Judging from commentary by international economists, one would think that the dollar was on its deathbed. America’s financial crisis and the dollar’s depreciation are bringing us to a tipping point where the greenback will lose its international currency mantle to the euro. A few more losses on dollar investments, it is said, and central banks will learn to hold their reserves in euros. Other investors will follow. America’s “exorbitant privilege” will be no more.

To paraphrase Mark Twain, these reports of the dollar’s death are greatly exaggerated. They are based on a model of the demand for international reserves that does not apply to our 21st-century world.