'Bitcoin will be to the dollar what social media are to the traditional media.' Tomohiro Ohsumi/Getty Images.
Valéry Giscard d’Estaing, the former French president, coined the expression of “exorbitant privilege” back in the Sixties. Then France’s finance minister, he was referring to the power of the US dollar as the world’s reserve currency, something which grants the US its current economic hegemony. Such power reaches beyond America’s shores, and even those of its closest allies. It isn’t earned by being large, rich or successful. It has nothing to do with technological leadership, or the size of its army. Rather, it is linked directly to the dollar’s role in the global financial system.
Economic hegemony consists of your ability to use your economic power, your currency and your financial system to impose your will on others. Essentially coercion. Any bank that still does business with Russia, for example, risks being cut off from the US dollar markets. Given the importance of the dollar in the global financial system, countries are given no choice but to comply with US policies. Many economists are therefore sanguine about the future of US global economic hegemony. I however disagree. I think Trump’s economic policy will lead to a dwindling of America’s exorbitant privilege.
Ben Bernanke, the former governor of the Federal Reserve, once listed four services the dollar provides to the global economy: stability of value, liquidity, safety, and the role of the US as lender of last resort. Bernanke himself was instrumental in backstopping the world economy during the global financial crisis, thereby shoring up its exorbitant privilege. “The Fed served as a backstop provider of dollars during the financial crisis by instituting currency swaps with fourteen central banks, including four in emerging markets,” Bernanke recalled almost a decade after the crisis.
The US dollar didn’t assume its role as the leading global currency until after the Second World War, as the anchor of Bretton Woods, the financial system created in 1944. The deal was that the rest of the world would run fixed exchange rates against the dollar, which itself was pegged to gold. The system started to disintegrate in the Sixties, and its death came in stages. In 1971, Richard Nixon ended the convertibility of the dollars into gold. In 1973, the fixed exchange rates were dropped. Bretton Woods formally ended in 1976.
At that point, the world moved over to flexible exchange rates. This, it turned out, only strengthened US economic hegemony. It was based on a Faustian pact between countries that relied on exports, such as China and Germany, and a US that was willing to absorb the deficit. So if, for example, China sells more video consoles to the US, and Germany sells more cars, they both end up earning dollars that they then invest in the US. America’s legendary trade deficits — those that Trump hates so much — are directly related to these flows of dollars in the financial system.
These trade and savings imbalances were the engines of turbo-globalisation. Macroeconomists, and trade economists especially, love this stuff because it gels with an underlying ideology that says free global trade is beneficial to everybody, always and everywhere. But the big flaw is that it benefits some people more than others. In the end, the voters decided.They voted for Trump and for his trade policies. They didn’t listen to the economists. Politics intruded.
Geopolitics intruded, too. During the era of rampant globalisation, Germany made itself dependent on cheap gas from Russia, on exports to China, and on defence from the US. This fragmentation essentially destroyed the German economic model, traditionally based on industry, leaving it dangerously imbalanced and vulnerable.
Even vaster changes could soon arrive. Trump’s first presidency gave us a hint that the era of one-world globalisation was nearing its end. But back then, he was not as focused as he appears to be now. If he succeeds in eradicating America’s big bilateral trade deficits — against Mexico, Canada, China and the EU — the dynamics of global trade and finance could change fundamentally. As the countries that relied so much on their ability to export to the US have to trade more with each other, there will be less need to use the dollar for international transactions. Inevitably, the exorbitant privilege will decline.
Privilege also declines the more you wield that power. After Russia invaded Ukraine, the US, and EU governments, froze Russia’s reserve assets invested there. Foreign investors are now starting to question whether their US-invested money in Ukraine is still safe. Bernanke’s claim that the dollars offered the service of “safety” and “liquidity” certainly does not conform with Russia’s experience — and it will not keep its money in America and Europe when the war ends. Meanwhile, those countries which have not taken sides are watching Western sanctions with concern. The Chinese, for example, have started to reduce their exposure to US markets.
