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Imagining a World Without The Dollar

The dollar doesn’t have much clout these days. The greenback has lost 12 percent of its value against foreign currencies since the chaotic period after the failure of Lehman Brothers in 2008, and nearly 5 percent since the end of 2010.

Economists are debating the end of the era of the dollar, while news organizations paint it as a 98-pound weakling. Our so-called “fiat” currency, backed only by the full faith and credit of the government, no longer commands respect. So wouldn’t we be better off without it?

Imagine you woke up tomorrow and the dollar had vanished. The Federal Reserve was out of the business of supplying money. How would you go about your affairs?

The obvious answer is that life would become one big swap meet. It would be like your local farmers market, except that instead of a vendor selling carrots in exchange for dollars, she would have to trade them for the onions in the neighboring stall or for the paring knife of the cook with no vegetables at all. The problem with this is what economists call “non-coincidence of wants” — the carrot seller may not want onions, and those onions may rot before she finds someone who does.

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