Differing perspectives from Trump's allies on sustaining global supremacy of the US dollar emerge.
In an era of uncertainties, Donald Trump's policies stir up a financial storm, leaving the global economy on edge. Behind the smokescreen of frequent announcements, one can make out the strategies, even if they're not entirely devoid of contradictions and risk.
The core question is how the U.S. aims to maintain the global dominance of the greenback while taking aim at financial and commercial globalization. Two theories can be spotted in Trump's entourage.
One, championed by Stephen Miran, the White House's economic adviser, suggests coercing foreign governments and central banks to hoard dollars and adhere to the U.S.'s terms. The other, proposed by Scott Bessent, the Treasury Secretary, relies on the growth of private uses of the dollar, through stablecoins whose value would be anchored to the greenback.
Also read | The Crumbling Iron Curtain of Stephen Miran, Trump's Economist
Stephen Miran believes he can preserve - or even strengthen - the role of the dollar as the primary international reserve currency by twisting the arm of its public holders (so-called "officials"). These mainly include the central banks of countries that aspire to maintain a quasi-stable exchange rate with the dollar, while opening up financially. The dollar reserves they accumulate are either used to lend to banks in their nation during capital outflows or to prevent their currency from overappreciating against the dollar, thus preserving the affordability of their exports.
Dollar Devaluation Strategy
Trump and Miran have repeatedly threatened countries that sell their dollars with tariffs. They have also suggested exchanging these reserves, held in short-term U.S. debt form, for long-term debt that would no longer be tradable on financial markets. This strategy hinges on the assumption that other countries accept the contract terms laid out by the U.S.
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Shrewdly Wielding Economic Policies
The Trump administration's strategies to safeguard U.S. dollar dominance while challenging globalization involve using economic policies as weapons and reshaping international financial dynamics:
- Customs Duties as a Lever: Trump's steep tariffs on trading partners are presented as a means to handle trade imbalances and secure concessions. However, they also aim to boost demand for dollars through trade renegotiations, compelling countries to absorb the costs of dollar-denominated trade deficits[1][4][5].
- The Mar-a-Lago Accord Proposal: Trump's economic advisors, including Stephen Miran, support a generational shift in trade and finance, akin to the 1985 Plaza Accord. This hypothetical agreement would oblige trading partners to appreciate their currencies against the dollar, reducing U.S. trade deficits while maintaining dollar demand for reserve assets[4][5].
Countering Financialization with Industrial Policy
The administration connects dollar dominance to de-industrialization and wants to revive U.S. manufacturing by: - Weakening the dollar: Making exports more competitive, although this risks undermining foreign confidence in the dollar's stability[5]. - Targeting tech dominance: Prioritizing sectors like semiconductors and energy exports (hydrocarbons over green energy) to bolster dollar-denominated trade[3][5].
Isolating Finances Through Economic Isolation
- Sanctions as Weapons: Expanding sanctions (e.g., against Iran and Russia) to assert dollar-centric financial control, risking a rapid move towards de-dollarization, as countries seek alternatives[2][3].
- Rejecting Multilateralism: Dismissing global frameworks (e.g., climate agreements) in favor of bilateral deals that prioritize U.S. financial interests[3][5].
Digital and Currency Competitiveness
While the administration shows little interest in central bank digital currencies (CBDCs), China’s renminbi internationalization (such as digital yuan pilots) is perceived as a threat. Trump's team appears more focused on traditional energy exports (oil, gas) to sustain dollar-linked trade[3][5].
Risks and Contradictions
- Erosion of Trust: Unpredictable policies and verbal attacks on institutions like the Fed could weaken global confidence in the dollar[1][2].
- Renminbi Gains: IMF data shows the renminbi gaining a quarter of the dollar's recent reserve-currency decline, reflecting quicker-than-anticipated shifts[3].
By prioritizing economic coercion over collaboration, the administration risks hastening the very decline in dollar supremacy it seeks to prevent[2][5].
- Stephens Miran, Donald Trump's economic adviser, proposes a strategy for maintaining the U.S.'s dominance of the dollar as the primary international reserve currency by coercing foreign governments and central banks to hoard dollars and adhere to the U.S.'s terms.
- In an attempt to preserve the role of the dollar, Trump and Miran have threatened countries that sell their dollars with tariffs and suggested exchanging their dollar reserves, held in short-term U.S. debt form, for long-term debt that would no longer be tradable on financial markets.
- The Trump administration, under the guidance of Stephen Miran, uses economic policies as weapons and reshapes international financial dynamics.
- One of the strategies suggested by the Trump administration involves the Mar-a-Lago Accord Proposal, a hypothetical agreement that would oblige trading partners to appreciate their currencies against the dollar, reducing U.S. trade deficits while maintaining dollar demand for reserve assets.
- The Trump administration's focus on economic coercion over collaboration could potentially hasten the decline in dollar supremacy that it seeks to prevent, due to the erosion of trust and the rise of other currencies like the renminbi.
