Trump team risking US' exorbitant privilege with short-term theatrics

South China Morning Post

13-05-2025

Advertisement
From around 4 per cent on April 4, it approached 4.5 per cent in a week.
The US dollar has also depreciated against other currencies since its peak in January.
A falling stock market usually results in declining Treasury yields as bond prices rise and the US dollar gains value, as part of investors' flight to safety. The simultaneous fall in stock values, bond prices and the US dollar caused consternation. While some of the bond sell-offs aimed to cover positions from stock losses, something greater was at work.
It is only right that the trade war thrust financial markets into the spotlight. International investment flows reflect global trade imbalances. How has the United States' current account deficit been financed if not by the inflow of international capital?
The US has enjoyed this privileged position due to the
dominance of its currency in international trade and finance. The US dollar is used in about half of global trade, and 64 per cent of world debt is US dollar-denominated.
Advertisement
The demand for US Treasury bonds has lowered borrowing costs for the US government and American consumers. As foreigners buy US assets, they push up the value of the US dollar, making imports cheaper.