AI Summary
5 min readWhen the pandemic struck in March 2020, the US dollar surged as investors scrambled for safety. By late summer, it had fallen back to its lowest level in over two years. That whipsaw raises two questions that Goldman Sachs Research set out to answer: whether the dollar is entering a multi-year decline, and whether its dominance of the global monetary system is eroding. The answers, from three experts, are more nuanced than the headlines suggest.
The Dollar as Two Currencies
Zach Pandl, co-head of Global Foreign Exchange Rates and Emerging Market Strategy Research at Goldman Sachs, begins with a clarifying frame: the dollar is really two currencies. It is a domestic currency, but it is also the world’s dominant international currency—used to denominate goods, assets, and contracts far beyond US borders. That global role creates a negative correlation between the dollar’s value and the health of the world economy. When the global economy booms, the dollar tends to weaken; when it slides into recession, the dollar strengthens. This pattern, Pandl argues, has mattered more in recent years than how the US economy performs relative to its trading partners.
Continue reading the full summary in the app — free to try.
Read Full Summary →Free • No credit card required
Never miss an episode of Top of Mind at Goldman Sachs
Get every new episode summarized in your inbox — free, ~5 minutes to read.
No spam. Unsubscribe anytime.
What you'll learn
- 1 (01:09) **The Dollar’s Dual Nature** - Zach Pandel explains the fundamental driver of dollar behavior
- 2 (02:46) **Forecast: A Multi-Year Dollar Downcycle** - Zach presents his high-conviction case for sustained dollar weakness
- 3 (04:08) **Pandemic & Vaccine as Risk Factors** - How virus developments affect the timing, not the direction, of dollar moves
- 4 (05:43) **A Contrarian View: The Dollar Is Not Overvalued** - Barry Eichengreen pushes back on the bearish consensus
- 5 (08:30) **The Global Growth Driver Is Relative** - Eichengreen clarifies when a global recovery actually hurts the dollar
- 6 (09:50) **Dollar Dominance: A Mixed Blessing for the US** - Eichengreen weighs the pros and cons of the dollar’s global role
- 7 (11:30) **The Dollar’s Role Is Fine for the World—For Now** - Eichengreen highlights the vulnerability of the current system
+ Full timestamped outline available in the app
Show Notes
After the US Dollar surged in late March as investors rushed to its safety amid the global onset of the coronacrisis, its value has since declined sharply. As uncertainty about the virus trajectory and the global economic recovery continues to loom large, the key question from here is whether this retrenchment marks the start of a multi-year Dollar down cycle, and, even more fundamentally, an erosion of the Dollar’s dominance in the global monetary system.
In this episode, host Allison Nathan interviews three experts to answer these questions: UC Berkeley’s Barry Eichengreen, Cornell’s Eswar Prasad and Goldman Sachs’ own Zach Pandl. They don’t necessarily agree on the direction of the Dollar ahead, with Eichengreen less convinced than Pandl that the Dollar is set for a period of sustained depreciation. But they do agree that despite economic and geopolitical trends that suggest an eventual erosion of the Dollar’s global role, there’s still a long way to go before potential Dollar substitutes—the Euro, RMB and digital currencies—challenge its dominance.
More from this podcast
Top of Mind at Goldman Sachs →