The turbulence is all complicated by the internal inconsistency to Trump’s economic policies: he wants to close the trade deficit, but he also wants the US dollar to remain the most important currency. Scott Bessent, Trump’s treasury secretary, is the man in charge of managing those conflicting objectives — probably the hardest job in the Trump administration right now. Bessent used to be a brilliant investor — one of the brains behind George Soros’ spectacular bet against the Bank of England in 1992, that ended with the pound’s exit from Europe’s exchange rate mechanism. But even he would struggle to meet the logically conflicting goals Trump has set for his economic policy: if the administration succeeds in cutting down the US trade deficit, as well as the budget deficit, and returns the economy to a more balanced position, it will not immediately end the role of the dollar as the leading global currency. These shifts take time. But it will set the ball rolling.
There is another problem. Technology is changing finance. The most likely future competitor to the dollar as a global transaction currency may not be the euro, the renminbi, or another fiat currency. It could be bitcoin. Trump’s administration is also busy deregulating the crypto industry because the President has proclaimed that he wanted all bitcoins to be in the US. I almost fell off my chair when he said this. Bitcoin is not like a stock or a bond that you own. To Americanise it would be as futile as the attempt to bring the entire internet into your village.
The inconsistency in Trump’s economic policy goals isn’t going unnoticed. Some smart investors I know are currently pouring a lot of their wealth into gold and bitcoin. And like me, they are sceptical about whether the West will get on top of inflation. I am also not sure that Trump really cares as much about inflation as he pretended during the campaign. But I do believe he is serious about the tariffs. A sharp-minded investor would, therefore, realise that this is a strategy that would be very positive for alternative investments such as Bitcoin and gold, and very bad for investments that thrive in environments of stable and low inflation, such as government bonds.
How will this play out? I believe Trump’s tariffs will come. The US trade deficit will decline. An increasing volume of global trade will take place outside the US and the EU will cautiously reconnect with China. The dollar will remain the leading global currency for a while — certainly for the duration of Trump’s presidency. But it will start to lose its dominance, at which point more people will turn to bitcoin. It will be to the dollar what social media is to the traditional media. First it was ridiculed. Then, suddenly, it became an existential threat. And then, the traditional media became the legacy media.
Trump’s policies will lead to a long-term erosion of not America’s global power, but of its ability to use economic coercion to make the rest of the world comply with its priorities. America’s exorbitant privilege came with a price. The rest of the world accepted US global leadership not out of deference but because it was a good deal for almost everybody. With Trump, that won’t be the case any longer. Americans will find that they can still live comfortable lives without the exorbitant privilege, but foreign policy will get a lot harder.
Wolfgang I think that’s a really naive take. What currency is possibly in a position to compete with the dollar? The euro is doomed, there’s no way the west decides to go with China, and none of the other major currencies have the brand recognition. Trump is adopting the ‘old normal’ and in most cases, only seeking parity with trading partners who’ve benefited from massive surpluses for years.
A single currency doesn’t necessarily have to replace it, you’ll simply see a majority of trade completed in numerous different currencies, and others will stop having US $ in reserve
Thanks for the reply Billy. I would accept that there might be more investors trying to diversify currency reserves (especially towards China) in the coming years, but I think that would happen regardless of the tariffs or not. That said, I can’t see the dollar being replaced as the global currency by a mishmash of other national currencies any more than I can see Blue Sky usurping Twitter/X
That’s what the BRICS nations keep on saying, as if they can make it so just by saying it, and have obliging western media reporting it, but the only currencies I can see being billed in in my industry are USD (even for Russia before we pulled out in Feb 2022), GBP, EUR, NOK, Saudi Riyals and UAE Dirhams.
China is too busy making cheap failure-prone copies of our specific technology to buy any more.
.it seems you missed what he said what will replace the USD Evan. Money is a technology, and the presently centrally controlled fiat monies will be replaced by the decentralized blockchain cryptos. A significant power redistribution indeed.
Money is not a technology- it’s a belief in a promise. Bitcoin implies there’s no need for a central bank to protect us from human economic foolishness. Who will bail out the average person once bitcoin , like all software. gets hacked .
