2 thoughts on “Current Account Deficits and Safe Assets

  1. Vadym Volosovych

    Thanks for a nice overview of the current debate on the “global imbalances.”

    In my view, there is indeed no viable alternative to the US dollar as the “world currency” given its role in international trade invoicing and safe asset status over the medium- to long-term horizon (the horizon of the typical asset holding of the sovereigns and many institutional investors). One additional factor which could potentially undermine the dominance of the US dollar in this role is the relative growth and productivity performance of the US economy versus other currency zones over the longer-term.

    The Chinese growth is remarkable but the structural inefficiencies in the economy and relative financial underdevelopment are the counterbalancing factors to the rise of the status of the Chinese currency.

    A recent surprise was the recovery and economic outlook of the eurozone (see the recent World Economic Outlook Update, July 2017 by the IMF here https://www.imf.org/en/Publications/WEO/Issues/2017/07/07/world-economic-outlook-update-july-2017) which bit the American growth. The projections are also very encouraging for Europe. This development, if sustained, may add to the inclination by investors to diversify toward the europe at the expense of the US dollar

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