We study three centuries of U.K., U.S. and Dutch fiscal history. When a country is the dominantsafe asset supplier, it can issue more debt than what is justified by its future primary surpluses,even after accounting for seigniorage revenue from convenience yields on the debt. This pat-tern holds for the Dutch Republic in the 17th and 18th, the U.K. in the 18th and 19th, and theU.S. in the 20th and 21st centuries. When the Dutch Republic’s and the U.K.’s fiscal funda-mentals deteriorated, they lost their dominant position as the safe asset supplier. After losingtheir exorbitant privilege, their debt was fully backed by primary surpluses. We conclude thatexorbitant privilege derives from the ability to issue overpriced government debt in the earlystage, followed by bondholder losses and financial repression in the later stage
