Speeches

Welcome speech of Dimitris Malliaropulos at the Opening Ceremony of the 2025 Annual Meeting of the European Financial Management Association

25/06/2025 - Speeches

Ladies and gentlemen, dear colleagues,

It is a great honor to welcome you at the 2025 annual conference of the European Financial Management Association. Let me take this opportunity to share with you a few thoughts on the role of safe assets in an increasingly uncertain and fractured global environment. For over seventy years, the U.S. dollar has been the principal reserve currency of the global economy, serving as the backbone of the international monetary system, anchoring trade, financial markets, and global reserves.

However, the world we confront today is starkly different from the post-war order in which this system was created. Rising geopolitical tensions, the resurgence of mercantilist economic policies and heightened global risk aversion challenge the role of the dollar as the global safe asset.

In my remarks, I will outline the costs and benefits for the U.S. of being the global provider of safe assets, and the prospects for alternative safe assets, including those provided by other sovereigns, the private sector, and digital technologies.

I. The U.S. Dollar as a Global Safe Asset: The Exorbitant Privilege

There is a wide consensus that the United States has reaped significant rewards from the dollar’s role as the global safe asset. Chief among them is what Valéry Giscard d'Estaing, then French finance minister, famously called the "exorbitant privilege." Because the world has a big appetite for dollar-denominated assets, the U.S. could borrow cheaply and in its own currency. Moreover, U.S. external assets used to earn higher returns than the interest the U.S. was paying on its debt. This allowed the U.S. to earn seignorage by borrowing abroad and investing in foreign assets at a higher yield.

The implication is that due to the exorbitant privilege, the U.S. does not have to fully repay its net foreign debt by running net trade surpluses in the future, as part of this debt can be repaid using the net interest income from abroad.[1]

II. Economic Costs: Trade Deficits and Overvaluation

This system, however, is not without costs. First, to supply the world with dollar-denominated assets, the U.S. must run trade deficits. These deficits accumulated over time, worsening the U.S. net international investment position. Second, persistent demand for U.S. safe assets has kept the dollar structurally overvalued, depressing U.S. exports and, indirectly, contributing to the erosion of its industrial base.

This tension between global liquidity provision and domestic economic strain was famously captured by economist Robert Triffin in the 1960s, in what is now known as Triffin’s dilemma. Triffin warned that the country issuing the world’s reserve currency must supply the rest of the world with liquidity via current account deficits, yet doing so inevitably undermines confidence in the currency’s long-term value.

This logic has recently resurfaced in U.S. policy debates. Notably, Steven Miran, Chair of the U.S. Council of Economic Advisers, has claimed that this international monetary system is “unfair” as it prevents the U.S. from eliminating its current account deficit.[2] His proposed solution is to devalue the dollar trough a “Mar-A-Lago Accord”, like the famous “Plaza Accord” in 1985.

Steven Miran’s views have been subject to serious criticism. According to the critics, Triffin’s logic does not apply to today's international monetary system.[3] In Triffin's world, safe dollar assets were scarce and issued by the state. In today's world, dollar liquidity is elastic and largely created by nonbank financial intermediaries such as asset managers and shadow banks via repos, FX swaps and offshore dollar loans. In this new world, the role of the dollar as a global reserve asset is not primarily related to the size of the U.S. current account deficit but to trust in U.S. institutions and the depth and liquidity of U.S. financial markets.

III. Mounting Fragilities and the Dollar's Future

Nevertheless, we are now at an inflection point. The pillars that have long supported the dollar's global role are under strain. It seems that the current U.S. administration views the international role of the dollar not any more as a privilege but as a burden—an impediment to restoring the competitiveness of American industry. Its turn toward mercantilist trade policies, including broad-based tariffs, is destabilizing the global trading order. The result is rising economic uncertainty, weakened global confidence and greater volatility.

