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."