Home / Business / “The dollar will fall very, very sharply,” warns the well-known economist from Yale

“The dollar will fall very, very sharply,” warns the well-known economist from Yale



Stephen Roach, a senior fellow at Yale University and former chair of Morgan Stanley Asia, warns of US dollar bulls. The prominent economist says the US dollar era may be coming to an end and predicts a 35% decline in the US currency soon against its main competitors. He leads an increase in the nation’s deficit and dwindling savings.

The lecturer said during CNBC’s “Trading Nation” on Monday that the rise of China and the decoupling of the US from its trading partners will create the conditions for a dramatic weakening of the US currency in the next few years, which is likely to end dominance of the currency unit as the world̵

7;s reserve currency.

“The dollar will fall very, very sharply,” he said to the corporate network.

Roach’s comments follow a similar topic he wrote in Bloomberg last week, in which he specifically stated that the “era of the” exorbitant privilege “of the US dollar as the world’s primary reserve currency is coming to an end.

In this article, the economist said that the US economy was already “stressed” by the effects of the COVID-19 pandemic, and suggested that the recession that hit the US in February amid the public health crisis was that Worries of the dollar will only increase.

The financial expert said the rest of the world “has serious doubts about the once widely accepted presumption of the American state of emergency”.

On Monday, Roach said the US budget deficit, as the government spends trillions of dollars to mitigate the damage from COVID-19, could only make matters worse.

Meanwhile, Roach says China’s currency is the yuan
USDCNY,
-0.07%

USDCNH,
+ 0.13%
,
This could be increasingly popular with investors as Beijing is undergoing a phase of structural reforms that could shift the country’s processing-intensive economy to a more service-oriented and a more consumer-oriented economy.

Roach argues that a weaker dollar, sometimes favored by President Donald Trump, would benefit US exports in the short term, but would prove more problematic in the longer term.

A measure of the money is the ICE US dollar index
DXY,
+ 0.29%
,
has weakened over the past 30 days, decreased 3.9%, but increased slightly year on year and increased 0.1% according to FactSet data.

The index measures the dollar against a basket of six competing currencies, including the euro
EUR USD,
-0.49%
,
the pound
GBPUSD,
-0.12%

and the yen
USDJPY,
-0.04%
.

A weaker dollar affects assets and the stock market, including the Dow Jones Industrial Average
DJIA,
+ 1.88%

and S&P 500 index
SPX,
+ 1.73%
,
Most of the debt is in dollars. In addition, much of the cross-border funding and international trade is in US dollars.

Worries about the global economy have traditionally promoted dollar purchases along with other ports, as the United States is perceived as a stable economy and currency.

However, Roach says that growing deficits will ultimately change this perception and hit the greenback in the face.

Check out the CNBC interview:


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