The Post‐Bretton Woods System and US External Unsustainability

Yongding Yu and Bohan Yang

China & World Economy, 2025, vol. 33, issue 2, 41-64

Abstract: The persistent US current account deficit, supported by the post‐Bretton Woods system, will continue to worsen the country's net foreign debt position. The net foreign debt‐to‐GDP ratio, shaped by factors such as the US budget deficit, the gap between private investment and savings, investment income, and GDP growth, will steadily increase as it approaches a critical threshold. Shifts in these factors will push the trajectory of the ratio upward, and foreign investors' willingness to hold US assets will play a pivotal role as the ratio nears its limit. Exceeding this threshold could trigger a balance of payments crisis. Furthermore, the weaponization of the US dollar has significantly eroded its credibility as the cornerstone of the post‐Bretton Woods system, raising concerns about the US's ability to sustain its external debt and finance its deficits without precipitating a financial crisis.

Date: 2025
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