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Skepticism in Greenback Grows as Investors Search for 'Dollar Equivalent'
Skepticism in Greenback Grows as Investors Search for 'Dollar Equivalent'
Sputnik International
Heightened apprehension and rethinking on the US dollar's role in the global economy are necessitated by factors endangering investor confidence, which prompted the search for alternative reserve currencies based on real assets.
2023-07-17T21:01+0000
2023-07-17T21:01+0000
2023-09-01T13:07+0000
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Since the second half of 2022, the decline of the US dollar has sparked speculation among strategists and investors about an impending defining moment for the greenback.The cooling inflation has raised hopes that the US Federal Reserve will pause interest rate hikes and possibly implement rate cuts, which could further weaken the dollar. Although the downward trend could have widespread consequences, caution remains as premature bets on Fed cuts sinking the dollar have proven risky.Paul Goncharoff hints at the rising investor skepticism about the US dollar since the 2008 global financial crisis. Recent instances of "weaponized" currency tactics have fueled their concerns. Actions such as freezing, sanctioning, and restricting funds by nation-states have highlighted the vulnerability of individuals and non-US governments holding substantial US dollar assets. This shift in focus emphasizes the potential impact of evolving political decisions on these assets rather than just the legal control of the reserve currency.The expert underlined the potential consequences of a prolonged decline in the value of the US dollar. He highlighted the significance of an inverted Treasury rate - where short-term interest rates surpass long-term rates, as an indicator of an upcoming economic downturn.Additionally, he pointed out a perceived lack of trust in the US government and the Federal Reserve's ability to maintain fiscal responsibility, contributing to a diminishing belief in the US dollar as a global reserve currency. The official also emphasized the detrimental effects of politicizing the dollar, stressing the need for an impartial approach to preserve the currency's credibility in international markets.Goncharoff expressed unease regarding the plummeting value of the US dollar and the significance of its role as a global reserve currency. He acknowledged the advantages of the dollar's status as the world's default currency but noted its position prompts a reevaluation of its global standing.While the search for an alternative is ongoing, Goncharoff pointed to the massive US debt and the potential risks involved in managing it. Ultimately, he suggested the devaluation of the dollar reflects a diminished perception of its worth as a store of value and medium of exchange.
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us dollar decline, speculation, defining moment, cooling inflation, us federal reserve, interest rate hikes, rate cuts, weakening dollar, investor skepticism, global financial crisis, weaponized currency tactics, freezing funds, sanctioning, restricting funds, vulnerability, reserve currency, inverted treasury rate, economic downturn, lack of trust, fiscal responsibility, politicizing the dollar, global reserve currency, credibility, international markets, search for alternative, us debt, devaluation, store of value, medium of exchange
us dollar decline, speculation, defining moment, cooling inflation, us federal reserve, interest rate hikes, rate cuts, weakening dollar, investor skepticism, global financial crisis, weaponized currency tactics, freezing funds, sanctioning, restricting funds, vulnerability, reserve currency, inverted treasury rate, economic downturn, lack of trust, fiscal responsibility, politicizing the dollar, global reserve currency, credibility, international markets, search for alternative, us debt, devaluation, store of value, medium of exchange
Skepticism in Greenback Grows as Investors Search for 'Dollar Equivalent'
21:01 GMT 17.07.2023 (Updated: 13:07 GMT 01.09.2023) The heightened apprehension and rethinking about the US dollar's role and value in the global economy are necessitated by factors endangering investor confidence, and have since prompted the search for alternative reserve currencies based on real assets, according to Paul Goncharoff, of the Moscow-based firm Dezan Shira & Associates.
Since the second half of 2022, the decline of the US dollar has sparked speculation among strategists and investors about an impending defining moment for the greenback.
The cooling inflation has raised hopes that the US Federal Reserve will pause
interest rate hikes and possibly implement rate cuts, which could further weaken the dollar. Although the downward trend could have widespread consequences, caution remains as premature bets on Fed cuts sinking the dollar have proven risky.
Paul Goncharoff hints at the rising investor skepticism about the US dollar since the 2008 global financial crisis. Recent instances of "weaponized" currency tactics have fueled their concerns. Actions such as freezing, sanctioning, and restricting funds by nation-states have highlighted the vulnerability of individuals and non-US governments holding substantial US dollar assets. This shift in focus emphasizes the potential impact of evolving political decisions on these assets rather than just the legal control of the reserve currency.
"The fact that at the level of nation-states, funds have been frozen, sanctioned, or otherwise restricted from normal trade operations is a serious and apparent red flag," he stated.
The expert underlined the potential consequences of a prolonged decline in the value of the US dollar. He highlighted the significance of an inverted Treasury rate - where short-term interest rates surpass long-term rates, as an indicator of an upcoming economic downturn.
Additionally, he pointed out a perceived lack of trust in the US government and the Federal Reserve's ability to maintain fiscal responsibility, contributing to a diminishing belief in the US dollar as a global reserve currency. The official also emphasized the detrimental effects of politicizing the dollar, stressing the need for an impartial approach to preserve the currency's credibility in international markets.
"If we look at the market today, we are seeing the inversion of Treasury rates in the US. In other words, one gets a far higher return on overnight paper (+/-5.5%) than one would get holding a 10-year Treasury (+/-2.5/3.5%)," he said.
Goncharoff expressed unease regarding the plummeting value of the US dollar and the significance of its role as a global reserve currency. He acknowledged the advantages of the dollar's status as the world's default currency but noted its position prompts a reevaluation of its global standing.
While the search for an alternative is ongoing, Goncharoff pointed to the massive US debt and the potential risks involved in managing it. Ultimately, he suggested the devaluation of the dollar reflects a diminished perception of its worth as a store of value and medium of exchange.
"It used to be when speaking of multimillion-dollar debt it got the attention of the world, today not even 32+ trillion doesn't raise eyebrows - yet it very seriously should. Eventually, just servicing this massive debt may in itself become an issue, and that will raise the risk profile even further. A devalued weak dollar will be reflected in the price paid for goods and services," Goncharoff opined.
