Key Takeaways:
- Crypto-asset demand could increase as dollar crash is inevitable.
- According to economist Stephen Roach macroeconomic imbalances might cause the US dollar to implode in the next one to two years.
Roach forecasts a 35% depreciation of the US dollar against other major currencies. He further states that
“A dollar meltdown is possible in the next year or two, possibly more. “The crash is unavoidable.”
According to Roach, macroeconomic imbalances in the United States have been an issue for some time, but the corona crisis has made things worse.
Roach replies, “We’re moving from bad to worse.”
He cites low domestic savings rates and rising government deficits as examples. As a result of the COVID crisis, unemployment has increased, resulting in fewer savings and consumption. Furthermore, the stimulus packages place an additional load on the national budget in addition to the existing high levels of debt.
Simultaneously, American policy is becoming more protectionist and attempting to isolate itself from the rest of the globe. According to Roach, economic crises and protectionism are a “lethal” combination.
A drop in the value of the dollar could be a problem for investors. However, although exporters benefit from a weakened currency, Roach believes the impact is minor. Instead, he sees the risk of growing inflation due to US corporations having to acquire goods from other countries at greater prices.
Roach draws a parallel with the United States’ economic predicament in the 1970s. Then, the American economy was experiencing a stagflation crisis, which meant that consumer goods prices were rising while the economy was stagnating.
Even a potential change of government following the presidential elections in November, according to Roach, would be unlikely to change this. Policymakers have never had to deal with anything quite similar to this upheaval.
A dollar meltdown, according to Roach, might boost cryptocurrencies. Nonetheless, he feels the asset class is currently too small to absorb global currency market fluctuations fully.
Bitcoin, in particular, has benefited from US dollar depreciation in the past. Given that the FX market’s daily trading volume exceeds $6 trillion, even a tiny percentage of the money coming into crypto markets might significantly impact prices. Investors would also sell dollar-linked stablecoins and invest in other crypto-assets.
