let slide over the last six years - and the weaker dollar has boosted American exports.
Jim O'Neill, Head of Global Economic Research at Goldman Sachs, believes "we are emerging into is this very hazy and slightly worrying state of affairs where there isn't going to be any single country leading the world in the way the US has done and with it no single currency either".
So the next American President has a delicate balancing act ahead.
If dollar-rich foreign countries don't like what's happening to the US currency, they may look for alternatives. And everyone knows that, down the line, the power of the dollar has to decline as the global balance of economic power changes.
So the dollar is no longer their currency and everyone else's problem. It is now the world's currency - and mostly America's problem.
Ngaire Woods presents 'Analysis: The Dollar and Dominance' on BBC Radio 4 on Thursday October 23rd at 20.30 BST and Sunday October 26th at 21.30 GMT. Or listen via the BBC iPlayer