The foreign accumulation of U.S. assets would likely slow if dollar assets, irrespective of their competitive return, came to occupy too large a share of the world’s portfolio of store of value assets. In these circumstances, investors would seek greater diversification into nondollar assets.
But such financial integration also creates what Dirk Schoenmaker has termed a “financial trilemma”: it is impossible to maintain the level of integration required for monetary union while practicing national supervision, without putting European financial stability at risk.1 Why? Because national supervisors have a national mandate and so it is rational that they take less account of externalities.