Trump’s attack on the global dollar

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Is the dominance of the dollar is about to fade? Donald Trump He insists on that “If we lose the dollar as a global currency … this will be equivalent to the loss of war.” However, it can be the cause of such a loss. Dependence on foreign currency depends on confidence in its safety and liquidity. Confidence in the dollar was slowly eroding for a while. Now, during the Trump era, the United States has become irregular, indifferent and even hostile: Why does one trust a country that launched a trade war on the allies?

However, while strangers may want to diversify away from the dollar, they lack a convincing alternative. So, what might replace its domination if there is anything?

The dollar was the world’s leading currency for a century. However, the dollar itself replaced the British pound after the First World War, where the power and wealth of the United Kingdom decreased. Objectively, the United States was decreasing because the United Kingdom was at that time: according to the Article of the International Monetary Fund, its share in the nominal Global GDP reached 26 percent in 2024, compared to 25 percent in 1980. Given the appearance of the Chinese economy during that period, this is great. The United States is also on the limits of global technological development and the first military power. Its financial markets are still the deepest and most liquid. Moreover, in the fourth quarter of last year, 58 percent of the global reserves in dollars, a decrease from 71 percent in the first quarter of 1999, but 20 percent before the euro. according to Macromicro81 percent of commercial financing, 48 percent of international bonds and 47 percent of border banking claims are still in dollars.

So what can happen wrong? In his work on the international system, Charles Kindleberger He argued that the stability of the open global economy depends on the existence of a dominant force on a willingness and able to provide basic public goods: open markets for trade; Stable money and lender last resort in a crisis. The three British came until 1914. The United States had to do so after 1945. But in that intertwined period, the UK could not provide these goods. The result was a disaster.

The era of domination of the dollar has witnessed many shocks. The recovery after the war in Europe and Japan undermined the fixed exchange price system in Bretton Woods in 1944. In 1971, Richard Nixon, the most similar president of Trump, reduced the dollar. This, in turn, led to an increase in inflation, which ended only in the eighties. This also led to the floating of exchange rates and the creation of the European exchange rate mechanism and the euro. While economists tend to believe that currency reserves would stop being important in a world of floating rates, a large group of financial crises and currency has shown, and above all the Asian crisis in the late 1990s, the opposite. Loans from the Federal Reserve also demonstrated continuous importance, especially in the financial crisis in 2008-2009.

In short, Kindleberger conditions are still relevant. Also suitable is the broader point that the external network supports the appearance and sustainability of global currencies, because all users benefit from using the same currency as others and they will continue to do so, if possible. But what if the hemacon uses every economic stick, including financial sanctions, to reach its path? What if Higamim threatens the invasions of friendly countries and encourages the invasions of friendly countries by tyrants? What if he dominates its financial and monetary stability and institutional institutions Its economic success? What if its leader is an inactive bullying?

Then both countries and individuals will look at alternatives. The difficulty lies in the fact that, although irreversible, hegemony may be, alternatives seem worse. Renminbi may be the best currency for use in trading with China. But China has capital and non -liquid capital markets. These, in addition, reflects the strategic priority of the Communist Party of China, which is economic and political control. China appears to be likely to use economic coercion as well. Therefore, China cannot provide the liquid and safe assets offered by the United States historically.

The euro does not suffer from these disabled people from Renminbi. Therefore, it may not replace the dollar, at least partially, such as Helen Rey argues from London College of Business? Yes, may. But he suffers from defects. The euro area is fragmented, because it is not a political union, but rather a sovereign club. This political retail also appears in financial and economic fragmentation, restricting innovation and growth. Above all, the European Union is not the power of hegemony. It may exceed its attractiveness from the United States in its worst current cases, but it does not match the United States at its best.

We left then with a competition between three alternatives, with some other options-global currency or encryption world-certainly unimaginable. The first option is the transformation of China or the euro area, so the appearance of one of them as a source of dominant currency. The second will be a world with two or three competing currencies, each of which is dominant in different regions. But the effects of the network will create an unstable balance in such a world, as people rush from currency to another. This will be more like the twenties of the twenties and thirties more than anything else since then. The third is the continuation of dominance by the dollar.

What kind of dominance in dollars may this be? Ideally, the United States reliability will return to appearing. But this is more unlikely than ever, given the damage to now inside and outside. In the kingdom of the blind, a single -eye man is the king. Likewise, even the defective current currency may continue to rule the critical world, given the absence of high -quality alternatives. Trump wants this world. Most of us do not.

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