Are the dollar’s days as a reserve currency numbered?


a lack of US growth may lead to a fall in the dollar’s popularity, and the result could be a global liquidity shortage.

Barry Eichengreen says yes. In his op-ed yesterday for theFinancial Times, Eichengreen writes that a lack of US growth may lead to a fall in the dollar’s popularity, and the result could be a global liquidity shortage.

He warns that, “It may seem a strange time to worry about a shortage of global liquidity. But precisely this risk looms and, if nothing is done, it will threaten 21st-century globalisation.”

And with the faster growth of emerging markets, this change could mean a decline in the dollar’s influence, Eichengreen says.

“As emerging markets continue to rise, the US will unavoidably account for a declining fraction of global gross domestic product, limiting its ability to supply safe and liquid assets on the scale required. The US Treasury’s capacity to stand behind its obligations is limited by the revenues it can raise, which depend, in any scenario, on the relative size of the US economy. With emerging markets’ growth outstripping that of the US, the increase in the capacity of the US Treasury to supply safe and liquid assets will inevitably lag behind the increase in global transactions.”

Are the dollar’s days as the world’s reserve currency numbered?

Read more at the FT