The U.S. dollar depreciated in April 2025 while domestic interest rates rose relative to Euro, the VIX increased, and the convenience yield on 1-year Treasurys fell relative to foreign-currency safe assets. These patterns represent a marked departure from historical correlations. Notably, the decline in the dollar convenience yield predates the April 2025 shock by two years. Our theoretical analysis shows that these movements are consistent with shifts in global demand for U.S. dollar safe assets and the perception that the U.S. may lose its reserve currency status. Using a calibrated model, we find that the loss of demand for dollar safe assets leads to a steady-state depreciation of the real value of the dollar of around 7.6%, decline in U.S. dollar safe asset convenience yield of 0.9%, and an increase in U.S. long-term interest rates of 0.9%.
To read the paper, click here.
To read the slides, click here.
WATCH THE SEMINAR
Topic: “Dollar Erosion: Understanding the Loss of Reserve Currency Status”
Start Time: January 21, 2026, 12:30 PM PT
