The US dollar is not on the brink of losing its global dominance, but rising debt, inflation risks and political pressure on monetary policy could slowly undermine confidence in the world’s reserve currency, economists said at the World Economic Forum’s Annual Meeting in Davos.
Kristin J. Forbes, Professor of Global Economics at MIT’s Sloan School of Management, said recent research shows early warning signs in US debt markets, even as demand for the dollar remains strong.
“There is a growing gap between demand for the dollar and demand for US Treasuries,” Forbes said, adding that investors appear less willing to pay a premium for dollar-denominated government debt. “That divergence can persist, but when it closes, it can do so quickly.”
Forbes said the key risk to the dollar is not competition from other currencies, but declining confidence in US economic management. High…
