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It took a while--2.5 years--to finish this book. No, it's a well-written, easy-read book that delivers clear messages with down-to-earth languages. It was precisely because of this high readability of the book that took me so long to finish it--`I can read it up whenever I want.'
The title can be easily misread. The `trap' does not signify the cataclysmic near future that the dollar will throw the current global financial system or the American economy into. Unlike many ominous verdicts on the current monetary system put forth by non-economist pundits, Prasad, an economist, convincingly demonstrates that how the fragility of the system paradoxically drives everybody towards the very centerpiece of the system, the dollar.
The Global Financial Crisis (or perhaps 1997-8 Asian Financial Crisis), for example, undoubtedly exposed how much of a sandpile the US-led global financial system was. The insecurity set off investors scrambling for safe assets. It turned out that the safest assets, however, are dollar-denominated ones. So the more fragile the system is found to be, the more thirsty the market would be for the dollar. Dollar reserves around the world are only to expand in the near future. So it's a trap in a sense that everybody goes back to it as they all want to escape it.
'The end of the dollar' (and the tanking of the US economy along with it) that the dooms-sayers have been spreading since the crisis is an ungrounded fiction in this sense.
After making this extremely simple, but surprisingly convincing, point, Prasad walks the readers through the alleged `alternatives' of dollars. Be it the yuan or a new international coordination mechanism, he argues, all these alternatives fail just one test to replace the current--and increasing--global dominance of the dollar: the sense of safety (or sometimes, liquidity and safety). Yes, it is about the safety all along.
And, in so doing, he elegantly busts the myths non-economist pundits spread: the currency war is, in essence, a result of misperception; gold cannot replace the dollar given its limited liquidity and volatile price levels; China cannot just claim all its dollar denominated assets as doing so would directly undercut its own assets while the Fed can swiftly neutralize its effect.
Towards the end of the book, though, it feels like the story is overstretched a little bit. The idea of global insurance, which Prasad proposes, is supposed to substitute the current individual reserve systems seems to overlook international coordination problem, for example; The Senkaku/Diaiyo issue isn't that serious an issue to set off a regional financial turmoil. But these are rather minor shortcomings that don't taint the service the book does to the readership.
Overall, it is a good book. You know, you can read it up whenever you want.