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In my OPE 1323, I had replied to the following point made by Jerry.
>> And as I have said again and again -- and you have not directly replied
>> to yet -- the US government is also concerned with the same regional
>> security ands would act in much the same way *with or without* the
>> financial support of Japan.
Jerry didn't think security concerns would be much reason for Germany or
Japan to hold on to dollars since they could count on the US, acting on its
own interests, to provide regional security. I don't my previous reply was
persuasive to Jerry--so skimming through Robt Gilpin's The Challenge of
Global Capitalism (Princeton, 2000), I found that he emphasized that both
Germany and Japan have feared that a collapse of the dollar would force the
United States to withdraw its forces from overseas and to retreat into
political isolation and have thus agreed to hold overvalued dollars. While
the Germans were the major supporters of American hegemony during the Cold
War (they held doolars and bought American govt securities), Japan in the
1980s provided financial backing for Reagan's economic and and military
policies. In the 1990s there was sporadic informal cooperation among
American, German and Japanese central banks to support the international
role of the dollar out of fear of what would happen if the intl monetary
system were to break down. Of course there are other reasons why dollars
are held onto (that is, why there is a dollar overhang of about $265 bn US,
which is itself equivalent to an interest free loan worth about $13 bn US
in saved interest payments).
Yours Rakesh
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