Existential angst aside, the dollar’s decline is not so bad for the US, argues Chris Giles, the FT’s economics editor in a lengthy analysis on Tuesday. The risk of a sudden catastrophic crisis is remote, and while it is never comfortable for the world’s superpower to see the greenback debased, rapidly rising exports is just what its ailing economy needs.
But will emerging markets ultimately pay the price?
Giles quotes Simon Johnson, chief economist of the IMF, arguing that capital inflows are pushing up the emerging economies but those short-run economic good times come with high chances of a bust further along the way.
Global imbalances now look nastier than before, with a very pointed stick heading in the direction of emerging markets.
Finding a route through this minefield will, says Giles, require an end to the Bretton Woods II system - and the political will is not yet there.
Bickering and a nasty bust, though not perhaps in 2008, still seem the more likely outcome of the dollar’s unbalanced decline than a resolution of the world’s economic tensions.
