Stephen Roach, a senior fellow at Yale University and former Morgan Stanley Asia chairman, has warned that the US dollar “is going to fall very, very sharply” in the not-so-distant future as the era of the American national currency apparently comes to an end.
Speaking to CNBC’s “Trading Nation” on Monday, Roach referred to the US economy and said that it “has been afflicted with some significant macro imbalances for a long time, namely a very low domestic savings rate and a chronic current account deficit” that may add significantly to the dollar’s collapse.
All this is “going from bad to worse as we blow out the fiscal deficit in the years ahead”, the veteran economist pointed out.
As for the national savings rate, it will likely “go deeper into negative territory than it has ever done for the United States or any leading economy in economic history”, according to him.
In this vein, Roach argued that the dollar’s crash is virtually inevitable and may take place in the next few years.
“Generally, it’s a negative implication for US financial assets. It points to the probability of higher inflation as we import more higher cost foreign goods from overseas, and that’s a negative for interest rates”, he underlined.
The economist expressed concern that the possible collapse of the dollar may fuel a so-called stagflation crisis, when prices rise sharply while economic growth is muted.
The comments followed Roach arguing in an op-ed for Bloomberg last week that his forecast that “a 35% decline in the value of dollar could well be in the offing is couched in terms of the comparison between the US and the currencies of a broad basket of America’s trading partners”.
In the article, the economist also emphasised that the argument that there is no alternative to the US national currency “makes little sense”, adding at the same time that “a forecast of a weaker dollar requires some combination of a strengthening” in China’s yuan and the euro.
The op-ed comes as the greenback, which marked its 235th birthday on 6 June, remains the main global reserve currency, with more than 50 percent of the total gold and foreign exchange reserves stored in dollar assets.