Edward Conard

Top Ten New York Times Bestselling Author

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  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
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  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
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  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
Upside of Inequality Oxford Unintended Consequences

AI Summary. Despite shaken confidence in US assets, no alternative matches the depth and liquidity of the nearly $29tn Treasury market, with the dollar involved in about 90% of foreign-exchange trades and almost 60% of central bank reserves. The euro lacks the depth of debt instruments required of a reserve asset, and China's yuan is government-managed.

Saleha Mohsin and Carter Johnson Bloomberg
Date Posted:

Given the lack of alternatives to the dollar @EswarSPrasad argues any so-called regime shift away from the dollar “could well hit its limits soon.”

Is there a real alternative to the dollar and Treasury market?

Core argument: The dollar is involved in some 90% of foreign-exchange trades and accounts for almost 60% of central bank reserves, with no real competitor capable of filling any void it leaves.

However much the financial world’s faith in the US has been shaken, it’s short of immediate alternatives. European assets suddenly look somewhat more appealing, but nothing can match the depth and liquidity of the nearly-$29 trillion Treasury market. The dollar is involved in some 90% of foreign-exchange trades and accounts for almost 60% of central bank reserves. It has no real competitor capable of filling any void: The euro still lacks the depth of debt instruments required of a reserve asset and perhaps still the political ties across its 20-strong membership, and China’s yuan is managed by its government. For all these reasons, any so-called regime shift away from the dollar “could well hit its limits soon,” says Eswar Prasad, a professor at Cornell University and author of 2014's "The Dollar Trap." “Rebuilding institutions and foreign investors’ trust in them will be a long and arduous process, if and when it starts,” he says. “But the US certainly has the luxury of not having any serious rival to its financial markets and currency.”

Takeaways by Macro Roundup® AI

  1. The dollar is involved in some 90% of foreign-exchange trades and accounts for almost 60% of central bank reserves, with no real competitor capable of filling any void it leaves.
  2. The nearly-$29 trillion Treasury market is unmatched in depth and liquidity, leaving investors short of immediate alternatives even as European assets look somewhat more appealing.
  3. Cornell University professor Eswar Prasad argues any regime shift away from the dollar "could well hit its limits soon," as the euro still lacks the depth of debt instruments required of a reserve asset and China's yuan is government-managed.

Related Articles:

  • Dollar Upheaval: This Time is Different — Standard interest-rate parity implies a 50 basis-point rise in U.S. long-term yields relative to European yields should appreciate the dollar about 5%, yet the dollar depreciated 3.6%, leaving an 8.6% gap. The authors argue investors have reduced their willingness to pay for the safety and liquidity of all dollar-denominated assets, not only U.S. Treasury securities.
  • Tariffs, the Dollar, and Equities: High-Frequency Evidence from the Liberation Day Announcement — Following a sweeping US tariff announcement, the dollar's effective exchange rate depreciated rather than appreciating as standard international macroeconomic models predict: all G10 currencies gained against the dollar while the most freely floating emerging market currencies gained less or fell. The authors read this as advanced economies rebalancing away from dollar assets.
  • Top Dollar — Foreign holdings of U.S. financial assets exceed American holdings abroad, making the United States a net debtor whose liabilities are denominated in dollars while its foreign assets are largely in other currencies. U.S. foreign liabilities grew from $30tn to over $51tn while U.S. foreign assets grew from $24tn to $33tn, tripling the net debtor position from $6tn.
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