For the United States, the attractiveness of the US equity market has become as important as the attractiveness of the US Treasury debt market

When thinking about the dollar’s international reserve currency role, we usually think about the attractiveness of US Treasuries for non-residents. They buy this debt as the benchmark risk-free international asset, allowing the US to finance a structural external deficit. But the functioning of the international monetary system has become more complex. It is no longer just about the attractiveness of the United States for buyers of risk-free Treasuries, but increasingly the attractiveness of the United States for buyers of equities. Capital inflows into equities, and not just bonds, in the United States are now playing an important role in financing the US external deficit. So the threat to the United States is not only a concern about public debt sustainability, but also about the valuation of US equities.