Eichengreen Warns $2 Trillion Deficit Is Eroding Dollar Dominance After Yen Intervention
Updated
Updated · Fortune · Aug 9
Eichengreen Warns $2 Trillion Deficit Is Eroding Dollar Dominance After Yen Intervention
3 articles · Updated · Fortune · Aug 9
Summary
Barry Eichengreen said last week’s U.S.-Japan yen intervention exposed limits in the dollar system because both sides avoided outright Treasury sales to support the yen.
The New York Fed bought yen by selling euros, not dollar assets, while Japan tapped the Fed’s FIMA repo facility to borrow dollars against its Treasury holdings.
Eichengreen argued those choices reflected Washington’s desire to avoid pushing up yields as it finances a $2 trillion fiscal-year deficit amid heavy private bond issuance from AI hyperscalers.
He said signaling that Treasuries cannot always be sold freely weakens a core pillar of reserve-currency status and could spur central banks to seek alternatives such as gold.
Goldman Sachs disputed that reading, saying Japan’s use of the FIMA facility instead showed the dollar’s unmatched infrastructure and network effects remain intact.