“Trump wants a weaker dollar, and I think magically it’s going to happen,” Rogoff stated, referring to the president-elect’s position on the US dollar.
He noted that the dollar is high right now, much like it was during previous historical peaks in 1985 and 2002 when it eventually came down.
Looking ahead, Rogoff believes the strength of the dollar will likely diminish as global economic conditions shift. One contributing factor is the diverging interest rate cycles between the US and the rest of the world.
With the US having raised interest rates ahead of most other countries, there could be a correction as global markets adjust to this shift.
Additionally, Rogoff anticipates a “reality check” on the idealised notion of American exceptionalism, as the economic landscape adjusts in the coming year.
Edited excerpts:
Q: What’s happening with the dollar? I was talking to a banker in India, and with the kind of dollar strength that we are seeing at this point, he believes that it’s like a suction machine that’s going to pull money away from everywhere else in the world and create a problem for emerging markets specifically. How do you see the dollar strength and what’s the outlook from hereon?
Rogoff: A strong dollar is a problem for global trade, partly because so much trade is in dollars. I think the dollar is high. I’ve spent my life working on exchange rates, and most of the time you can’t predict anything; the exception is when something gets way out of line, particularly adjusting for prices and trading partners. The dollar is rich right now. We’ve seen it twice before, in 1985 and 2002, when it came down. I think it will come down. Trump wants a weaker dollar. I think magically it’s going to happen.
Q: What could lead to its weakening?
Rogoff: One thing is the rest of the world’s in a different interest rate cycle, and it will adjust everybody. The US raises interest rates ahead of everybody else. And now we’re at a different point in the cycle. Also, there was this euphoria about the United States, and probably we’ll have some reality about it coming up in the next year.
Q: You think so? A reality check on the American exceptionalism?
Rogoff: I think there’ll be a reality check on American exceptionalism. The United States is doing well. But the question is not, is the dollar good? Is it that good? It’s very rich at the moment; we are uncompetitive in a lot of things with the dollar so high.
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