Traditional economic symbols of national sovereignty are going the way of the dinosaur. Around the world, national airlines, telephone companies, banks, and other government-owned institutions, once bulwarks and extensions of the nation itself, are being privatized and placed under market control. In the aftermath of the financial crises of the 1990s, many of them sparked by drastic currency depreciations, it is time for policy makers to narrow sovereignty's scope still further by treating currencies as what they are—simple mediums of exchange.¹

While policy makers tinker with exchange rate regimes, companies and investors around the world are quietly choosing to operate in a single standard currency: the US dollar. Like it or not, the same economic considerations that impelled 11 European nations to replace their national currencies with the euro are turning the dollar into the de facto global currency. Why? Because the United States has adapted to the new economic era of global markets by developing a financial market infrastructure that meets the needs of investors, issuers, and intermediaries.

As the dollar comes to predominate, emerging markets that maintain illiquid national currencies incur a significantly higher cost of capital and stunt the development of their financial markets. And...