The talk on the streets is about a currency shortage of one kind. And the chatter in trading rooms is about a currency shortage of another kind. A dollar shortage, to be specific.
Fed funds futures are already pricing in a 95% chance that the US will increase interest rates in December. There is speculation that Donald Trump will combine a tighter monetary policy with a looser fiscal policy. The dollar has rallied in the past few weeks. China’s renminbi has fallen to its lowest in eight years.
A dollar rally is one sign of the fears about a dollar shortage—an issue first tackled many decades ago in the Triffin dilemma, named after Belgian economist Robert Triffin who first identified it.
The dollar is the default global reserve currency. It lubricates world trade. It is the most common currency for international borrowing.
A dollar shortage could hurt trade and investment. The big question is whether China can step in to offer its currency as a replacement.