The recent decline of the US dollar has economists worried about its potential impact on the country’s global trade and economic standing. The dollar’s dominance in cross-border trade and as a safe haven has been nurtured by administrations of both parties for decades, but President Donald Trump’s policies may be eroding this confidence.
The dollar has fallen 9 percent against a basket of currencies since mid-January, its lowest level in three years. Many investors believe that the dollar will not fall quickly from its position as the world’s reserve currency, but even a slow decline is alarming given the benefits that would be lost.
The US government, consumers, and businesses have benefited from the dollar’s dominance, allowing them to borrow at unnaturally low rates and speed economic growth. The dollar also allows the US to exert influence over other countries by locking them out of the currency they need to buy and sell with others.
However, Trump’s erratic policies, including the sudden introduction of tariffs, are spooking investors. The unpredictability of his actions is making the US seem less stable and reliable, a less safe place for foreign investment.
Economists warn that if faith in the US is damaged, it could have severe consequences, including higher interest rates on the ballooning federal debt and potentially losing its position as the world’s reserve currency. China has already been exploring alternative trade routes with countries like Brazil and South Korea, which may reduce demand for the dollar.
While some economists attribute the dollar’s decline to anticipation of higher inflation due to tariffs, others believe that it is a sign of lost confidence in the US. The US will lose its reserve currency status when there is someone else capable of taking it away, according to Steve Ricchiuto, an economist at Mizuho Financial.
The recent fall of the dollar has sparked concerns about the long-term implications for the US economy and its global standing. As economists Barry Eichengreen and Benn Steil warn, this may be a turning point in the erosion of trust in the US dollar, potentially leading to significant economic consequences.
Source: https://www.pbs.org/newshour/economy/unusual-sell-off-in-the-dollar-raises-specter-of-investors-losing-trust-in-the-u-s-under-trump