Political Economy Forum
#83 - How much longer can the US Dollar stay on top? - w/ Herman Mark Schwartz
Aug 22, 2022
Herman Mark Schwartz, an academic from the University of Virginia, dives into the enduring dominance of the US Dollar as the world’s primary currency. He discusses the surprising persistence of dollar reliance despite ongoing current account deficits and examines the intricate relationship between trust in government institutions and monetary value. Schwartz also explores how economic struggles in countries like Ruritania and shifts towards protectionism impact global finance. The conversation raises questions about the future of the dollar in a changing political and economic landscape.
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Quick takeaways
- Despite persistent US trade deficits, countries still prefer the dollar due to its perceived stability and trust in US assets.
- The dollar's dominance is threatened by potential vulnerabilities linked to US domestic policies and shifting global economic dynamics.
Deep dives
The Dollar's Dominance Amid Trade Deficits
The continued use of the US dollar as the global currency is puzzling given the US's persistent trade deficits. Normally, a country running such deficits would face decreased demand for its currency, yet the world still prefers to trade in dollars. This situation arises because, despite the US importing more than it exports, countries continue to trust that US-generated dollar-denominated assets will eventually yield returns on their exports. The dollar remains central because it is still perceived as a stable form of payment, leading countries to accept it in exchange for their goods despite the deficit.
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