The end of the dollar s exorbitant privilege | Financial Times

Currencies are relative prices. The dollar has always benefited from the seductive charm of TINA that there is no alternative. Think again. The July 21 agreement on a Next Generation EU Fund of ¬750bn ($858bn) finally establishes a pan-European fiscal policy. That should boost the undervalued euro. The renminbi, gold and cryptocurrencies are also alternatives to the once invincible dollar.

The dollar index fell 33 per cent in real terms both in the 1970s and the mid-1980s, and another 28 per cent from 2002 to 2011. During those three periods, the net domestic saving rate averaged 4.9 per cent (versus -1.2 per cent today) and the current account deficit was -2.5 per cent of gross domestic product (versus -3.5 per cent today). With the US having squandered its exorbitant privilege, the dollar is now far more vulnerable to a sharp correction. A crash is looming.

via www.ft.com