The US Federal Reserve maintains highly accommodative financial conditions under the severe economic downturn triggered by the COVID-19 pandemic. In other words, in an emergency move, the most influential central bank turned on the printing press at full capacity in the early spring. Experts call this strategy dangerous, warning that the US dollar is about to lose the status of the world’s number one reserve currency in the short term.
Analysts at Goldman Sachs are also skeptical about the Fed’s intention to provide unlimited dollar liquidity to financial markets. In turn, the White House states that the sense of responsibility and its mandate account for the unprecedented stimulus package. Indeed, the government has social commitment to American citizens and businesses. The financial sector is a special concern for the US authorities as it is particularly vulnerable to the coronavirus-driven crisis. To mitigate its fallout, the monetary authorities have come with the only solution. The central bank thinks it can do nothing but print as many dollar bills as it finds appropriate. However, the astronomical expansion of the money supply poses a threat to the domestic economy amid a slump in gross domestic product and a sharp decrease of US Treasuries.
The Fed’s balance sheet has ballooned by $2.8 trillion this year. So, the unlimited money supply on the back of the economic havoc could terminate the reign of the US dollar in the near future, Goldman Sachs makes the conclusion.
