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The value of the dollar will fall sharply against other currencies over the next two years. That's according to Stephen Roach, economist and former chairman of Morgan Stanley in Asia in a interview at CNBC. He foresees bad times for the dollar as a result of international changes and a rising budget deficit. His expectation is that the dollar will depreciate by 35% against other major currencies. As a result, there is a risk of stagflation, a situation in which the economy is barely growing and inflation is rising.
"The U.S. economy has long suffered from a number of important macroeconomic imbalances, namely a very low domestic savings ratio and a chronic current account deficit. These problems will go from bad to worse if we continue to inflate the budget deficit in the coming years. At the same time, America is moving away from globalization and is focused on decoupling from the rest of the world. That's a deadly combination."
Roach, a senior fellow at Yale University, foresees a new crisis similar to the stagflation of the 1970s. At that time, there was also weak economic growth and high inflation. During this period, the stock market performed poorly, while the price of gold shot up along with inflation. Today, of course, the situation is different, but as then, there are concerns about the sustainability of the U.S. national debt. More and more countries are trying to reduce their dependence on the dollar by switching to other currencies in international payments.
According to Roach, there are alternatives to the dollar as a world currency, such as the euro and the Chinese yuan. He expects the market share of this currency to increase further in the coming years. The euro, in particular, has a lot of upside potential, Roach writes in a column on Bloomberg.
Since 2000, the dollar's share of global foreign exchange reserves has fallen from 70% to less than 60%. According to him, this downward trend will continue and possibly even accelerate, as the rest of the world starts trading more in its own currency. Europe wants to strengthen the international role of the euro, while China promotes the yuan as a trading currency. Russia response to this trend, it already has some of its dollar reserves Converted to Euros and Yuan.
This contribution was made from Geotrendlines
