Why Gita Gopinath believes the US dollar will keep its crown in global finance

Gopinath: Dollar supremacy here to stay

The dominance of the US dollar in global trade and finance is unlikely to change any time soon, says Gita Gopinath, former IMF Chief Economist and Deputy Managing Director, now back at Harvard as a professor of economics.

“What is critical to the dollar’s dominance in the world are the strength of its institutions, the depth and liquidity of its financial markets, and the law and order in the country,” she said in a recent episode of the IMF Podcast. “As long as those remain, the dollar will keep its status for a long time.”

Why she keeps returning to dollar dominance

During her years at the IMF, dollar supremacy was a recurring theme in her research. Asked why, she said the power imbalance it creates was impossible to ignore.

“The world is highly asymmetric,” she explained. Despite how much some economies trade globally, their currencies barely show up in cross-border transactions. Emerging markets, and even many advanced economies, don’t see their currencies used in reserves, trade, or finance.

Instead, the dollar dominates across the board, shaping how countries absorb shocks and what policy tools are effective.

What this means for emerging markets

This imbalance has particularly stark consequences for developing economies, she said. Without global acceptance of their currencies, they are vulnerable to capital flow volatility and sudden shifts in external financing.

That vulnerability informed her work on the IMF’s Integrated Policy Framework, which was designed to help countries manage such risks in a dollar-centric system.

From IMF leadership back to Harvard

Gopinath, who left Harvard in 2018 to join the IMF, became the Fund’s first female Chief Economist and later its First Deputy Managing Director. She helped steer the institution through the Covid-19 crisis and the economic fallout of Russia’s war in Ukraine.

After five intense years, she has returned to Harvard as the Gregory and Ania Coffey Professor of Economics, but her attention to the forces behind dollar dominance hasn’t dimmed.

(With inputs from ANI)