Biography of the Dollar
By Craig Karmin
(Crown Business, 272 pages, $26)

As anyone who has been to Europe lately can attest, the dollar is on the skids. Craig Karmin's fortuitously timed Biography of the Dollar argues that the greenback's recent plunge is more than just another market tumble. Rather, it is the early phase of an evolution in which the world's central banks and others will diversify their foreign currency holdings away from the greenback. Trade will be denominated not just in dollars but also in euros, yen, and so forth. Perhaps one day, even the average Yank will have British pounds and Chinese yuan rattling around in his change purse.

This poses a threat to the U.S. because it is only the dollar's universal appeal that has enabled Americans to feed their addiction to imported luxuries and excursions along the Seine. Also, the recycling of overseas dollars back into Treasurys has kept U.S. interest rates comfortably low. (Take a tour of the new $5 bill.)

Karmin, a reporter for the Wall Street Journal, worries, as do many, that the end of this era is at hand. But he tends to conflate two distinct threats—a fall in the dollar's exchange rate and a lessening of the degree to which international traders and central bankers use the currency. Mulling the effect of a collapse in its market value, Karmin immediately adds that "even a gradual reduction in the dollar's international use could have disruptive consequences," as though the devaluation were but a step to the full realization of the dollar's demise.

Part of his conceit is to treat the dollar as a full-throated biographical subject. Thus its exchange value, its usefulness, even its physical design, become facets of an anthropomorphized whole. He writes of the dollar's "potential," as one might write of a touted left fielder's, and of its being the "beneficiary" of the Federal Reserve. I am not sure whether currencies, as distinct from those who possess them, can be beneficiaries. But the dollar certainly has a history, and when it comes to recounting it, Karmin is at his best.

He retraces the monetary chaos of mid-19th-century America, when scrip consisted of the paper I.O.U.'s of multitudinous banks. Then came the panic of 1907, when J.P. Morgan cajoled his fellow financiers into arranging a rescue. Such details are not new, but Karmin's narrative is still mostly compelling. The country, he observes, grew dissatisfied with having to rely on the kindness of a Morgan, and it created a central bank. Karmin suspects that the "ulterior motive" of the bankers who, in 1910, lobbied for the founding of the Fed "was to profit from the internationalization of the dollar." This seems a reach. (Would that bankers were always so farsighted.)

Karmin is eager to affirm that the central bank improved matters, but perhaps he is too eager. "Although the economy was brought to its knees by the financial crisis of 1929 that disrupted the world," he writes, thereby swallowing the Great Depression in a dependent clause, "the smaller crises and panics that characterized the U.S. economy began to fade."

Further along, Karmin rightly underscores the historic nature of President Nixon's break from the Bretton Woods agreement, as the postwar monetary framework was known. Until 1971, other countries could exchange dollars for gold, which checked the Fed's ability to print too many greenbacks. When it began to do just that, dollars poured in from overseas, especially from Charles de Gaulle, the vainglorious French president who resented the dollar's preeminence. Nixon, relying in part on a then-unknown Treasury official named Paul Volcker, closed the gold window that year. From then on, since no gold would be forthcoming, the dollar, according to Karmin, would be backed by "faith." This makes it sound quasi-religious, though the basis of that faith is simply a belief in the dollar's purchasing power—in the ability of the U.S. economy to produce desirable goods and services. Interestingly, though the dollar plummeted in the 1970s, the French and everyone else went right on using it.

Karmin condenses this history into a single breezy chapter; the other chapters constitute a "scenic tour" that is ostensibly meant to enlighten us as to the dollar's shaky condition and explain the extent to which the dollar's ubiquity "drives" the globe's prosperity. Let us consider the latter idea. After admitting that factors too numerous to name are responsible for the boom in world trade, Karmin posits that none of them "would have mattered much if the world did not have a currency for conducting international business." Here, our protagonist, the Dollar, presides at the center of things. It is an oversize role. OPEC could price its oil in yen or, for that matter, in drachmas, if it chose to, and people would still buy the stuff.

And Karmin is not really so worried about people abandoning the dollar now. He notes that if central banks were to engage in wholesale selling, they would devastate the value of their own reserves.

Karmin's other chapters look at people, institutions, and countries that are variously involved with the dollar. He travels to Ecuador, which abandoned its hyperinflated currency in 2000 and adopted the U.S. dollar. (Interesting that it could do so without permission from Washington.) He talks to an official at the Bureau of Engraving and Printing, details some plots to steal from the mint that were ultimately foiled, and profiles John R. Taylor Jr., a foreign-exchange trader.

Each of these stories is well reported, though the account of Taylor, who is obsessed with the sort of fleeting gossip that affects markets on only a minute-by-minute basis, strikes me as superficial. "The name of the game," Karmin quotes Taylor as saying, "is to walk as close to the cliff as possible." Whether for walking or investing, this is singularly bad advice. Moreover, by focusing on Taylor's fascination with market rumor, Karmin obscures the fact that, over time, it is the relative strength of international economies that determines currency values.

My larger criticism is that these stories do not quite overcome the book's randomness. Mark Twain said a biography is but the clothes and buttons of a man. Perhaps that is not always the case, but here, although Karmin has dressed up the dollar, I am not sure that he has written its biography.