Monetary historian says US Treasury fragility points to sudden dollar shift

• Central banks shifting away from dollars are buying Australian, Canadian, Singapore, Korean and Nordic currencies rather than euros or yuan, which together account for 75% of the dollar's lost reserve share this century
• Eichengreen now recommends investors trim Treasury holdings in traditional 60/40 portfolios and consider alternative assets like gold, as US debt appears on an 'unsustainable fiscal trajectory' with bonds no longer serving as a safe bedrock
• Recent US actions including using euros instead of dollars to support the yen and doubling Treasury buybacks signal fragility rather than confidence, with history showing 'nothing good' follows when central banks must artificially suppress rates to support government debt

Market Summary: US Treasury Fragility and Dollar Shift Warning

Key Developments

Berkeley economist Barry Eichengreen, a leading monetary historian, has reversed his long-held position on dollar stability, now warning of potential abrupt dollar confidence loss. He pinpoints April 2, 2025 ("Liberation Day") as the turning point for his concerns about US Treasury market fragility.

Critical Data Points

• Gold closed above $4,600/ounce with the dollar at its weakest since May
• Central banks have purchased over 1,000 tonnes of gold annually for several years (approximately 25% of global production)
• Dollar's reserve currency share has declined in the 21st century, with non-traditional currencies (Australian, Canadian, Singapore, New Zealand dollars, Korean won) capturing 75% of lost ground
• Euro gained zero market share despite dollar losses
• US holds $40 trillion in debt versus only $4 trillion in triple-A rated euro area bonds

Market Implications

Eichengreen questions the safety of traditional 60/40 portfolios, arguing Treasuries are now "less safe and more highly correlated with equities." This supports trimming bond holdings in favor of alternative assets like gold. Analysts Ray Dalio and Ole Hansen recommend 10-15% and 5-10% gold allocations respectively, with Dalio predicting a US debt crisis within three years.

Recent Treasury interventions—including buybacks of long-dated debt and the Fed's expanded facilities for the Bank of Japan—signal official concern about Treasury market fragility rather than instilling confidence.

Technology Risk

Eichengreen warns the US may be backing the wrong approach with private stablecoins under the GENIUS Act, while Europe and China develop central bank digital currencies, potentially threatening long-term dollar dominance in digital payments.