Steve Kamin: The US dollar will remain dominant despite economic policy threats, the notion of exorbitant privilege is overrated, and geopolitical actions are challenging its safe haven status | Macro Musings

US dollar's dominance persists despite geopolitical shifts and policy challenges threatening its global influence.

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Add us on Google by Editorial Team Apr. 6, 2026

Key takeaways

• The US dollar is expected to maintain its dominance for the foreseeable future, despite increasing concerns over economic policies.
• Current US policies, including tariffs and immigration blocks, are seen as threats to the dollar’s global standing.
• The strength of the US economy and its financial systems supports the continued dominance of the dollar.
• Dollar dominance is not an end goal but a result of strong American institutions.
• The perceived “exorbitant privilege” of the US dollar is considered overrated in light of global financial dynamics.
• Recent geopolitical actions have slightly diminished the dollar’s dominance.
• Overuse of sanctions could weaken the dollar’s global influence.
• The dollar’s post-liberation day behavior suggests a potential shift away from its status as a safe haven currency.
• The dollar’s relationship with market volatility has changed, indicating a move towards a risk-on currency.
• Despite political uncertainties, the dollar’s safe haven status remains resilient.
• The dollar’s role in global trade and finance is supported by the depth of US capital markets.
• Financial sanctions, while effective, risk diminishing the dollar’s value if overused.
• The dollar’s sensitivity to market volatility has shifted, affecting its traditional safe haven status.

Guest intro

Steve Kamin is a senior fellow at the American Enterprise Institute. He was previously the director of the Division of International Finance at the Federal Reserve Board, where he presented the staff’s global economic forecast to the Federal Open Market Committee and represented the Fed in international groups such as the G7, G20, and Bank for International Settlements.

Concerns over US economic policies

• The dollar is likely to remain dominant for years, but there are increasing concerns about its longevity due to bad economic policies.

  — Steve Kamin

• Current US economic policies are undermining the dollar’s standing.

  — Steve Kamin

• Tariffs and immigration blocks are identified as significant threats to the dollar’s global position.
• Rising fiscal debt and reduced support for research and development are additional concerns.

• We label a bunch of policies that are being followed at the moment that are likely to damage the dollar’s standing.

  — Steve Kamin

• The list of detrimental economic policies has been growing, raising alarms about the dollar’s future.
• Understanding these policies is crucial for assessing their impact on the dollar’s dominance.
• The dollar’s future is less certain now than it was two years ago due to these policies.

The enduring strength of the US dollar

• Dollar dominance is unlikely to disappear in the near future due to the strength of the US economy and financial systems.

  — Steve Kamin

• The size of the US economy and the depth of its capital markets are key factors in dollar dominance.
• US banks play a crucial role in financing global trade and finance, reinforcing dollar dominance.

• We certainly do not see dollar dominance going away anytime soon.

  — Steve Kamin

• The dollar’s dominance is a property of the institutions that support American prosperity.
• Dollar dominance is not an end in itself but a byproduct of strong economic institutions.

• It is a property of these institutions that undergird American prosperity.

  — Steve Kamin

• Understanding the role of institutional frameworks is vital for comprehending dollar dominance.

Reassessing the notion of exorbitant privilege

• The notion of the US having exorbitant privilege due to dollar dominance is overrated.

  — Steve Kamin

• Financial sanctions, while necessary, may erode the perceived advantages of dollar dominance.
• The global perception of US financial privilege is being challenged by geopolitical realities.

• You could also argue that the increased resort to financial sanctions over time will erode a bit.

  — Steve Kamin

• The effectiveness of financial sanctions is a double-edged sword for the dollar.
• The geopolitical implications of dollar dominance are complex and evolving.
• The dollar’s privileged status is not as secure as commonly believed.
• Understanding these dynamics is crucial for navigating global financial systems.

Geopolitical actions and the dollar’s status

• The dollar has lost some of its dominance due to recent geopolitical actions.

  — Steve Kamin

• The dollar’s traditional role as a flight-to-safety currency has been challenged.

• The dollar, which previously had always been a flight to safety currency, actually fell instead.

  — Steve Kamin

• Recent events have highlighted vulnerabilities in the dollar’s global status.
• Understanding the geopolitical context is essential for assessing the dollar’s future.
• The dollar’s decline in dominance is backed by specific events and research.
• The strategic implications of US monetary policy are significant for global economics.
• Overuse of sanctions could diminish the dollar’s global influence.

Shifts in the dollar’s behavior post-liberation day

• The dollar’s behavior post-liberation day suggests it may be losing its status as a safe haven currency.

  — Steve Kamin

• The dollar’s sensitivity to the VIX has turned negative, indicating a shift in its role.

• For several months after liberation day, that sensitivity turned negative.

  — Steve Kamin

• The dollar’s shift from a safe haven to a risk-on currency is significant.
• Understanding the significance of liberation day is crucial for analyzing the dollar’s status.
• The changing dynamics of the dollar in relation to market volatility are noteworthy.
• The dollar’s role in the global economy may be evolving.
• This shift in behavior highlights potential changes in the dollar’s global role.

Resilience of the dollar’s safe haven status

• The dollar’s safe haven status is resilient despite political uncertainties.

  — Steve Kamin

• The dollar’s response to the VIX remains positive, indicating its enduring role as a safe asset.

• The response of the dollar to the VIX is positive, indicating its safe haven currency status is still there.

  — Steve Kamin

• The dollar’s stability in the face of geopolitical events is noteworthy.
• The dollar remains a reliable asset amid global uncertainties.
• Understanding the relationship between the dollar and market volatility is crucial.
• The dollar’s role as a safe haven asset is a key factor in its global dominance.
• Despite challenges, the dollar’s safe haven status remains intact.

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