US dollar dominance & global imbalance | General financial discussion | Discussion forum

The-system-is-vulnerable-today (Governor Tiff Macklem, Bank of Canada)

Global imbalances narrowed after the 2008–09 crisis but are now growing again.

The United States attracts a lot of foreign capital, because Americans tend to spend more than they save. So higher savings from China and Europe flow toward the United States.

But when the flows are too unbalanced, it can make trade imbalances bigger and fuel protectionism. It can also distort asset prices. The longer the imbalances persist, the greater the potential for pressures and risks to build.

The US dollar’s dominant role in global finance may be prolonging imbalances today because it encourages the flow of capital into the United States.

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It is a vicious spiral, but I find it hard to resist, noting the rate gap in general between USD and CAD. For example, USD ISA is 3.15% but CAD ISA is merely 1.80%.