Nobel Prize Laureate Paul Krugman Warns of Disruption in Financial Markets Without US Dollar
Nobel Prize-winning economist Paul Krugman says that no currency can play the role of the U.S. dollar. Commenting on the de-dollarization trend and the possible U.S. 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 U.S. default and the U.S. dollar losing its status as the world’s reserve currency.
He explained in a tweet:
The risk from a debt default is *not* that some other currency will take over the key role now played by dollar securities. It is 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 U.S. dollar losing its world’s reserve currency status. In an opinion piece published by the New York Times earlier this month, he argued that the USD’s dominance is not in danger. He believes that “reports of the dollar’s coming demise are also probably greatly exaggerated.” The economist further asserted that the Chinese yuan “isn’t a viable dollar rivel” due to the Chinese government’s capital controls.
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 dollar as a banking and borrowing currency will remain.”
Some people disagreed with Krugman’s assessment regarding the U.S. dollar. Economist Michael Hudson called Krugman’s New York Times article “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 current account deficit. The current account is not the balance of payments … Krugman deliberately leaves out the fact that America makes an enormous amount of money on capital account.”
Regarding worldwide de-dollarization efforts, Hudson said: “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’s no reason for them to do it.”
A growing number of nations are transitioning away from the U.S. dollar and opting to utilize their respective national currencies instead. Recently, 10 Southeast Asian nations agreed to encourage the use of national currencies to reduce their reliance on the U.S. dollar and Western payment systems. The BRICS countries (Brazil, Russia, India, China, and South Africa) have also 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 upcoming summit.
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