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Gita Gopinath, former IMF Chief Economist and Deputy Managing Director, now back again at Harvard as a Professor, believes dollar dominance is unlikely to change in the near future, citing the strength of American institutions and its financial markets as critical factors.
During her tenure at the IMF, among the few topics that regularly came up in her research work was dollar dominance.
According to media reports , Asked in a recent episode of IMF podcasts as to why she was so interested in those aspects of the economy, referring to dollar dominance, she said it is the asymmetry and power in the world that prompted her to work on those areas.
“…the world is highly asymmetric,” she said, referring to the dominance of the dollar.
The importance of any currency in the world depends upon how much one trades with the world, she said during the podcast Bruce Edward, whose transcripts were made available online.
Reality is, however, so far from that, she continued.
“…and it’s not just about that emerging markets don’t get to use their currencies as much, but including many advanced economies, their currencies don’t really show up in the world, depending upon their share in global trade,” she noted in the podcast.
“Instead, what you see is dollar dominance, not just in trade, but in finance, in payments, in reserves, and that has very important implications for the way economies respond to shocks, what kinds of policies will work and what don’t,” she added.
The outsized role of the US dollar in the global economy and international trade is referred to as dollar dominance.
Referring to the times we are living in, she said she believes this is a significant reflection of the asymmetry and power in the world.
Against that backdrop, she said she started to pursue more work in this domain.
“…this is an area where I have pursued more work, including all the integrated policy framework, which was exactly about recognising that most developing countries don’t have their currencies being used in international trade, and that has important implications for how shocks to the capital flows, for instance, affect their economies and how they should respond to them.”
