Economy
Related: About this forumThe Tyranny of the U.S. Dollar
Theres a paradox at the heart of global finance. The U.S. share of the world economy has drifted lower for decades, and now President Trump is retreating from the American chief executives traditional role as Leader of the Free World. Yet the U.S. dollar remains, as the saying goes, almighty. American exceptionalism has never been this stark, Ruchir Sharma, head of emerging markets and chief global strategist for Morgan Stanley Investment Management, said at a Council on Foreign Relations symposium on Sept. 24.
By the latest tally of the European Central Bank, Americas currency makes up two-thirds of international debt and a like share of global reserve holdings. Oil and gold are priced in dollars, not euros or yen. When Somali pirates hold up ships at sea, its dollars they demand. And threats to be cut off from the dollar-based global payments system strike terror into the likes of Iran, North Korea, and Russia. Its no exaggeration to say that the dollars primacy is at least as valuable to the U.S. as a couple of aircraft carrier strike groups.
Now the dollar paradox shows signs of unraveling. Political leaders who once accepted the dollars hegemony, grudgingly or otherwise, are pushing back. Jean-Claude Juncker, the president of the European Commission, said in September that its absurd that European companies buy European planes in the American currency instead of their own. In March, China challenged the dollars dominance in the global energy markets with a yuan-denominated crude oil futures contract. Russia slashed its dollar holdings this year, claiming (inaccurately) that the greenback is becoming a risky instrument in international settlements. And French Finance Minister Bruno Le Maire told reporters in August that he wants financing instruments that are totally independent of the U.S., saying, I want Europe to be a sovereign continent, not a vassal.
This disturbance in the force isnt good news for the U.S. The dollars preeminent role in global finance is an exorbitant privilege, as Valéry Giscard dEstaing, then Frances finance minister, said in 1965. If the dollar loses its central roleto be sure, not an imminent threatthe U.S. will be more vulnerable when theres a loss of investor confidence. The Federal Reserve might even have to do what other nations do when global investors panic: jack up interest rates to painful levels to keep speculative money from flowing out. As it is now, when trouble breaks out, investors flood into U.S. markets seeking refuge, oddly enough even when the U.S. itself is the source of the problem, as it was in last decades global financial crisis.
Read more: https://www.bloomberg.com/news/articles/2018-10-03/the-tyranny-of-the-u-s-dollar
SWBTATTReg
(22,112 posts)some time e.g., by the Chinese to move away from dollar denominated assets/use of the dollar, and instead use something else. If and when this happens (move away from dollar pricing), cost of everything we deal w/ in the US probably will go up, as well as the points made in the article you posted.
Thanks for interesting article.
TexasTowelie
(112,118 posts)I found it interesting also. The Trump administration is doing its best to destroy confidence in the dollar with its protectionist trade policies.
SkipG
(70 posts)I've been short the USD for about a week now and things have not moved in the right direction. Do not count the Yankee Dollar out while global uncertainty and Fed rate hikes burnish its image.