Macroscope | The sun is setting on the US dollar, but what could replace it?

“How low can the dollar go?” queried the headline of a recent Financial Times article in which Barry Eichengreen, a professor of economics and political science at the University of California, Berkeley, noted that the dollar – “the sun around which the other elements of the post-war international system revolved” – could be entering a period of fundamental decline.

This certainly seems to reflect the decline of Western powers in global economic importance. It is less certain whether the decline can be arrested.

This might seem a good idea were it not for the fact that while Trump wants a weaker dollar to ensure US export competitiveness, he also wants the dollar to remain the world’s premier reserve currency.

In the eyes of experts such as Yuqing Xing, professor of economics at the National Graduate Institute for Policy Studies in Tokyo, a Mar-a-Lago Accord is not even feasible.

As he noted during a recent seminar at the Foreign Correspondents’ Club of Japan (FCCJ), given that China and Japan hold more than US$1 trillion in US dollar bonds between them, the idea that they would actively agree to devaluate the dollar and their own holdings is naive. Such a plan would “definitely damage the reputation of the dollar as an international currency”, Xing suggested.