Dollar dominance unlikely to change in near future: Gita Gopinath

New Delhi [India], September 13 (ANI): 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.
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."
In the podcast, the interviewer asked her whether the dollar dominance was changing in a significant way; she said, "As of now, I don't see major changes."
"What is critical to the dollar's dominance in the world are the strength of its institutions and the depth and liquidity of its financial markets and the law and order in the country. So all these features have been absolutely supportive of dollar dominance, and as long as those remain, I would say that the dollar would keep its status for a long time," she supplemented.
Gita Gopinath took a leave of absence from Harvard University back in 2018 to take on the role of IMF Chief Economist. After having dealt with the pandemic and some of the most complex geopolitically-induced economic crises ever, she was appointed First Deputy Managing Director of the institution. Now, she's returning to Harvard as the Gregory and Ania Coffey Professor of Economics. (ANI)