- Dollar strength is causing strains, even in developed economies like Japan and Britain.
- A short-term fix could be a Plaza-style accord to weaken the dollar. Reverse FX wars, with a race to strengthen currencies, are another possibility.
- Longer-term, momentum may grow for a multi-polar currency regime that pits China against the United States.
- Higher exchange-rate volatility requires more active strategies, but there will also be more opportunities for currency diversification.
The dollar’s pre-eminence over the last three decades has had little to do whether the currency was rising or falling on the foreign exchanges. But the amount of pain that its protracted rally is currently inflicting, even on other developed economies, is a stark reminder of its entrenched dominance in financial markets and international trade. Japan has been forced to intervene in the foreign exchanges for the first time since 1998 to prop up the yen, while the British pound’s slide to record lows against the greenback is exacerbating inflation and piling pressure on the Bank of England to hike interest rates more sharply.
Read the full whitepaper now at the link below
