The US dollar is considered a symbol of reliability, security and economic prosperity. He has held an undeniable dominant position in the international financial system since the mid-20th century and comes across as an invincible titanium. However, the era of the dollar’s dominance as the world’s primary reserve currency is slowly coming to an end. The largest banks predict a sharp decline next year, and the famous economist Stephen Roach is confident that the American currency may depreciate by a third. The reasons for the collapse will be the decline in personal savings, the growth of US government debt and the strengthening of China. The decline of the dollar diktat – in the material “Lenta.ru”.
The success of the American economy in the 20th century was largely due to the dominant role of the dollar. In turn, the achievement of this role was the result of the political and military superiority that the United States acquired after the First World War. Until now, the position of the dollar in the world of finance represents the main foundation of US prosperity. However, in 2002 there was a long-term tendency towards the weakening of the American currency, which is observed to this day.
Indeed, the dollar has not been doing very well lately. In particular, July turned out to be a very difficult month for the American currency, which renewed multi-month, and in some cases, multi-year lows. In just a month, the dollar lost six percent against the pound, five percent against the euro, and four percent against the Swiss franc and the Australian dollar. In addition, foreign exchange analysts are fully aware that July could be the worst month for the dollar in terms of monthly dynamics over the past ten years.
“The US economy has long suffered from a significant macroeconomic imbalance, namely, a very low level of domestic savings and a chronic current account deficit,” said Stephen roach, former Chairman of Morgan Stanley Asia, a senior research fellow at Yale University, in an interview with CNBC. “The dollar will fall very, very sharply.”
Its forecast calls for a 35% drop against other major currencies.
“These problems will grow stronger and stronger as we reduce the budget deficit in the coming years,” roach said.
The us dollar currency index has risen more than one percent over the past two weeks and remains relatively unchanged this year. But roach believes this is not the time for complacency.
“The national savings rate is likely to go deeper into negative territory than at any time in the US or any other leading economy in economic history,” he said.
Roach claims that other forces are also playing their roles here.
“At the same time, America is moving away from globalization and focused on separating itself from the rest of the world,” roach pointed out.
The big question is: will this happen quickly or gradually?
According to the expert’s rough estimates – within the next year or two. However, roach suggests that a crash in the dollar is almost inevitable, and this is a risk that investors should not ignore.
“As a rule, this has a negative impact on US financial assets,” he added. “This indicates the likelihood of higher inflation, as we import more expensive foreign goods from abroad, and this has a negative impact on interest rates.”
He is concerned that the situation could trigger a stagflation crisis like in the late 1970s, when prices rose sharply and economic growth was suppressed.
According to roach, even a change of power in Washington in November will not help significantly change the situation – especially when lawmakers are trying to combat the economic impact of the coronavirus crisis with unprecedented stimulus measures.
“Governing bodies in their lifetime have never had to deal with anything close to this,” roach said.