Tags: barry eichengreen | dollar | imf

Video: Eichengreen: Dollar in Danger as Global Reserve

Tuesday, 15 Mar 2011 12:31 PM

The dollar is likely to lose its status as the world’s safe haven currency, warns a former adviser to the International Monetary Fund (IMF), leading to a mix of global reserve currencies, including the Chinese yuan.

Meanwhile, rising oil could lead to a second recession, an outcome for which the United States should plan by getting its fiscal house in order, Barry Eichengreen, a professor of economics and political science at the University of California, Berkeley, tells Newsmax TV.


Story continues below video.

In 1997 and 1998, Eichengreen was senior policy adviser at the IMF. His most recent book is “Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System.”

The impact on U.S. living standards of the dollar’s sunset on the global stage will be hard to avoid but not necessarily the disaster feared by some, Eichengreen said.

Nevertheless, the current crisis should lead to a serious discussion on government spending in order to avoid a worse fate for the dollar. He sees a near future — a decade down the road — in which the dollar, euro, and the yuan share the role of reserve currency.

The risk of a total flight from the dollar, while less likely, cannot be dismissed, he said. The White House now projects a fiscal-year deficit of $1.6 trillion, which doesn’t include tens of billions in debts owed by cities and states.

“There’s also a darker scenario in which people lose confidence in American politics and in American financial policy and there could be, in that dark scenario, a mass movement away from the dollar,” Eichengreen said.

Real estate mogul Sam Zell recently warned of a 25 percent drop in U.S. living standards if the dollar is dropped. Eichengreen says his own research suggests that the loss of the dollar’s privilege as the global reserve, while serious, might not necessarily lead to a huge decline in value.

“The dollar losing its exorbitant privilege would mean a decline in American living standards, but my numbers suggest that it would be more like 2.5 percent rather than 25 percent,” Eichengreen said.

Meanwhile, turmoil in the Middle East could lead to higher oil prices, which if it happens will create problems for the U.S. recovery. It’s time to reassure international markets that the United States is serious about paying down its debts, he said.

After hitting $116 recently in London, oil fell back to below $110 on the continuing crisis in Japan, despite violence in Libya and reports of fighting between Saudi soldiers and protesters in Bahrain. West Texas crude fell to under $98 a barrel.

 “Recessions happen, and there will be more down the road, but the immediate concern should be about a double dip,” Eichengreen said. “We have to be both lucky and smart to avoid that.”

 

© 2017 Newsmax Finance. All rights reserved.

 
1Like our page
2Share
StreetTalk
The dollar is likely to lose its status as the world s safe haven currency, warns a former adviser to the International Monetary Fund (IMF), leading to a mix of global reserve currencies, including the Chinese yuan.Meanwhile, rising oil could lead to a second recession, an...
barry eichengreen,dollar,imf
468
2011-31-15
Tuesday, 15 Mar 2011 12:31 PM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved