The era of the United States dollar is about to end soon, stated Stephen Roach, Yale University senior fellow and former Morgan Stanley Asia chairman. He predicates a 35 per cent decline in the U.S. currency against its major rivals.
During CNBC’s ‘Trading Nation’, Roach stated, “The U.S. economy has been afflicted with some significant macro imbalances for a long time, namely a very low domestic savings rate and a chronic current account deficit.”
He added the dollar is going to fall very, very sharply. “These problems are going from bad to worse as we blow out the fiscal deficit in the years ahead,” said Roach.
He is not the first one to make such a comment. This conversation was on for quite some time. However, the recent wave of COVID-19-induced recession is expected to expedite this process. Roach pointed out the trillions of dollars the US government is spending to tackle COVID-19 has also increased the deficit of the country.
“In a COVID era everything unfolds at warp speed,” Roach told MarketWatch. He pointed to the contraction of the US economy from an employment rate that was hovering around a 50-year low at around 3.5 per cent near the start of 2020. Since March, about 49 million people have been unemployed in the country.
The rise of China and the US moving away from globalisation is weakening the US currency even further.
“Generally, it is a negative implication for U.S. financial assets,” he added. “It points to the probability of higher inflation as we import more higher cost foreign goods from overseas, and that’s a negative for interest rates.”
He went on to explain that the Chinese currency, yuan, has got an appeal among investors. This is mainly because the country is undergoing a structural change.