Bitcoin is based on decentralized blockchain technology, it is not really ‘software’. So, although it’s possible to hack an exchange or wallet, bitcoin itself cannot really be hacked in the traditional sense.
it’s software . in fact a rather clunky general ledger system at that with poor scalability . ( sorry but as systems engineer with 30 years experience it is far for infallible)
So how could a complete bitcoin hack work? The bitcoin core software can have vulnerabilities but that does not mean that the blockchain itself is hacked. I’m not a specialist on cryptocurrencies, but the only serious vulnerability I can think of is that something like quantum computing undermines the proof of work principle. This would, in theory, sideline all miners, which effectively allows you to take control of the blockchain. But even then you’d still have backups of what the blockchain looked like before that happened.
…not sure why you can’t see that a ‘belief in a promise’ is one of humanity’s earliest technological advances. But anyway, that trust is also the central weakness of traditional money. Blockchain technology eliminates the need for trust, and therefore the need for worthy trustees. (You still have to trust yourself though, to remember your code!)
“Money is not a technology- it’s a belief in a promise.”
You’ve just described the major weakness of non-digital currencies that’s crying out for an innovative answer.
Thanks for the reply Bernard. Perhaps I will be proven wrong, but I don’t think that people will be happy with long term savings being in assets like bitcoin or other cryptos. Time will tell but I would bet my entire bitcoin wallet on the dollar being stronger against the euro and pound when Trump leaves office than it is today.
I think the USD will be stronger too. BTC is not going to eliminate the dollar’s transactional function, except in the very long run, but it will likely supplement its implied asset base.
The article accurately describes the reality of the dollar’s status as the global reserve currency and it’s pending demise, but it omits or not enough space an important historical detail that may explain the role of gold standard removal. The gold standard failed primarily due to the Vietnam War, which depleted U.S. gold reserves. When the U.S. transitioned to fiat money, it emerged as the world’s leading economy because there were no longer constraints tied to gold reserves.
What they didn’t foresee was that running massive deficits would eventually limit their own financial flexibility. Additionally, during this period in Nixon presidency, the U.S. invited China into American sphere. As a result, China and the U.S. became deeply intertwined, and the Chinese began learning from the master, studying the very system that had elevated America’s economic dominance to avoid same pitfalls!
This is worth a closer study.
The next commodity will not be profit driven but genuine innovation – show what you can do, not empty financial speculation controlled by the few.
Unless the commodity is bs you have no argument.
Ideas and concepts should not be patentable—just like no one can claim ownership over the concept of highways, the coffee you drink every day, or the toilet you use. People should be compensated fairly for their contributions, but the end product must remain open to innovation and improvement, pushing ideas forward rather than trapping them in endless litigation and patent blackmail.
These outdated systems and restrictions are collapsing. They do not work anymore. No one is obligated to follow arbitrary rules simply because we declare them valid. Rules have to have principles and make sense to the world they rule not just few people without any true talent controlling the world creativity!
With technology, stealing becomes meaningless when the goal is progress—if it improves the phone you’re using right now, why should it be hoarded? Patents and intellectual property were not designed to protect innovation; they were created to divide and control. But that era is ending.
If you have new idea or concept or a product, do it, get compensated, maybe have some prestige like Nobel peace prize but you cannot hoard it for life!
It is no longer who has the patent but who can create!
So the next commodity: who can innovate faster than whom? and to the end for humanity not just for your pockets!
I now scary but you will benefit too. I bet you have some ideas.
I believe that Trump knows that it is inevitable that the dollar is going to lose it’s place as the world’s reserve currency. Hyper-financialization, Keynesian economics, and economic stimulus has driven the debt in the US (along with inflation) to unsustainable levels. The Biden admin’s unprecedented creation of new dollars along with it’s overuse of sanctions with the risky scheme of seeking to regime change, break up and harvest Russia drove the BRICS nations to act, creating the M-Bridge alternative to Swift, ever more resolving trade in their own currencies and even convincing Saudi Arabia (into BRICS?) to resolve oil transactions in their own currencies, which put an end to Nixon’s gold standard alternative, the Petrodollar. So, the reserve status was already irretrievably broken before Trump came into office.
Trump is the only Western politician that I know of that even speaks about BRICS and these things that threaten the dollar. He is also speaking of a Bitcoin reserve, and sees crypto as part of the path forward to help protect the value of the dollar. This, in addition to his recent moves to mark out the US’s future spheres of influence such as commodity rich Greenland, Canada, and South America as being it’s regional sphere of influence in the new mercantilist (as opposed to globalist) future has convinced me that he is actually much more forward thinking that people give him credit for.
Central banks are already beefing up their gold reserves, and US Treasuries required for dollar trade resolutions are starting to be sold off, and with Trump going after and shutting off the economic spigot soft-power projection (and some would say regime change tool) NGO creation mechanism USAID, he is pulling the US out of the global hegemon game on his terms.
So, Trump is actually far ahead of most in understanding the changing world, and has already moved the United States chess pieces into a much more defendable and economically sustainable stance.
To answer the article, yes the US dollar is going away as the worlds reserve currency, but will it be destroyed? I don’t think so. I believe that Trump is actually in the process of saving it. The tariffs are a necessary part of the future of protecting the US worker, and US industry. Trump is pulling manufacturing into the US while it’s still a large enough economic player to force that.
The trade wars, the brinkmanship is an inevitable part of the multi-polar world Trump is now helping to shape. The US dollar will most probably only survive because of Trump and his flip the chessboard over and start a new game sort of moves that no one saw coming. It’s sort of amazing to watch it all unfold.
During the first Trump presidency the M2 money supply went from approximately 12 to 20 trillion. Much of that was of course due to the pandemic. However, during the the Biden presidency the M2 money supply did not move much at all. He did increase the national debt a lot, pushing more money into the real economy. However, new money was not really created much since high interest rates discourages credit money creation and the Fed finally stopped buying bonds.
A realistic visionary construct. Trump, the author and commentators have hit the nail square on its head. Proactive policies such as those expressed will position the world financial system to continue to generate jobs, wealth and progress. All critical constituents of a stable, safe and secure global environment.
Somebody needs Bitcoin to do well, it seems. Writing articles like this is one way to encourage people to keep putting money into it. Real life will intervene at some point as always, but for now the music hasn’t stopped.
For the record, I am fully aware that a lot of people are making good money off Bitcoin right now, but one thing it definitely is not is a stable, reliable currency.
Fomo can go on for a while , until it ends, then the bubbles burst. Crypto is a giant ponzi scheme, backed by nothing
The bitcoin community who “mined” bitcoins for next to nothing are still the dominant owners and would love to sell them all to the US. They must have already sold enough to invest around US$ 200 billion in US treasury bills and that may yet reach US$ 1 trillion. They are not under any obligation to use any of this money to buy them back, why should they? When they have sold all of them, their sales will no longer stabilise the price, which will sky rocket. Everyone will rush to cash in and the price will then crash to zero. A few fleet of foot investors will make substantial profits but the more that try to, the smaller the window of opportunity will be. Bitcoins do not create wealth, they transfer it. You only make a profit when you sell and it is naive to assume that someone will be there to buy it when something else might be more fashionable.
https://www.bloomberg.com/opinion/articles/2024-06-27/the-petrodollar-is-dead-long-live-the-petrodollar
Hmm, if it grows in market cap then will stabilise..if it goes from 2 trillion to 20 trillion then it becomes harder to kove price. It is volatile but in an upward trajectory..it has also increased in market cap relative to other “cryptos” etherium for example is way down from around 60% in last bull market of bitcoin to somewhere around 15-20%. If US is forced to print due to liquidity event or to pay back national debt then bitcoin will retain purchasing power relative to doller. Btw i dont agree with author that btc will take over from doller. I think the renminbi and gold will do most of that job. Btc might well crash with the magnificent 7 in next 6 months but btc will remain in the west as a medium to long term hedge against money printing
Isn’t the problem with the hedge statement that it already crashed when inflation skyrocketed back in 2022? So, to date at least, that argument doesn’t hold very well. Its fair to say that that nothing really suggests that will be the case.
Well short term i agree but if you scale out to 5 year timeframe then it does work as a store of value. If for example you put 20 quid a week over any 5 year period ( even picking the least favourable 5 year period) you would be much better off then cash in the bank and you would probably have at leadt doubled your money. But if you put all your savings in in one week at the top then a good chance you will be unlucky because it is volatile in the short term
Its a speculative tool where that would work up to now, agreed. If, finally, the price settles at say $50k (or $90k, $10k, $5k etc lets be honest we don’t know) once the novelty has worn off and inflows/outflows are kind of neutral/stable, surely only then would we know if that’s the case. For now, the assumption, based on no known fact or underlying value, is that it will keep increasing. Which sounds awfully familiar.
