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US dollar hegemony will endure for as long as America’s institutional strength holds up
- The challenge of the renminbi and euro to dethrone the dollar will not go far unless China and the euro zone get to grips with their own structural problems
- US economic vulnerabilities won’t become a major factor, either, if the economy remains innovative
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When investment guru Ray Dalio and leading economist Jeffrey Sachs both warn of the coming unravelling of US monetary hegemony, the world listens. But are we really only a few years from the US dollar’s requiem?
America’s current fiscal position, Dalio argues, is unsustainable and a looming entitlement crisis (health care and pension liabilities) could trigger a “flight to gold”.
Rational investors, the argument goes, will soon realise that the only way for America not to default on its ballooning debt would be to inflate it by printing dollars, thus accelerating the long-term depreciation of its currency and encouraging investors to opt for alternative assets. Sooner or later, US monetary hegemony would be over.
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Meanwhile, Sachs argues that the dollar’s centrality will decline as the share of the US economy in global GDP is falling. In addition, President Donald Trump’s draconian application of economic sanctions has created a counter-coalition, spearheaded by China and Russia but also tacitly supported by the EU, to “de-dollarise” the global economy.
Lastly, Sachs argues, the US has been the source of global economic instability because of its neo-liberal deregulation agenda, and this has undercut its credibility as an enlightened guardian of the global monetary order.
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