The US dollar has fallen by around 9 percent in the last three months, according to an index that keeps track of a basket with large trading partners. Since the 1970s, the currency has not been done so badly in the first 100 days of a president.
The drop is not surprising. The economic outlook of the US is much cloudy than on the inauguration day, because President Trump’s rates are the scene for slower growth and higher inflation. American assets now look much less attractive.
But can there be a little more existential views? Questing questions about the worldwide status of the dollar and whether after more than seven decades as the most important currency in the world, it is about to throw that status.
Trump’s policy and his threats for long -term standards such as the political independence of the Central Bank have argued a reconsideration of investors about how much more exposure they want to American assets. That skepticism probably seems to continue to exist. “There is something on the move that is irreversible,” said Jens Nordvig of the Exante Data research agency.
There are clear comments. The fact that the dollar is now weaker does not mean that it has lost all its primacy. A sudden shift from the United States still seems far -fetched because there are few places to go.
“The rest of the world is enthusiastic, if not desperate, to reduce the dependence on the dollar as payment and reserve currency,” said Eswar Prasad, a former officer at the International Monetary Fund who is now Professor of Economy at Cornell University.
Attempts to arm the dollar through policy such as sanctions would be less powerful, and having multiple sources of liquidity in times of stress could cause a less fragile financial system, say some currency experts.
“However, the reality is that there are no robust alternatives,” said Mr. Prasad.
The euro is perhaps best positioned to ultimately grab the opportunity created by Mr Trump. It is a commonly used and favorite currency at central banks. There are now more Euro-established safe assets available, because Germany and other countries increase the expenditure. And the European Central Bank has also shown more willingness to serve as the lender of the latest resort, a crucial function for an international currency.
When would the euro be a reserve currency? “We are the best position to become one in some years,” Luis de Guindos, the vice president of the ECB, said recently. But there should be much more meaningful economic, financial and regulatory integration throughout Europe to make that happen. It would take time.
Other alternatives such as the China’s Renminbi are confronted even higher obstacles. Investors cannot freely take on the financial markets of the country because of capital controls, and the currency is strongly managed by the government – two insurmountable obstacles for the Chinese currency, which take on a more global role.
Another idea that GRIP has received is a shared currency issued by the so-called BRICS group of countries, including Brazil, Russia, India, China and South Africa. Some participating countries, such as Brazil and India, have already withdrawn from the proposals after threats from Mr. Trump that they “should say goodbye to America” if they did.
Nobbed away from the dollar gifts such a big challenge as trying to shift the world from the use of English, said Stephen Jen, a currency expert who runs Eurizon SLJ Capital.
“People can bicker whether French is more beautiful or German, but that doesn’t matter – when more people speak English, more will learn to speak English,” he said. “Dollar liquidity is deep. No administration can destroy the dollar, certainly not President Trump in 100 days.”
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