Analysis of the Imperial Rent of Reserve Currency: A Manifestation of Existence and a Method of Quantity Estimation

World Review of Political Economy. 2022. Vol. 14. No. 1.

This paper provides an analysis of the economic cost incurred by the world through the use of the fiat international reserve currency since the end of the 1971 gold standard system. I use the Quantity Theory of Money to provide an empirical manifestation of how reserve currency yields income to its issuing country through the provision of an inflation buffer, which is equivalent to what I frame as an imperial rent of reserve currency. I  then provide a method to estimate the cumulative quantity of this rent by using data of the broad money supply, nominal GDP, and the world total official foreign exchange holdings of the currency of the country in question. I estimate that the quantity of the imperial rent of reserve currency that accrued to the four major reserve currency issuing states (US, Euro Area, UK, Japan) from the end of the gold standard until the end of 2021, which was accumulated through the official channel only, is of a value equivalent to ~11.1 Trillion US Dollars, ~71 % of this amount went to the United States of America singly.

Keywords: international economics, economic imperialism, international finance, international reserve currency, international political economy, monetary economics, unequal exchange