A Dollar Crash Is Coming

by Stephen Roach via Bloomberg Opinion

Source: Bloomberg News via Yahoo Finance

The world is having serious doubts about the once widely accepted presumption of American exceptionalism.

The era of the U.S. dollar’s “exorbitant privilege” as the world’s primary reserve currency is coming to an end. In the 1960s French Finance Minister Valery Giscard d’Estaing coined that phrase largely out of frustration, bemoaning a United States that drew freely on the rest of the world to support its overextended standard of living.

For almost 60 years, the world complained but did nothing about it. Those days are over.

Already stressed by the impact of the Covid-19 pandemic, U.S. living standards are about to be squeezed as never before. At the same time, the world is having serious doubts about the once widely accepted presumption of American exceptionalism.

Currencies set the equilibrium between these two forces — domestic economic fundamentals and foreign perceptions of a nation’s strength or weakness.

The balance is shifting, and a crash in the dollar could well be in the offing …

Like Covid-19 and racial turmoil, the fall of the almighty dollar will cast global economic leadership of a saving-short U.S. economy in a very harsh light. Exorbitant privilege needs to be earned, not taken for granted.

The author is an economist, senior fellow at Yale University’s Jackson Institute for Global Affairs, and a senior lecturer at the Yale School of Management. He was formerly chairman of Morgan Stanley Asia and chief economist at Morgan Stanley, the New York-based investment bank.

Full article on Bloomberg here


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