Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 34, No. 1, pp.1-15
ISSN: 1225-0279 (Print)
Print publication date 28 Feb 2021
Received 10 Dec 2020 Accepted 10 Jan 2021
DOI: https://doi.org/10.22904/sje.2021.34.1.001

The Dollar and its Discontents

Barry Eichengreen
Barry Eichengreen, Professor, Department of Economics, University of California, Berkeley, CA 94720-3880, USA, Tel: +1 510 6422772 eichengr@econ.berkeley.edu

JEL Classification: F30, F31

Abstract

The dollar fell by 10 per cent between its March 2020 high and the end of the calendar year, and many banks and forecasters expect it to fall further, by as much as 35 per cent in 2021. Dollar skeptics cite the end of safe-haven flows following the approval of COVID vaccines, the Federal Reserve’s aggressive quantitative easing, America’s twin deficits, and the rise of viable alternatives to the greenback. This article argues, in contrast, that this dollar pessimism is overdrawn.

Keywords:

Dollar, Exchange rate, Twin deficit

References

  • Aksoy, Cevat, Barry Eichengreen and Orkun Saka. The Political Scar of Epidemics. National Bureau of Economic Research Working Paper (No. w27401), 2020. [https://doi.org/10.3386/w27401]
  • Beard, David. Poll Shows 61 Percent of Americans Likely to Take COVID-19 Vaccine. National Geographic (December 3), 2020. (https://www.nationalgeographic.com/science/2020/12/poll-shows-61-percent-americans-likely-to-take-coronavirus-vaccine/#close, )
  • Blanchard, Olivier, Francesco Giavazzi and Filipa Sa. “International Investors, the U.S. Current Account, and the Dollar.” Brookings Papers on Economic Activity (No. 1 2005): pp.1-49. [https://doi.org/10.1353/eca.2005.0010]
  • Bloom, Nick, Stehen Bond and John Van Reenen. “Uncertainty and Investment Dynamics.” Review of Economic Studies 74 (No. 2 2007): pp.391-415. [https://doi.org/10.1111/j.1467-937X.2007.00426.x]
  • Boonstra, Wim. “Should the ECB Consider Issuing its Own Securities?” Rabobank Economic Research (February 13), 2019. (https://economics.rabobank.com/publications/2019/february/should-ecb-consider-issuing-own-securities/, )
  • Davies, Paul. The Dollar is Weak: Investors Bet It Will Slide Even More. Wall Street Journal (November 25), 2020. (https://www.wsj.com/articles/investors-bet-on-more-dollar-weakness-11606386601, )
  • Dedola, Luca, Georgios Georgiadis, Johannes Grab and Arnaud Mehl. Does a Big Bazooka Matter? Quantitative Easing Policies and Exchange Rates. ECB Research Bulletin No.76, 2020. (https://www.ecb.europa.eu/pub/economic-research/resbull/html/index.en.html, ) [https://doi.org/10.1016/j.jmoneco.2020.03.002]
  • Didili, Zoe. Six European Nations Join INSTEX Mechanism for Trade with Iran. New Europe (December 21), 2019. (https://www.neweurope.eu/article/six-european-nations-join-instex-mechanism-for-trade-with-iran/, )
  • Dixit, Avinash and Robert Pindyck. Investment under Uncertainty, Princeton: Princeton University Press, 1994. [https://doi.org/10.1515/9781400830176]
  • Dohmen, Thomas, Hartmut Lehmann and Norberto Pignatti. “Time-Varying Individual Risk Attitudes over the Great Recession: A Comparison of Germany and Ukraine.” Journal of Comparative Economics 44 (No. 1 2016): 182-200. [https://doi.org/10.1016/j.jce.2015.10.002]
  • Eichengreen, Barry. International Currencies in the Lens of History. in Stefano Battilossi, Youssef Cassis and Kazuhiko Yago eds, Handbook of the History of Money and Currency (pp. 335-351). Singapore: Springer, 2020.
  • Eichengreen, Barry, Cevat Aksoy and Orkun Saka. “Revenge of the Experts: Will COVID-19 Renew or Diminish Public Trust in Science?” Journal of Public Economics 193 (2021). [https://doi.org/10.1016/j.jpubeco.2020.104343]
  • Eichengreen, Barry and Daniel Gros. Post-COVID-19 Currency Order: Risks and Opportunities for the Euro. Directorate-General for Internal Policies, European Commission, Document PE 652.751. 2020.
  • Eichengreen, Barry, Romain Lafarguette and Arnaud Mehl. “Thick vs. Thin Skinned: Technology, News, and Financial Market Reaction.” IMF Working Paper (No. 17/91), 2017. [https://doi.org/10.5089/9781475593488.001]
  • Eichengreen, Barry, Arnaud Mehl and Livia Chitu. “Mars or Mercury? The Geopolitics of International Currency Choice.” Economic Policy 34 (No. 98 2019): 315-363. [https://doi.org/10.1093/epolic/eiz005]