Moreover, U.S. fiscal fundamentals are deteriorating. With public debt surpassing 120% of GDP and high fiscal deficits over the foreseeable future, concerns over debt sustainability are mounting. Investors now demand higher yields on U.S. Treasuries to compensate for increased credit risk.

Confidence in U.S. institutions is also waning. Political interference in Federal Reserve decision-making undermines the central bank's credibility. In such a climate, the status of Treasuries as the ultimate global safe asset is no longer assured.

IV. A Multipolar Monetary Order?

All of this raises a pressing question: Are we moving toward a multipolar world in which several currencies share the role once monopolized by the dollar?

Increasing the role of other currencies alongside the dollar would boost the global supply of safe assets without relying on a single country. This is a clear benefit. If the world is moving toward a multipolar monetary system, then the euro has a fair chance of gaining a higher share as a reserve currency. It has already a large share as an invoicing currency and is backed by high institutional quality and strong rule of law. However, the euro suffers from structural weaknesses. It lacks a unified fiscal authority and deep capital markets. The creation of EU-level debt instruments, such as Next Generation EU bonds, is a promising step, but the eurozone has yet to deliver a full, scalable safe asset that could rival U.S. treasuries.

V. Can the Private Sector help fill the Safe Asset Gap?

In theory, private instruments such as AAA-rated corporate debt or securitized products can also act as safe assets. But history tells a cautionary tale. The 2008 global financial crisis revealed the fragility of private safe assets. Products deemed safe —like mortgage-backed securities— became sources of systemic risk when trust evaporated.

This is in line with the predictions of economic theory. As Gorton and Metrick have shown, privately created safe assets are safe only in good times.[4] When stress hits, they become “information-sensitive”, triggering runs and panics. Furthermore, Holmström and Tirole have demonstrated that the private sector’s capacity to generate safe assets is constrained by its limited collateral base, i.e., the part of future firms' earnings that can be credibly committed to repay debt. [5]

In short, theory tells us that private markets can complement, but not substitute, sovereign safe assets. While they can supply relatively safe assets in good times, ultimate safety requires sovereign backing, which only the public sector can credibly provide. Ultimately, trust in the safe asset is related to the ability of the government to raise taxes, an ability which the private sector does not possess.

VI. Digital Currencies and the Future of Safe Assets

Finally, could technology provide a solution?

Central bank digital currencies (CBDCs) could, in principle, offer the liquidity and creditworthiness of traditional sovereign assets. However, unlike government bonds, CBDCs typically do not bear interest, so they may serve more as a settlement asset for cross-border payments than as a full store of value for long-term investors.

Private digital assets —like stablecoins— have also emerged as contenders. But they raise concerns around regulation, reserve adequacy and systemic risk. Unless fully backed and tightly supervised, stablecoins may repeat the failures of private money markets.

Conclusion

We live in a world where the global order is becoming more fragmented, uncertain, and risk-prone. In such an environment, the demand for reliable safe assets is rising—yet the foundations of the current system are increasingly coming under strain.

For decades, the U.S. dollar and Treasuries provided the global safe asset. But their future is no longer assured. Rising fiscal concerns, political uncertainty and shifting U.S. priorities are prompting investors and central banks to reassess their exposure.

At the same time, the global search for alternatives is intensifying. Sovereigns like the eurozone and China are making efforts to provide credible substitutes, though structural constraints remain. The private sector, despite its innovation potential, cannot replicate the full safety of sovereign backing. And while digital technologies hold promise, their evolution remains in early stages.

What emerges is not a clean break but a gradual recalibration of the global monetary system. In the short term, the U.S. dollar will likely remain the principal reserve currency. In the long term, we are likely heading toward a multipolar monetary system —one in which multiple safe assets coexist, each embedded in distinct institutional, geopolitical, and technological ecosystems.

The challenge will be to manage this transition without compromising global liquidity or financial stability. Our role as academics and policy thinkers is to try to understand the changing dynamics of global finance and to help design systems that can support stability in an age of uncertainty.

Thank you.