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Cornell's Eswar Prasad: 'There Are No Good Alternatives to Dollar'

By    |   Thursday, 27 March 2014 10:16 AM

After the 2008 financial crisis, many currency experts, including Eswar Prasad, a Cornell University economist who formerly worked at the International Monetary Fund, anticipated the dollar would decline.

"I expected the dollar to weaken because the crisis exposed problems in the U.S. financial system," he told The New York Times. "Moreover, the U.S. racked up a lot of government debt, and the Fed began flooding the global financial system with dollars."

So what has propped the greenback up since then?

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"It’s simple, there are no good alternatives to the dollar," Prasad said. "Anytime you think of the dollar losing its dominance, you have to ask yourself: if not the dollar, then what? And there’s no good answer."

Emerging markets want safe foreign exchange reserves, and investors and financial institutions want safe financial assets, Prasad said. But the availability of safe assets in the world is shrinking.

"The eurozone doesn’t look quite as safe anymore. Japan and Switzerland don’t want money flowing into their markets," he said. "So that leaves the United States as the main provider of safe financial assets in the form of U.S. Treasury securities."

Meanwhile, players in the futures market cut their bullish dollar bets in the week ended March 18, with net long-dollar positions falling to their lowest level since late October, according to the Commodity Futures Trading Commission, Reuters reports.

The value of net long-dollar positions fell to $1.99 billion from $10.56 billion a week earlier.

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After the 2008 financial crisis, many currency experts, including Eswar Prasad, a Cornell University economist who formerly worked at the International Monetary Fund, anticipated the dollar would decline..
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2014-16-27
Thursday, 27 March 2014 10:16 AM
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