Exercise 2 After the 2007/2008 economic crisis, an important debate was revived that questioned the role of the dollar as the world reserve currency, the so-called exorbitant privilege. Respected economists remember that, just as the pound lost its position to the dollar at the beginning of the twentieth century, we could be facing a period of transition when the dollar will be substituted by another currency as the world currency reserve value.

a. Based on data obtained from the IMF, prepare a historical series measuring the percentage of world reserves measured in the American dollar, euro, yen, and yuan (or renmimbi). What conclusion can you draw based on the analysis of this data?

b. What characteristics are desirable for a currency to be used as an international reserve value? Explain. What are the advantages and disadvantages of having an international reserve currency? Explain your answer.

c. Would it be plausible to believe that the dollar could be substituted as the global reserve currency in the next years? What currencies would be the natural candidates in this succession? Explain your answer.