By Andrés Velasco
U.S. President Donald Trump believes that America should be primarily for Americans. In contrast, the U.S. dollar is available for global use.
If the BRICS group of emerging economies decides to introduce a new currency, Trump would have
tweeted
, or “support any other currency as a replacement for the powerful US dollar,” they will be subject to 100% tariffs.
The head of Trump’s Council of Economic Advisers,
Stephen Miran
, does not agree. On April 7, he
told
The Hudson Institute asserts that the worldwide utilization of the dollar has led to continuous currency imbalances and has contributed, together with other nations’ unjust trade restrictions, to unbalanced trade deficits.
Miran is not the sole economist associated with “Make America Great Again” who holds this belief.
Michael Pettis
, not part of the administration but still having significant influence within it, recently penned an opinion piece in the
Financial Times
entitled
The United States would fare better without relying on the international dollar.
Globally, the desire for US dollars boosts their worth. Trump views this as positive since robust nations ought to possess powerful currencies. However, his team includes experts concerned that an appreciating dollar could undermine American industries’ competitiveness and lead to job losses overseas. Which perspective holds true?
When people from countries like the Philippines, Malaysia, Saudi Arabia, Nigeria, Colombia, and many others choose to hold dollars for savings and investments, they uphold what Valéry Giscard d’Estaing, who was serving as France’s finance minister under President Charles de Gaulle at the time, referred to somewhat irritably as an “exorbitant privilege” for the United States—a term that does not imply an excessive burden, contrary to the views of Miran and Pettis.
Nearly all governments print money to cover their expenses. People readily use these banknotes when purchasing items or availing services. This unstable system is termed “seigniorage” by economists. Whenever confidence in the domestic currency wanes and citizens attempt to offload it—as seen in nations like Argentina, Venezuela, Sudan, and Zimbabwe—this often leads to soaring inflation rates.
The United States stands out because people all around the globe want to hold onto greenbacks, allowing the country to earn seigniorage from the entire world. This benefit comes courtesy of the Federal Reserve.
estimates
Foreigners possess over $1 trillion, which constitutes 45% of the entire circulating currency. This serves as an inexpensive means of financing for the United States.
Picture an American traveling overseas who pays for a hotel stay using U.S. currency. One year later, the international hotel owner utilizes those same dollars to finance their trip to the United States. Should consumer prices increase within the U.S. over that period, it effectively equates to providing Americans with a loan carrying a negative interest rate from the global community.
This isn’t the sole method through which the U.S. acquires affordable funding. Across the globe, American bonds—and particularly those issued by the U.S. Treasury—are utilized as security in various financial dealings.
Because of this convenience, foreigners are willing to hold Treasuries even if the interest rate is lower than that of other government bonds of equivalent risk and maturity (economists call this gap the
convenience yield
).
By the close of 2024, non-residents
held
nearly $8.6 trillion in US federal debt. If its role as collateral means the interest rate on US debt is 0.5% lower than it would have been otherwise, Americans are saving $43 billion a year.
Moreover, if the convenience yield causes Treasury interest rates to fall below the economy’s growth rate, then the US benefits from a
free lunch
: it can issue government debt without ever having to repay it.
Prior to addressing the Hudson Institute, Miran admitted that “the demand for dollars has kept our borrowing costs down,” but he subsequently overlooked this significant point throughout the remainder of his talk.
He also overlooked an additional benefit of the worldwide use of the dollar: whenever the United States faces difficulties (such as post-Vietnam War masa or during the chaotic periods following Trump’s announcement of tariffs in early April), the value of the dollar tends to drop. This reduction eases the strain from the dollar-denominated debts owed globally.
Other nations that lend in their domestic currency have to charge an interest rate that accounts for this risk of depreciation. The US
does not
.
Is America’s gain the world’s loss? Not quite. People around the world benefit from having safe, dollar-denominated assets in which to save and invest. No other economy can provide the same service today.
Europe is the obvious alternative, but its capital market is far more fragmented than that of the US, since only in the last few years has the European Union (as opposed to perorangan member states) begun to issue debt instruments.
While China boasts a substantial economy, its restrictive political framework and extensive capital controls prevent global investors from flocking towards renminbi-denominated holdings.
The dollar serves as a global currency due to the historical reliability of American policies and institutions compared to those of most other nations. Should MAGA economists view this as an issue, their leader has a straightforward remedy at hand.
Through tariff impositions that breach global agreements, speculation regarding invasions of allies such as Canada and Denmark with intentions for Greenland’s control, disregarding judicial decisions, and contemplating an unconstitutional third presidential term, Trump is transforming the U.S. into resembling nations characterized by volatile currencies and elevated inflation rates.
The global response to Trump’s “Liberation Day” tariffs was clear: the dollar
lost
almost 7% of its worth compared to the euro, with the ten-year Treasury yields also seeing changes
rose
By nearly half a percentage point. The currencies of emerging and developing nations likewise declined, as increased tariffs and a decelerating global economy undermine their growth potential.
It is not easy to devise a policy that hurts almost everyone, but MAGA economists have managed this feat. If the global dollar goes down the drain as a result, it will have many mourners.
Andrés Velasco, a former finance minister of Chile, is Dean of the School of Public Policy at the London School of Economics and Political Science.
Provided by SyndiGate Media Inc. (
Syndigate.berita
).