The dollar, curiously, has been a prime beneficiary of the subprime lending crisis and it’s now time for some “prudent diversification”, says Barry Eichengreen, author and professor of economics and political science at the University of California, Berkeley, in Tuesday’s FT.

Eichengreen, whose most recent book, The European Economy Since 1945, was published last year, examines the question of whether the US subprime mortgage crisis bodes the long-anticipated unwinding of global imbalances.

This scenario is not novel, says Eichengreen: “A recession, which is what an abrupt fall in US spending would imply, has long been seen as one way in which global imbalances could be ‘corrected’. Plenty of commentators see recession as a possible consequence of the subprime crisis”.

But the recent behaviour of the dollar is difficult to reconcile with the impending unwinding of global imbalances, he notes: “If domestic spending falls, US producers will have to rely on foreign customers. The dollar will have to decline to price US goods into foreign markets. If the dollar has to fall in the future, traders should be selling it now”.

In fact, the dollar has been one of the principal beneficiaries of the subprime crisis, he says. “It has risen against the euro. It has risen against sterling. It has risen against a variety of emerging market currencies”.

It could be that the forex market is signalling that the probability of recession is low, says Eichengreen.

The alternative is that the dollar has benefited from the flight to quality, he adds, noting the recent investor rush to the safety of US Treasury bonds. But this explanation “is also a bit hard to stomach,” says Eichengreen, “not only for those with a well developed sense of justice”.

Private foreign investors, some of whom may have realised that a variety of US debt securities were riskier than advertised, have long since stopped financing the US current account deficit. But foreign central banks and governments have been slow to do the same. They have continued accumulating claims on the US. When seeking higher yields, they have diversified out of Treasuries into other US debt securities.

But, eventually, the subprime crisis will drive home the point that they pay for that additional yield by assuming additional risk – even more risk than previously supposed. They will draw the lesson that prudent diversification means diversifying into other national markets. Foreign money to finance the US current account deficit will become less abundant. The period of credit stringency will linger. US spending will suffer. And the dollar will fall.

In the short run, concludes Eichengreen, “exchange rates have a life of their own”:

The truth is, short-run movements tell us little about the likelihood of a US recession and the prospects for global imbalances. But over longer horizons – that is, looking forward several years – we can have more confidence about how these variables are related. If a slowdown in US spending is coming, then the dollar will have to fall to price US goods into foreign markets.

For those who believe that the subprime crisis heightens the likelihood of a US recession, the dollar’s rise offers an obvious selling opportunity. Recent market moves suggest that investors may have begun cottoning on to this fact.