Uncle Sam's dollar Ponzi scheme

US's terrible political and economic leadership will ultimately cost the dollar its value. India must act early to avoid being dragged down

- R JAGANNATHAN

The Narendra Modi government has set a target of making India a $5 trillion economy in the next two years and the third-largest economy before 2029. The problem is not with these aspirational goals, but with targeting them through a measurement metric that you cannot control - the dollar-rupee exchange rate.

In theory, you can hit your $5 trillion target even earlier if the rupee strengthens; you can miss the target if the reverse happens. Over the medium to long term, a dollar decline is more likely than a strengthening, thanks to two major follies embraced by a reckless US government (including the US Federal Reserve Board) after the global financial crisis (GFC) of 2008.

The solution to the GFC, and later Covid, was endless money printing and near-zero-cost money. And after the Ukraine war broke out, the US chose to "punish" Russia by confiscating its massive dollar reserves. Ever since, China - and more recently India have been trying to buy more gold to reduce their dependence on dollar reserves. In April, China's holdings of US Treasury stocks were less than a quarter of its total reserves of $3.2 trillion, and it has been buying gold every single month for the last year and a half. India bought 24 tonnes of gold in January-April this year, more than the 16 tonnes bought in 2023.