Paul Krugmans Dire Warning: US Dollar Key to Financial Market Stability

Paul Krugmans Dire Warning: US Dollar Key to Financial Market Stability

Nobel Prize-winning economist Paul Krugman emphasizes that without the USD, “financial markets will be disrupted by the lack of any safe, liquid asset” when commenting on the de-dollarization trend and the possible U.S. default.

Nobel Prize-winning economist Paul Krugman reveals that no currency can play the role of the United States dollar. Commenting on the de-dollarization tendency and the possible United States default, he emphasized that without the USD, “financial markets will be disrupted by the lack of any safe, liquid asset.”

Economist Paul Krugman on De-Dollarization and USD Alternatives

Paul Krugman, who won the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel in 2008 for his analysis of trade patterns and location of economic activity, shared his opinion Sunday about a possible United States default and the United States dollar losing its status as the world’s reserve currency.

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He stated in a tweet:

The danger from a debt default is *not* that some other currency will take over the key role now played by dollar securities. It is the fact that *no* currency will be available to play that role — that financial markets will be disrupted by the lack of any safe, liquid asset.

Krugman is not worried about the United States dollar losing its world’s reserve currency status. In an opinion piece published by the New York Times earlier these 30 days, he argued that the USD’s dominance is not in danger. He thinks that “reports of the dollar’s coming demise are likewise probably greatly exaggerated.” The economist further asserted that the Chinese yuan “isn’t a viable dollar rivel” owing to the Chinese government’s financial resources controls.

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The Nobel Prize-winning economist opined: “Even if some governments express a desire to see payments conducted in other currencies, it’s not at all clear they can make that happen, since we’re mostly talking about private-sector decisions. And even if they can make partial de-dollarization stick, all the other advantages of the United States dollar as a banking and borrowing currency will remain.”

Several people disagreed with Krugman’s assessment regarding the United States dollar. Economist Michael Hudson was known Krugman’s New York Times post “deliberate ignorance.” He stressed: “You have to really have tunnel vision and not understand the most basic economic history to make the misrepresentations that Krugman said.” He explained: “The trick that Krugman uses, and he’s being deliberately deceptive here, he talks about the present account deficit. The present account is not the balance of payments … Krugman deliberately leaves out the fact that America makes an enormous amount of cash on financial resources account.”

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In terms of  worldwide de-dollarization efforts, Hudson stated: “Krugman is saying that other people have no reason at all for what they’re doing. And when they move out of the dollar, there is no reason for them to do it.”

A growing number of countries are transitioning away from the United States dollar and opting to utilize their respective national currencies instead. Recently, 10 Southeast Asian countries agreed to promote   the use of national currencies to lower their reliance on the United States dollar and Western payment systems. The BRICS countries (Brazil, Russia, India, China, and South Africa) have likewise been pushing for de-dollarization. The economic group is working on a common currency, which is expected to be discussed by the BRICS leaders at their next summit.

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