I’m reluctant to let go of the fact that, despite ridiculous government spending, fantasy public assumptions about healthcare and pension expenditure etc, a currency (in total) should represent roughly the value of:
Physical Infrastructure + Education + Professional skills + Entrepreneurial spirit etc etc – debt & expenses.
So i’m still struggling to put an actual value on a digital coin, long-term. But it should become clearer over time.
I think the relevent point here is we underestimate the crazy money printing that goes on. Basically money now gets created ( borrowed) based on assets. E.g. if you own 20 houses you can easily get a “loan”( really money created out of nothing) to buy another house so the deck is hopelessly stacked in favour of asset owners. If you zoom out, you could once buy a house for 100£ , then 1000£s , then 10,000 £ and 100,000£s . This is now moving towards 1,000,000£. So the extent of money creation is way higher over 5/10/20 years then we percieve living day to day. So if btc keeps working it will keep going up in doller terms as supply is fixed and money creation will just keep continuing. Have a read of The big print , bitcoin standard for more info.
I suggest we revisit this conversation in 5 years time then again in 10. For now though, I have got my hands on a copy of the book you mention, thanks for the tip.
Ok, bitcoin: the bit I (sort of) get is that there will only ever be 21,000,000 bitcoin…. the supply is fixed… forever… so (they say) it’s digital gold… there can never be any more… which makes it really valuable… although (confusingly, to dull people like me) it has no intrinsic value whatsoever…
The bit I get even less is, what about the 21,000,000 sh*tco*n, someone could come up with, or butcoin, or crapcoin, or duffcoin, 21m. mugscoin… 21m. plebcoin, 21,000,000 concoin, all of them limited to just 21,000,000, all totally worthless, and not so “rare” at all. Reminds me of Tulip Mania… but I’m probably too thick to get it.
Yes, in theory you have a point but btc has a much higher market cap then others and therefore attracts more investment and therefore increases its dominance of the crypto space further in a positive feedback loop. Around 2021 i think eth got to near 60% but has since fallen back to 15-20% so really it is only going one way. Of course most of these meme coins are scams and should be avoided but as bitcoin continues accrueing a larger market cap it looks more and more attractive to big investment funds etc. Its attractiveness is also down to the fact that it is decentralised ( noone controls issuence etc.) and easy to audit and open source. So even though it is an open field to create crypto currencies btc looks like a clear winner at present.
Not yet he said.
I bet you saw that collapse of legacy media coming too?
Moved my comment to below…
Every year, experts predict the dollar’s funeral.
And every year, the competitor currencies who must necessarily soak up those dollar losses get weaker & weaker.
Globalism has failed its primary modern architect and is slated to be replaced, and this may make some sad or worried about uncertainty moving forward.
But when betting on the winners and losers, only an analysis of the risks faced by ALL currencies can be accurate.
And with the ongoing feebleness shown by BRICS, the euro (!!) and the pound
-to say nothing of a China who can’t begin to afford the cost of a world-leading renminbi-
there is really no one left to soak up, at scale needed, the value theoretically lost by the dollar.
Crypto may indeed change the game – but for ALL currencies, not just one – and in that case, it’s highly risky (or wishful thinking) to bet against the giant, wealthy, resource-laden, deeply-moated co-source of future innovation.
The dollar has the worst outlook, yes, after all the other currencies.
I agree completely Christopher, you said more elegantly what I was trying to express with my own post. When you look around at the other currencies in the running, they are all in a poorer state in my opinion. If the article was about FIAT currencies in general I’d have been more inclined to agree.
Spot on-don’t bet against the greenback long term-you’ll get wiped out.That was the mantra in 1980’s and I can’t see much has changed despite annual death writes from various commentators.I mean-the Euro was going to displace or at least rival the $ -its been going 25 years and is on the sick bed.
Just watch what happens to Capital Flows next time there is a major world event-plus ca change.
Your last line above says it all and it always has been the case. Commentators used to use the term, “flight to safety” when global financial eruptions took place. Investors of all stripes would buy U.S. debt instruments in a flight to safety. I’m not aware of anyone who piled into RMB’s.
The author’s thesis is that the dollar is set to lose it’s reserve currency status over the next few years as the great global trade deficits even out, the other great powers and blocks (viz China, the EU and Russia) will no longer hold reserves at scale in the dollar, and this combination of circumstances will drive a ramp in both gold and bitcoin.
I buy parts of that story, but reach different long term conclusions. Let’s rewind back to the start for a moment. Gold was humanity’s first large scale representative abstraction over the barter of tradable goods services and people, and it persisted all the way into the heart of modernity, and only lost it’s status, due to conscious choices by the US, on the back of the last century’s great wars, and the need for accounting tricks to cope with the vastly greater flows of goods, services and people, all driven by technology, at the onset of globalisation.
The juxtaposition of gold, the oldest human abstraction over tradable assets, and bitcoin, the newest, is I’m sure not lost on anyone. I agree gold is set to rise, probably multifold, over the next couple of decades. I also agree bitcoin will also ramp, probably even more aggressively in the first instance. However, I think unlike gold, bitcoin will eventually come crashing back down. The reason is that technology enables the original purpose of the need for abstractions over tradable assets to be bypassed altogether. Bitcoin is in effect a watertight ledgering mechanism, over already existing abstractions like gold and reserves and debt bearer obligations. In effect, something like a derivative over a derivative. Every time in the past we have seen the ballooning of such complex tertiary instruments, we eventually get a crash – not least because the value of the derivative instruments surpasses the value of the original assets they are modelling. But there is a more fundamental reason. Blockchain technologies will now allow the direct ledgering of the movement of tradable goods, services and people – in effect the return of direct barter, but technologised. Why would you then need abstractions like bitcoin, or reserve currencies at all?
Monetary systems did not evolve out of barter thought. It’s what Adam Smith assumed but research shows trade was most likely always debt-based. So then money is just an instrument to do the bookkeeping.
Certainly the bet I’m making as a “gold pouring” investor and I agree they are set to continue. Despite the chatter about Bitcoin reserves, I believe gold revaluation remains one way to resolve the debt issue, and it is notable that gold acquisition has been by central banks in recent years. Obviously given the relative gold holdings by China/Russia (China now estimated at 30k tonnes) this would have huge geoeconomic ramifications, but it remains a viable path through the fiscal wood.
Author believes Trump’s tariffs will come and by implication it’ll lead to some US reshoring and/or more opening up of markets for US goods. This then potentially benefitting the ‘little guy’ and ‘left behinds’ who supported Trump.
However more likely Trump’s tariffs occasional transactional negotiating tactic than any real endeavour to reshore millions of secure, well paid manufacturing jobs to the US. He also watches Wall st too much and as we’ve already seen buckles quickly if markets indicate disapproval.
On Cypto – Trump’s deregulation just as likely to kill it with a bubble and bust. Wise investors as likely now to be more cautious.
So I doubt the Dollar’s position going to be fundamentally weakened short/medium term, but not for the reasons Author gives but rather primarily because Trump is more bark than bite and will set off more chaos leading to more security sought in dollars. The losers will be his base.
Supposing he turns base metal into gold?
It’s true that for him to square the many contradictions he needs to be quite an Alchemist. Fairytales rarely happen in the real World though LL.
Fairytales don’t arise from alchemy – it’s a non sequitur jw. For ‘alchemy’, substitute all those things people never thought would happen which are now happening with Trump – in the Real World
Your first paragraph – I don’t think the author is saying any of that at all – did we read the same article?
Penultimate paragraph, first line.
“Trump didn’t listen to Economists” He does- just not the ones you like perhaps. Steve Miran (current US Commerce) explains the strategy very well in his (bit lengthy) strategy doc last year. The key point he makes in the equation is that tariffs are a tool to be used in conjunction to weaken the dollar. The dollar is overvalued, so the US needs to weaken it to restore trade balance. I’m not sure it’ll work, but you can’t deny the US has an economic strategy. In some respects they have no choice.
