By propping up the yen, the U.S. and Japan are actually admitting dollar dominance isn’t what it used to be, top economist warns

Last week, the U.S. and Japan jointly intervened to bolster the yen, a move that reveals the weakening status of the dollar as a global reserve currency, according to top economist Barry Eichengreen. In an op-ed for the Financial Times, Eichengreen highlighted the intervention as a reflection of concerns about rising long-term yields.

The U.S. Federal Reserve sold euros to purchase yen, avoiding the need to tap financial markets for more Treasury securities while the U.S. government battles a $2 trillion budget deficit. Japan, meanwhile, refrained from selling Treasuries and instead used the Foreign and International Monetary Authorities Repo Facility to borrow dollars against its Treasury stockpile.

Eichengreen argued that these actions signal that the dollar no longer holds the same allure as a reserve currency, as central banks are no longer able to use their dollar reserves as freely. As a result, other countries may seek out more attractive alternatives, such as gold, to reduce vulnerability to U.S. sanctions that rely on the dollar's ubiquity.

However, some strategists from Goldman Sachs downplayed the concerns about dollar dominance, arguing that Treasury's actions and the availability of the Foreign and International Monetary Authorities Repo Facility prove that the dollar remains the most useful and widely accepted currency.