Gambling with the dollar’s future
The U.S. dollar's reserve currency status has enabled low borrowing rates, but growing deficits and prolonged low interest rates pose risks.Summary
Since World War II, the U.S. dollar has remained the dominant global reserve currency, granting the U.S. government the “exorbitant privilege” of borrowing at lower interest rates due to the perceived safety of U.S. Treasury securities. However, this advantage has fostered a lack of concern among U.S. politicians and policymakers regarding escalating current-account and fiscal deficits. The Federal Reserve’s policy of maintaining low interest rates for an extended period after the 2008 financial crisis exacerbated this issue, leading to an assumption of consistently higher U.S. growth relative to government debt interest rates. Despite a significant increase in national debt, the Congressional Budget Office (CBO) noted that net interest outlays as a percentage of GDP were lower in 2021 than they were two decades prior, potentially contributing to complacency about the long-term sustainability of this situation.
(Source：The Japan Times)