“The dollar is our currency but your problem,” Jim Connolly said in 1971 when he was US Secretary of Treasury.

• It is wrong to assume that a reserve currency can remain one regardless of the underlying macro policies. The diminution of the British pound in the early to mid-1900s is a case in point.

• In the current context, portfolio risks of staying in US treasuries have increased. Neither can the US remain a dominant driver of emerging market exports.

• Reducing the pace of reserve accumulation would be the most practical solution to this problem. Additionally, there is scope for increasing allocations in alternate currencies, the Swiss franc and emerging market local currency bonds.

• Local currency bond markets are small but rapidly growing.

• By running a large current account deficit, the US economy is a source of export growth/employment for emerging markets.

• The deficit is funded by systematic intervention in the foreign exchange markets by emerging market central banks, which also provide the external financing required by the US to fund the deficit.

• Accumulating large amounts of foreign currency reserves in the form of dollar assets such as treasuries was also viewed favourably by emerging market central banks – particularly Asian central banks – in the aftermath of the 1997/98 financial crisis. Such accumulation was regarded as a form of ‘self-insurance’ against future speculative attacks.

The durability of this system is now being challenged. The system no longer represents the old symbiosis of interests. As should be inevitable with the level and duration of de-leveraging needed, the growth potential of the US has deteriorated and the current account gap is being structurally downsized.

This adjustment will have a lasting impact on emerging market exports, regardless of the monetary arrangements. And indeed, trade data suggests that the role of the US as the marginal driver of emerging market exports is diminishing, as shown by the chart below.