The dominance of the US dollar could be under threat due to the market chaos sparked by Donald Trump‘s tariff blitz on trading partners, policy experts have warned.
Despite the US president’s high hopes for what he has dubbed “Liberation Day,” a trio of senior researchers writing for Foreign Affairs, a magazine specialising in international relations and US foreign policy, have claimed that instead he has risked the value of the currency itself.
The authors wrote that the president’s “clumsy, erratic attempts to weaponize Washington’s economic advantages pose the greatest threat so far to the dollar’s status as a reserve currency.”
Newsweek has reached out by email to the White House seeking comment.
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Why It Matters
Global markets were rocked by the swathe of punitive tariffs that Trump has imposed on countries around the world, sparking chaos on stock exchanges over the past week.
A viral video showed the Stock Market plunging as the tariffs were announced, while this week on Wall Street began with fears of a new “Black Monday.”
Trump’s opinion polls have also nose-dived along with the stock market, but the president has insisted the carnage was a necessary evil. “I don’t want anything to go down, but sometimes you have to take medicine to fix something,” he told reporters at the weekend.
What To Know
J.P. Morgan Wealth Management explains the concept of a reserve currency, saying: “Reserve currencies are held by central banks and financial institutions to facilitate trade and investment or to influence domestic exchange rates. The U.S. dollar has functioned as the world’s dominant reserve currency since the end of World War II.”
Currently, the world’s “central banks hold nearly 60% of their foreign exchange reserves in dollars,” the company says, although it notes that the “dollar’s share of global foreign-exchange reserves has been declining for two decades.” Other popular reserve currencies include the Euro, the British pound, and the Chinese renminbi.
The current chaos sparked by Trump’s tariffs have prompted some experts to claim that the president’s policies could further threaten the dollar’s status as the world’s dominant reserve currency.
What People Are Saying
The Foreign Affairs article was published on the magazine’s website on Tuesday (April 8). Written by Edward Fishman, Gautam Jain, and Richard Nephew — who are all senior research scholars at Columbia University’s Center on Global Energy Policy (CGEP) —under the title: “How Trump Could Dethrone the Dollar.”
The authors suggested Trump’s aggressive tariff policy could see the Greenback lose “its stature as the world’s reserve currency.” They went on to add that if the threat were to be realized, the “true result of a declining dollar will be the demise of the very economic power Trump is attempting to wield.”
In terms of rivals, the Euro is the dollar’s “closest competitor,” according to the authors. But the “lack of a unified eurozone fiscal policy” has been compounded by the “geopolitical threat to Europe posed by Russian imperialism,” they said, meaning the Euro has so far not managed to scoop the dollar’s crown.
Nevertheless, the authors added: “Commanding as the dollar may be, Trump’s return to office has created a genuine threat to its status for the first time in generations. Given the lack of ready alternatives, the damage is unlikely to be immediately fatal, but the risk, and probable pace, of terminal decline has increased. At the least, Trump’s actions will erode the factors supporting the dollar’s dominance.”
Sweden’s central bank deputy governor Per Jansson, speaking to Reuters:
“If (the dollar’s status) would change, that would be a big change for the world economy … and would basically create a mess. I really do not hope the U.S. goes there.”
CEA Chairman Steve Miran, delivering remarks at Hudson Institute event:
“On the financial side, the reserve function of the dollar has caused persistent currency distortions and contributed, along with other countries’ unfair barriers to trade, to unsustainable trade deficits. These trade deficits have decimated our manufacturing sector and many working-class families and their communities, to facilitate non-Americans trading with each other.”
What Happens Next
Trump has insisted he is confident in the “medicine” his tariffs have administered, but ordinary Americans, economists, politicians on both sides of the aisle, and the rest of the world will continue to hold their breath as his economic gamble plays out.