Dollar Dominance Under Threat as US Intervenes in Currency Markets

The recent joint currency intervention by the U.S. and Japan reveals that the dollar's reserve status is eroding, according to an op-ed published by the Financial Times.

The unusual move involved the Treasury Department buying yen with euros instead of dollars, thereby preserving dollar strength. This decision suggests that the U.S. government is concerned about maintaining a stable currency market and supporting its own financial markets.

America's foreign treasury holdings have been declining in recent months, which has put pressure on the country's borrowing costs. The Treasury Department intervened to help Japan defend its currency, but also to reduce the strain on its own financial markets. By using euros, rather than dollars, the U.S. avoided putting additional pressure on the long end of the U.S. Treasury market.

Economist Barry Eichengreen argues that this move is a sign that the dollar's status as a reserve currency is not what it used to be. Central banks are increasingly looking for alternatives to holding U.S. Treasuries, and gold is becoming an attractive option due to its liquidity and usability in interventions.