Talk about bringing out the big guns.
Barry Eichengreen, for those who don't know, might be the most cited/celebrated economic historian of dollar arrangements... Exorbitant Privilege and How Global Currencies Work are highly recommended books, in addition to like a million articles -- on the Great Depression, Bretton Woods, the GFC, the ERM etc.
This weekend he's out swinging majorly in the Financial Times.
TL;DR: dollar dominance isn't permanent, Trump is dangerous, and this might be the beginning of the end for the dollar's beautiful century.
Permanence:
For as historians will tell you, it is the actions of people, not economies or markets in the abstract, that explain how international currencies rise and fall. It was people who took the crucial steps to build the institutions that made the international dollar. And it is people who will ultimately determine whether these same institutions survive or fail.
The dollar’s continued dominance derived from sheer numbers — from the US’s large share of global GDP and financial transactions — but equally from relationships and reciprocity. [...] The currency of the leading trading nation is a natural habitat for its exporters and importers, who loom large in global markets. There is then an incentive for exporters and importers elsewhere, when seeking to do business with this major economy, to similarly utilise its currency, given its convenience for their customers and suppliers.
Yeah, dollar dominance. Plus:
History is replete with examples of how a country’s commercial links support international use of its currency — and how disruption of those links undermines a currency’s international status.
Trump is bad man:
It has taken Donald Trump only a few months to weaken if not destroy those relationships and that reciprocity.
The decline of transatlantic co-operation in Trump’s second term points to the high likelihood of more such disagreements. Trump has not exactly been cautious in threatening to unleash economic weapons, be they tariffs, sanctions or other measures.
If dollars are an attractive store of value and means of payment because they are expected to hold their value, then steps by the Trump administration to undermine the independence of the Federal Reserve would seriously damage the greenback’s attractions.
...yea, cry harder Fed apologist
The beginning of the end:
Precisely. It’s almost like we need a neutral reserve asset between rivalling geopolitical partners — an asset immune to sanctions. (#823790)
The dollar has been attractive to central banks as a form of foreign reserves, and to corporate treasurers, sovereign wealth fund managers and international investors generally, because it is available in ample amounts while still holding its value.
Don't laugh, Stackers!
So, in sum: the U.S. should cherish its monetary empire, and steward it well instead of throwing it away on Trumpian anti-establishment behavior (cue tariffs and Russia).
If the US continues to go its own way, then the currencies of other countries, those that do not participate in US sanctioning efforts, will be the beneficiaries of diversification away from the dollar.
one final, powerful quote from the history segment of the essay (beginning):
"The Bretton Woods agreement thus singled out the dollar as the sun around which the other elements of the postwar international monetary system revolved."
archive link here:
https://archive.md/V2U6c