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The end of the dollar’s exorbitant privilege

Former French finance minister (eventually president) Valéry Giscard d’Estaing bemoaned a US that took advantage of its privileged position as the world’s dominant reserve currency and drew freely on the rest of the world to support its over-extended standard of living. 

That privilege is about to be withdrawn. 

A crash in the dollar is likely and it could fall by as much as 35 per cent by the end of 2021.

The reason: a lethal interplay between a collapse in domestic saving and a gaping current account deficit.

Currencies are relative prices. The dollar has always benefited from the seductive charm of TINA — that there is no alternative.

Stephen Roach  FT 5 October 2020

The dollar's real effective exchange rate can head in only one direction.

Stephen S. Roach Project Syndicate 25 September 2020

But for the dollar to lose its position as a major reserve currency, there will have to be an alternative ready to supplant it; you cannot replace something with nothing. 

And there is not yet a clear alternative available. 

PS: Is there something people still get wrong about the 2008 financial crisis – and need to get right in responding to the COVID-19 crisis?

NR: Monetized fiscal deficits may be the appropriate policy response when a credit crunch triggers a collapse of aggregate demand that threatens to lead to deflation. That is what happened in 2008. 

Persistent monetized fiscal deficits could, in a couple of years or so, lead to simultaneous recession and inflation. So-called stagflation

Nouriel Roubini Project Syndicate 6 October 2020


Skapar centralbankerna stagflation? Experter tvekar.


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