InterviewUS exceptionalism nears end, Korean currency to gain against dollar: BNP Paribas economist

Philippe Gijsels / Courtesy of Philippe Gijsels

The world is witnessing a possible end to U.S. exceptionalism, the seemingly unbreakable, unchallenged and dominant worldview that has long prevailed, according to a BNP Paribas economist.

Most currencies, including the Korean won, would, in this new world of less U.S. exceptionalism, appreciate against the world's reserve currency, he also said.

In a recent email interview with The Korea Times, Philippe Gijsels, chief strategy officer at BNP Paribas Fortis, said that for the past 15 years — since the end of the 2008 global financial crisis — the world has been more than ready and willing to continue financing the ever-increasing U.S. debt. However, the current market is experiencing underweight equity, losses in the U.S. treasury market and a decline in the U.S. dollar.

This means that money is leaving the U.S. at times of increased volatility. “We could be looking at the end of American exceptionalism and money slowly but certainly leaving American shores,” Gijsels said.

The author of “The New World Economy in 5 Trends” said, in practice, a lot of countries were happy to recycle large chunks of their trade surpluses, with the addition of their own savings, back into dollars to buy U.S. debt and invest in the U.S. stock market.

Containers are stacked at Pyeongtaek Port in Gyeonggi Province, Sunday. Yonhap

This flow seems to have stopped or even partly reversed since the beginning of the year, he added. The rise in the greenback has over the last 15 years always been an investment flow story.

“The trade surplus of, for example, Europe, should normally have driven the price of the Euro up and that of the U.S. dollar down. However, as the investment flows towards the U.S. were always dominant, we saw a strong greenback and relatively low U.S. long-term interest rates, even though the deficit skyrocketed and the debt increased.”

The rise in longer-term U.S. interest rates despite the slowdown is painting another picture in his view — and so are financial markets.

During the global financial crisis and in the 15 years since, when markets went in risk-off mode, everybody fled without a moment of hesitation, he said, adding that the negative correlation between bonds and equities in times of trouble was very helpful for the so-called 60-40 portfolio.

Losses in equities were partly compensated for by gains in bonds through lower interest rates.

But this is also no longer the case. “When markets currently see risk-off moves, like the one we saw at the beginning of April after 'liberation day', equity drawdowns go hand in hand with losses in the U.S. treasury market and a drop in the U.S. currency. Money is leaving the US. Money is slowly but certainly leaving American shores," he said.