  • Erazo, Felipe. South Korean Merchants Open to Accepting Digital Yuan. Cointelegraph (June 10), 2020. (https://cointelegraph.com/news/south-korean-merchants-open-to-accepting-digital-yuan, )
  • European Central Bank. The International Role of the Euro. Frankfurt: ECB, 2020.
  • Federal Reserve. Report on the Economic Well-Being of U.S. Households in 2018. Washington, D.C.: Board of Governors of the Federal Reserve System, 2019. (https://www.federalreserve.gov/publications/2019-economic-well-being-of-us-households-in-2018-dealing-with-unexpected-expenses.htm, )
  • Financial Times. Covid Jab Forecast to Trigger Dollar Plunge. Financial Times (November 18), 2020. (https://www.ft.com/content/d2a226b8-574a-4d1c-9205-fa076ed97055, )
  • Frenkel, Jacob. “Collapse of Purchasing Power Parities during the 1970s.” European Economic Review 16 (1981): 145-165. [https://doi.org/10.1016/0014-2921(81)90055-6]
  • Furman, Jason and Lawrence Summers. A Reconsideration of Fiscal Policy in the Era of Low Interest Rates. Unpublished manuscript, Harvard University and Peterson Institute for International Economics, 2020.
  • Giuliano, Paola and Antonio Spilimbergo. “Growing Up in a Recession.” Review of Economic Studies 81 (No. 2 2014): 787-817. [https://doi.org/10.1093/restud/rdt040]
  • Goodhart, Charles and Manoj Pradhan. The Great Demographic Revival: Ageing Societies, Waning Inequality, and an Inflation Revival. New York: Palgrave Macmillan, 2020. [https://doi.org/10.1007/978-3-030-42657-6]
  • Guiso, Luigi, Paola Sapienza and Luigi Zingales. Time Varying Risk Aversion. Unpublished manuscript, University of Chicago, 2014. [https://doi.org/10.3386/w19284]
  • Habib, Maurizio and Livio Stracca. Getting Beyond Carry Trade: What Makes a Safe Haven Currency? ECB Working Paper (No.1288), 2011.
  • International Monetary Fund. Currency Composition of Official Foreign Exchange Reserves (COFER). Washington, D.C.: IMF (September 30), 2020. (https://data.imf.org/?sk=E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A4, )
  • Kleefeld, Eric. Lindsey Graham Echoes Tucker Carlson, Proposes Repudiating Treasury Debt Owed to China. Media Matters for America (April 10), 2020. (https://www.mediamatters.org/coronavirus-covid-19/lindsey-graham-echoes-tucker-carlson-proposes-repudiating-treasury-debt-owed, )
  • Malmandier, Ulrike and Stephan Nagel. “Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?” Quarterly Journal of Economics 126 (No. 1 2011): 373-416. [https://doi.org/10.1093/qje/qjq004]
  • Milesi-Ferretti, Gian Maria. Fundamentals at Odds? The U.S. Current Deficit and the Dollar. IMF Working Paper (No.08/260), 2008. [https://doi.org/10.5089/9781451871180.001]
  • Reagan, Michelle. Citigroup: Dollar May Drop by 20%, Goldman Sachs Says Gold Bull Market to Continue into 2021. American Hartford Gold (November 10), 2020. (https://www.americanhartfordgold.com/news-dollar-may-drop-20-says-gold-bull-market-continue-2021/, )
  • Roach, Stephen. The Vise Tightens on the Dollar. Project Syndicate (September 25), 2020. (www.projectsyndicate.com, )
  • Rothko Research. Why the U.S. Dollar Cannot Depreciate Too Much from Here. Seeking Alpha (November 17), 2020. (https://seekingalpha.com/article/4389799-why-u-s-dollar-cannot-depreciate-too-much-from, )
  • Roubini, Nouriel. “The Unsustainability of the U.S. Twin Deficits.” Cato Journal 26 (2006): 343-356.
  • Simes, Dimitri. China and Russia Ditch Dollar in Move toward ‘Financial Alliance’. Nikkei Asia (August 6), 2020. (https://asia.nikkei.com/Politics/International-relations/China-and-Russia-ditch-dollar-in-move-toward-financial-alliance, )
  • Song, Ke and Le Xia. Bilateral Swap Agreement and Renminbi Settlement in Cross-Border Trade. Bank of Finland Institute for Economies in Transition Discussion Paper (19-2019), 2019.
  • Stansbury, Anna and Lawrence Summers. Declining Worker Power and American Economic Performance. Brookings Papers on Economic Activity, 2020.
  • SWIFT. RMB Track: Monthly Reporting and Statistics on Renminbi (RMB) Progress Towards Becoming an International Currency. Brussels: SWIFT, 2020. (https://www.swift.com/our-solutions/compliance-and-shared-services/business-intelligence/renminbi/rmb-tracker/rmb-tracker-document-centre, )
  • Yardini Research. Central Banks: Monthly Balance Sheets. New York: Yardini Research (December 6), 2020. (www.yardini.com, )