The US has neither earned nor deserved the “exorbitant privilege.”

Stephen Roach –
"A Crash in the Dollar Is Coming"

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– Flash Points –

1 – The USD’s status as global reserve currency is nearing its end.
2 – The balance of power is shifting away from US hegemony.
3 – Dollar collapse will ultimately wreak havoc on the economy.

– Synopsis –

In a recent article on Bloomberg.com, Stephen Roach, senior fellow at Yale University’s Jackson Institute for Global Affairs, warned that the “exorbitant privilege”  that the US dollar enjoys – given its status as the world’s reserve currency – will soon end.

Shift and Crash

For decades, many other countries have tolerated the US’s abuse of its privileged position. But, says Roach, “those days are over.” Owing to the lack of US savings and the continued deficit in its current account, the US economy is growing weaker and weaker, and the global balance of power is shifting. Consequently, the dollar may crash sometime soon.   _{(Image source)}

Triple Whammy 

The collapse of the dollar will have 3 repercussions. First, it will result in inflation that “wreaks havoc on financial markets.”  Second, the US trade deficit will soar, with the consequent protectionism hurting American consumers. Third, China will no longer want to fund the US’s savings deficit.

– Insight from Outside –

The US has neither earned the “exorbitant privilege”  it has held for the past 60 years, nor deserved it. Moreover, its abuse of that privilege puts it in a very tenuous position.    

Over-Privilege is Over 

Since the 1960s, when France’s Minister of Finance Valery Giscard d’Estaing coined the phrase “exorbitant privilege,”  many of the US’s allies and enemies alike have occasionally grumbled about their own “lack of privilege”  in terms of the global economic hierarchy. Now, China for one is ready, willing, and eager to reset the balance. Once the balance begins to shift to a more equal state of affairs, other countries will surely follow China’s lead. Roach asks what will spark the collapse of the dollar. A quick glance reveals that the coronavirus pandemic has already lit the first spark. A greater cascade of volatile sparks is sure to follow.    _{(Image source)}       Previous posts in this series – "Death of the Dollar, Posts 1–30"