NEW YORK - Some investors are worried the U.S. response to the coronavirus pandemic is dealing a body blow to the dollar, potentially accelerating what has so far been a slow erosion in the greenback’s status as the world’s dominant reserve currency.
At the same time, rock-bottom U.S. interest rates for the foreseeable future and concerns over a potential rise in inflation are denting the dollar’s appeal. Treasury Secretary Steven Mnuchin told CNBC last month that the dollar’s status as the world’s reserve currency is in the U.S. interest and the administration wants to maintain it.The dollar’s dominance endows the U.S. with many benefits, ranging from an outsized influence over the world’s financial system to giving it the power to flex its muscle abroad by punishing rivals and bringing errant foreign players to heel.
The main challenger, the euro, has struggled in the face of existential crises and years of subpar growth in the euro zone. Indeed, during the throes of the coronavirus panic in March, the dollar’s dominance was on full display, with investors and governments scrambling for the greenback as they looked for a haven against extreme volatility and uncertainty.
The concern is shared by Dalio, founder of the $138 billion hedge fund Bridgewater LP. In a late July appearance on “Fox & Friends,” Dalio said he worried about “the soundness of our money.” That gap narrowed considerably after the Federal Reserve in March cut borrowing costs to historic lows in response to the pandemic. The difference between yields on U.S. 10-year Treasuries and German bunds, for example, stands at its lowest level since 2014 - before the Fed embarked on a series of rate increases to raise borrowing costs from their post-recession lows.Some analysts are also worried the surge in U.S. government spending will eventually spur inflation, hurting the U.S.
Ditch the dollar
Bitcoin!
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