The dollar reigns supreme in global finance. It accounts for a dominant share of international financial transactions and is the ultimate safe haven currency. But the US currency’s supremacy cannot be taken for granted. President Donald Trump may be sowing the seeds of its demise.
Mr Trump has often called for a weaker dollar, apparently to counter other countries that he claims are taking unfair advantage of the US by weakening their currencies to boost exports. Talk is cheap, however, and such statements by themselves will hardly derail the dollar. The real damage to its standing is more insidious and comes from policies that are eroding America’s fiscal stability, its trustworthiness and the strength of its institutions.
In times of financial turmoil — including the global financial crisis, which originated in the US — panicky investors flood into US bond markets. No doubt the sheer size of the American government and corporate bond markets is a key factor. But there is something subtler and more important that accounts for the dollar’s status.