As long as the US dollar remains the world’s key international currency, the convenience yield of holding dollar-denominated assets will likely forestall a large-scale sell-off. But this stability hinges on one crucial assumption: that US institutions remain strong and credible enough to preserve confidence in Treasuries.
PARIS/AMSTERDAM – For decades, the United States has enjoyed an unparalleled advantage in global finance, thanks to the dollar’s status as the world’s leading reserve currency. By running trade surpluses with the US, countries accumulated large dollar reserves, which they eagerly and overwhelmingly invested in US Treasuries. This constant recycling of global savings has enabled the US to finance persistent federal budget deficits – 6.4% of GDP in 2024 – without so much as a raised eyebrow from international investors.
PARIS/AMSTERDAM – For decades, the United States has enjoyed an unparalleled advantage in global finance, thanks to the dollar’s status as the world’s leading reserve currency. By running trade surpluses with the US, countries accumulated large dollar reserves, which they eagerly and overwhelmingly invested in US Treasuries. This constant recycling of global savings has enabled the US to finance persistent federal budget deficits – 6.4% of GDP in 2024 – without so much as a raised eyebrow from international investors.