Source: Fortune.com
Summary
The recent joint intervention by the US and Japan to boost the yen revealed weakness in the dollar’s global status, according to economist Barry Eichengreen. The US sold euros to buy yen, avoiding the need to issue more Treasury securities, while Japan used a Federal Reserve tool to borrow dollars against its Treasury stockpile. Eichengreen argues that this indicates the dollar’s status as a reserve currency is not what it used to be, and that central banks are reluctant to use their dollar reserves. This could lead to a decline in the dollar’s dominance and a shift towards alternative reserve currencies.
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The strategy enters a familiar phase.
The US and Japan’s joint intervention to boost the yen may be a sign of weakness in the dollar’s global status. The use of an obscure Federal Reserve tool by Japan and the US’s decision to sell euros instead of dollar-denominated assets suggest that the dollar’s dominance is being challenged. This could lead to a decline in the dollar’s value and a shift towards alternative reserve currencies. The fact that central banks are filling up their reserves with more gold and relying less on dollars is another indication of this trend. The dollar’s status as a reserve currency is not what it used to be.
The numbers tell one story, but the actions of central banks tell another.
Author: Evan Null
