Macroscope | A post-coronavirus US will want a weaker dollar, whether the world likes it or not

“The dollar is our currency but it’s your problem,” US Treasury secretary John Connally told other finance ministers at the G10 meeting in Rome in 1971. Almost half a century later, absolutely nothing has changed. The coronavirus pandemic has yet again illustrated the centrality of the greenback to the global financial system.

The pandemic will pass, but its financial consequences will still have to be addressed, and the way the US dollar has behaved recently may be a poor guide to how it will perform once the coronavirus crisis recedes.

Consequently, the Federal Reserve has embarked on a policy of monetary “shock and awe” in an attempt to ensure plentiful US dollar liquidity both at home in the United States and abroad. Such actions have helped free up global greenback liquidity and the US dollar has given back some of its gains on the foreign exchanges.

Meanwhile, Washington has passed a US$2 trillion stimulus package to tackle the economic consequences of fighting the coronavirus pandemic.

The scale of the challenge facing Washington was evidenced last Thursday when initial claims for US unemployment benefits ballooned to a record 3.28 million in the week ending March 21. Economists polled by Reuters had expected claims to increase to 1 million. The previous record was 695,000 back in 1982.