Show an ad over header. AMP

Why the dollar matters

The value of the dollar has sunk to its weakest level in two years and investors are warning that a prolonged slide could be in store for the U.S. currency, leading to more of the world abandoning the dollar and the U.S. losing its "exorbitant privilege."

Why it matters: The dollar's status as the world's reserve currency has been in place since the end of World War II and provides the backbone for the U.S. economy and fiscal policy.


What we're hearing: "By issuing the world’s reserve currency, the United States has acquired an 'exorbitant privilege' — it can rely upon practically unlimited demand for its debt and borrow in global markets without fearing an exchange rate shock," Karl Schamotta, chief market strategist at Cambridge Global Payments, tells Axios.

How it works: The U.S. benefits greatly from the fact that transactions of most commodities and many international purchases by countries and businesses are made in dollars, making the greenback essential for just about every nation to hold.

  • That necessity benefits the U.S. economically and politically — it allows the country to run large deficits and debts, and to exert its will on other countries.
  • Additionally, U.S. firms get easier access to capital, advantaging them over global competitors.

Losing reserve currency status would likely increase the cost of U.S. debt exponentially and could create significant inflation.

  • It would also mean a big loss of confidence in U.S. assets that could undercut the stock market and also pull down aggregate demand, leading to slower U.S. and global growth, says Joseph Trevisani, senior analyst at FXStreet.
  • "Being the world’s currency supplies confidence into the U.S., into U.S. assets and if you start removing that then where does the world turn when things go bad?"
  • "The entire world would suffer from the U.S. losing its reserve currency status."

What's happening: Adversaries like China and Russia have been looking to unseat the dollar in order to reduce the power of the U.S.

  • Recently, China and Russia have radically increased the amount of trade they conduct in euros while multiple central banks have been buying gold as a store of safe value instead of dollars.

Yes, but: While it may be on the horizon, currency traders and analysts generally agree the dollar's demise has not yet come.

  • "I don’t see anybody else out there that could carry the baton that the dollar does in terms of global influence," says Joe Manimbo, senior market analyst at Western Union Business Solutions.
  • "I don’t think there’s any currency as well placed as the dollar to carry the torch."
Data: FactSet; Chart: Axios Visuals

The state of play: While the road is long, there is also agreement that the greenback is fading.

  • "This pandemic has only exacerbated the long, slow, questionable, yet accurate ... decline of the dollar as the dominant currency," Tempus Inc. senior FX trader and strategist Juan Perez tells Axios.

The weak dollar trade is "becoming more pronounced by the day," Boris Schlossberg, managing director of BK Asset Management, wrote in a recent note to clients.

  • "The state of political disarray is clearly weighing on the buck as the failure to produce more fiscal stimulus, the clearly partisan skirmishing over mail-in voting that threaten to undermine the credibility of the election are all taking their toll on the dollar."
  • "Nothing is expressing the weak dollar sentiment better than gold which is once again above $2000."

The big picture: But a weak dollar isn't all bad, Cambridge's Schamotta says, as the global reserve currency status also "places an exorbitant burden on the U.S."

  • "By enabling consumers, businesses and the government to spend beyond their means, the country is essentially forced into running current account deficits."
  • "And by flooding markets with liquidity, the situation leads to financial instability — which keeps forcing the Fed to intervene."

How the Oracle-TikTok deal would work

An agreement between TikTok's Chinese owner ByteDance and Oracle includes a variety of concessions in an effort to make the deal palatable to the Trump administration and security hawks in Congress, according to a source close to the companies.

The big picture: The deal, in the form of a 20-page term sheet agreed to in principle by the companies, would give Oracle unprecedented access and control over user data as well as other measures designed to ensure that Americans' data is protected, according to the source.

Keep reading... Show less

The European Union may soon get its own Magnitsky Act to target human rights abusers

Amid a global assaulton human rights stretching from Belarus to Hong Kong to Yemen, the European Union signaled yesterday that it may act to deter corrupt kleptocrats and state abusers by hitting them where it hurts: their assets.

Driving the news: Europe's chief executive Ursula von der Leyen revealed in her first-ever State of the Union speech that she will bring forth a European Magnitsky Act, a sanctions framework modeled after a U.S. law that restricts malign actors' access to travel and the global financial system.

Keep reading... Show less

Cancer death rates are dropping but Black Americans still face highest risk

Adapted from the National Cancer Institute; Chart: Naema Ahmed/Axios 

There's some good news in 2020: Cancer death rates have been falling overall, and the gap between racial and ethnic groups has been narrowing.

Yes, but: Decades of systemic racism and the structures developed under it continue to limit the ability of Americans to benefit equally from cancer advances, some medical experts tell Axios, as seen by Black Americans who've had the highest death rate from cancer for 40 years. And the pandemic is expected to exacerbate the problem further.

Keep reading... Show less

WHO: Health care workers account for around 14% of coronavirus cases

Though health workers represent less than 3% of the population in many countries, they account for around 14% coronavirus cases reported to the World Health Organization, the organization announced Thursday.

Why it matters: The WHO called on governments and health care leaders to address threats facing the health and safety of these workers, adding that the pandemic has highlighted how protecting them is needed to ensure a functioning health care system.

Keep reading... Show less

Trump says he will sign executive order on "patriotic education" in rebuke of 1619 project

President Trump said he would sign an executive order on Thursday to "promote patriotic education" through an effort called the 1776 Commission, while denouncing a New York Times' project that investigated the impacts of racial injustice for Black Americans.

The big picture: The 1619 project dug into the personal histories of Black Americans in the U.S. who have faced present-day systematic inequality in housing and farming, as well as how the legacy of slavery altered health care access for Black Americans and fueled the country's early economy.

Keep reading... Show less

Podcast: Amazon exec on the company's Climate Pledge Fund

Amazon on Thursday announced the first companies to receive money from a $2 billion venture capital fund it formed to help combat climate change.

Axios Re:Cap digs into how Amazon hopes the fund will help achieve its goal of being carbon neutral by 2040, and whether the plan is more substance than spin, with Matt Peterson, Amazon's director of new initiatives and corporate development.

Air quality in American West among the worst in the world

The air quality in Portland has become the worst in the world — with Seattle, Los Angeles and Denver also ranking up there with notoriously polluted places like Delhi and Shanghai.

Why it matters: Big-city residents often consider themselves smugly immune to the physical wreckage of calamities like wildfires, floods and hurricanes. The pernicious smoke now blanketing the splendid cities of our nation's Western spine is a reminder that no one is exempt from climate change.

Keep reading... Show less

FBI director confirms "very, very active" Russian efforts to interfere in election

FBI Director Chris Wray on Thursday told Congress the bureau has seen "very active efforts by the Russians to influence our elections in 2020," primarily to "denigrate Vice President Biden and what the Russians see as kind of an anti-Russian establishment."

Why it matters: It confirms previous previous statements from various intelligence officials about Russia's interference activities, which continue with less than 50 days until the election.

Keep reading... Show less

Insights

mail-copy

Get Goodhumans in your inbox

Most Read

More Stories