Economist Barry Eichengreen says last week's joint intervention to support the Japanese yen carries a warning sign for the dollar's status as the world's reserve currency. The U.S. sold euros instead of dollars and steered Japan toward a Fed facility rather than direct Treasury sales, a choice Eichengreen says shows Washington's discomfort with allies tapping their dollar reserves. Other economists, including Mark Sobel, have raised similar concerns about the dollar's long-term standing.
The U.S. Treasury and Federal Reserve helped prop up the Japanese yen last week by selling euros rather than dollars — a technical choice economist Barry Eichengreen says exposes new discomfort in Washington with how allies use their dollar reserves.
President Donald Trump and Treasury Secretary Scott Bessent described the joint action as a friendly gesture toward an ally. But Wall Street analysts later said the real motivation was likely to protect the Treasury market just as volatility was starting to tick higher.
Treasury Shifts Away From Direct Dollar Sales
The yen was changing hands at 158 to the dollar on Thursday, according to FactSet data, after the intervention appears to have given the currency at least a temporary boost. Instead of selling dollars directly, the U.S. sold euros and encouraged Japan to use a Fed facility that lets Japanese authorities support the yen without selling Treasurys outright.
That shift matters because central banks have long held Treasurys as their default reserve currency holding, prizing the deep liquidity that let them sell the bonds to defend their own currencies when needed. By signaling discomfort with allies selling Treasurys for that purpose, the Trump administration may have dented the appeal of Treasurys as a reserve asset, Eichengreen wrote in a column in the Financial Times: "the dollar is not the attractive reserve currency it once was."
Other Economists Voice Similar Doubts
Eichengreen isn't the first to raise these concerns. Earlier this year, former Treasury official Mark Sobel compared the administration's policies to termites slowly weakening the dollar's dominant role from within. Sobel told MarketWatch the dollar's global financing role may decline faster than it otherwise would, pointing to eroded trust in America as a reliable ally, a weakened Federal Reserve, and rising U.S. fiscal risk.
The economist also raised a further scenario: if a country without Washington's close ties tried to sell its dollar reserves to support its own currency, the U.S. response might take a more confrontational form, including a threat of retaliatory tariffs.
Dollar Still Dominant, For Now
Even so, the dollar retains one advantage: a lack of viable alternatives. IMF data show the dollar's share of official foreign currency reserves has shrunk over the past 20 years, though that decline has flatlined in more recent years. Only smaller currencies in the IMF's "other currencies" category have meaningfully gained reserve share over the past couple of years.
The depth and openness of U.S. capital markets should help the dollar hold its dominant position for the foreseeable future. Its role in private financing is more important than its reserve status alone, Sobel noted, and its use in global payments and securities issuance remains very strong. A White House official dismissed the concerns, arguing it made little sense to say the U.S. is undermining allies' trust while also helping Japan stabilize its currency. Eichengreen did not respond to MarketWatch's request for comment.
Source: MarketWatch
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