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That privilege is about to be withdrawn.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

https://www.ft.com/content/46b1a230-8c6c-4feb-b617-21a520cc201b

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

Stephen S. Roach Project Syndicate 25 September 2020

https://englundmacro.blogspot.com/2020/09/us-experienced-sharpest-plunge-in.html

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

https://www.project-syndicate.org/say-more/an-interview-with-nouriel-roubini-2020-10

Skapar centralbankerna stagflation? Experter tvekar.

https://englundmacro.blogspot.com/2020/04/skapar-centralbankerna-stagflation.html