During the worst of the markets’ recent volatility, many investors moved their money into supersafe US Treasury securities. But of late, the dollar has resumed its downward trend of the past several years. And policymakers and currency traders are once again hypervigilant for signs that Asian central banks might redeploy part of their dollar-based debt holdings into non-American investments. Such diversification — particularly by China — could further weaken the dollar, presaging higher interest rates and higher prices in the US.

Currency markets generally punish heavily indebted nations by pushing down their currency. In the absence of policies to boost domestic savings — and thereby slow the buildup of debt — a steady decline of the dollar implies a steady decline in American living standards. A sharply accelerating decline would imply severe economic distress. By diversifying out of dollars, American investors seem intent, at least in part, on reducing their exposure to either eventuality. Policymakers should spend less time worrying about what foreign creditors could do to harm the dollar, and more time working to improve savings at home, both public and private. That way, the US would be less reliant on imported capital and less vulnerable overall, come what may.