The global financial landscape is undergoing a significant transformation driven by shifts in international liquidity dynamics. The interplay between the U.S. dollar’s dominance as the world’s reserve currency and the evolving behaviors of foreign private entities and central banks is reshaping the flow of capital. This phenomenon reflects deeper systemic imbalances, as the mechanisms that traditionally recycled excess dollar liquidity into U.S. treasuries appear to be breaking down. Instead, preferences for assets like gold and equities, alongside geopolitical influences such as the weaponization of the dollar, highlight a growing divergence in global economic strategies. The implications of these trends, marked by capital misallocation and rising costs in surplus economies, pose challenges to both stability and equilibrium in the international financial system. Let’s assess the issue:
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