The United States does not experience, for the moment, any difficulty in financing a very large external deficit, thanks to the role of the dollar as a world reserve currency and to its attractiveness for private capital. Despite the weakness of domestic savings, the dollar allows them to maintain high investment rates.
For decades, the United States has had a structural current account deficit. This deficit varies between -3 and -6 points of GDP. However, despite this deficit, the investment rate is high, exceeding 25% of GDP in 2022, when the national savings rate does not exceed 21% of GDP. The United States has no current balance of payments constraint thanks to the special role played by its currency.
From 1999 to 2022, the weight of the dollar in terms of foreign exchange reserves fell from 71 to 60%. Over this period, the euro gained 3 points, representing 20% of foreign exchange reserves in 2022. The other currencies play a fairly marginal role. Foreign exchange reserves in RMB weigh only 2.76%, less than the pound sterling (4.5%) and the yen (5%). The dollar is the currency of reference for commercial and financial exchanges, being the safe haven par excellence. This role enables the United States to attract capital from central banks and private investors both to finance public debt and private investment. Net purchases of US Treasury securities have averaged more than 2 points of GDP since the start of the 2010s.
A significant innovation effort, high profitability
The dynamism of American companies, characterized by a major innovation effort and high profitability, enables them to attract capital. Purchases by non-residents of shares and bonds of American companies as well as direct investments in the United States amount, each year, to more than 2 points of GDP on average.
Even if the euro is the world’s second reserve currency, it remains less attractive. Net purchases of public sector bonds by non-residents do not exceed 0.5 points of GDP per year (average 2019/2022). Capital inflows (equities, corporate bonds and direct investment) are significantly lower than for the United States, less than 4 points of GDP in 2022.
European public and private investments lower than those across the Atlantic.
Eurozone member states have less leeway on their current account balance than the United States and must rely on national savings to finance deficits. The balance of current payments has been in surplus since 2008. The savings rate reaches 26% of GDP when investment is 24% of GDP. Savings are used to finance not only European but also American deficits. Under these conditions, it is quite logical that European public and private investments are lower than those on the other side of the Atlantic.
From 2002 to 2022, GDP grew by 50% in the United States, compared to 28% in the euro zone.
The dollar being one attractiveness factor for capital from all over the world is an asset for the growth of the United States. From 2002 to 2022, GDP grew by 50% in the United States, compared to 28% in the euro zone.
The dedollarization of the world economy desired by Russia or even China remains hypothetical. The United States remains the leading economic and military power. In times of crisis, the dollar is a safe haven. As it stands, the euro, affected by the war in Ukraine, does not appear as a substitute reserve currency. It is primarily a reserve currency of the member states of the European Union. It is penalized by the absence of federal political structures. It cannot count on a euro zone budget, nor on a European army.
The absence of a truly unified financial market is one of the major handicaps of the European currency. There is a lack of market depth which limits investment opportunities. The euro would gain strength if the European Union continued to issue public debt, like the issues it carried out as part of the New Generation plan to end the Covid crisis.
2023-04-20 05:27:00
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