Weakening the dollar is known as the “Plaza Accord” strategy. It worked against Japan in the 1990s, but it will not work against China because China can afford to devalue its currency and sustain it longer than the U.S. can maintain a weak dollar. This is an old tactic, but it is no longer effective in today’s world.
The real issue, which no one wants to address, is: What is the purpose of profit hoarding by a few individuals instead of using wealth to benefit the population first? What’s wrong with equal fiat currency for everyone? Profit is starting to resemble a form of mental illness—hoarding for the sake of hoarding.Has it always been this way? Yes, but times change. Economics change! We are not exchanging a load potato anymore either!
Perhaps profit for its own sake has become an albatross around our necks.
We are standing on the precipice of something fundamentally shifting.
Investment does not necessarily need profit hoarding as much as passionate pursuit to create something.
All good analysis, but the link to Bitcoin tenuous. It might or might not be a good asset investment in the future, but it’s not likely to become a globally accepted currency, in part because of what makes it an attractive asset, vis there’s a finite quantity of it.
Personally I don’t believe Trump’s tariffs will hold, but they will serve a short-term purpose. The loss of US hegemony is spurred by and reflected in many things: I would argue sanctions were far more injurious than tariffs in throwing Russia into the arms of China and a meaningful attempt to form the BRICs. Cycles are bigger than individual policies. We are heading for a multi-polar world – the question is simply whether we get there without the system breaking and war.
America set up the postwar system to allow the combatant countries to recover, economically. The alternatives would’ve resembled the Versailles Treaty of WWI.
Most if not all of the parties involved are now deceased, or nearly so. Today, America is less interested in becoming the dumping ground for all the world’s exports, as this forces us to incur large trade deficits, erases our own industrial base (which we’ll need during wartime to avoid defeat), and turns our own industrial workers into store clerks.
Europe can allow its citizens to buy things. They’ll be happier having more, rather than less. They could even buy some of our products. They could also cut their bloated public sectors, and lessen the tax and regulatory burdens on their own citizens, and even maintain a standing military.
No cuddling up to the neo-fascist CCP would be necessary.
Nor will we in the US need bitcoins and AI and solar panels to drill, mine, smelt, weld, and hammer.
Don’t worry. We will still buy BMWs, Mercedes, Swiss watches, and fine wines. I much prefer my E 350 to a pickup truck, personally, and Lagavullin to Budweiser. But we have a lot of rebuilding of our own to do. Enschuldegun, Deutschland.
It has surely been to do with the US Navy.
That aside, everyone worries that Trump doesn’t get this, but then again, he tends to settle quite easily once there’s some small concession in his favour that he can declare the greatest ever.
The author seems to assume we have free trade now.Most countries apply tariffs to something,Trump just wants to change the existing tariff system in his favour
Every article by this guy essentially boils down to, the EU needs to get into bed with China. On the take from the CCP?
Who else would people trust, the Chinese, the EU, the British yes, but give the idiot Starmer another week.
The US is the only option, now even more so, given that Trump is seen as loyal to the US, would you trust Biden after he sold out his country and then the Presidency to the Chinese, and anyone else with a wad of cash.
Grow up, the US is now doing the right thing, after trying everything else.
I think the article would have benefited greatly from being one sentence:
.
Everything Trump does is wrong
.
Honest, clear, and compelling.
.
P.S. dollar as the world’s reserve currency… grants the US its current economic hegemony – Who believes this?
As an American being the global hegemon is not something desirable any longer. I think WM is correct in that it is time for a multi-polar world now. Bring our troops home and leave NATO to the EU. We can focus on innovation and use our energy independence to address problems at home. Fix the schools, cut govt debt and improve infrastructure. If countries want to trade with us then fine, but if they don’t then we can find other ways to source goods & services.
If you can’t source something internally and other countries don’t want to trade, you’d be invading them then?
1. Bernanke fans automatically call their wisdom into question.
2. China and German cultures are traditionally non-consumer; high savings. The rest of the wealthy west and Japan are aging and depopulating. India snd thevrest too poor. Where will China find new markets?
“Americans will find that they can still live comfortable lives without the exorbitant privilege, but foreign policy will get a lot harder.”
That sounds like a pretty good trade-off to me. One thing that a lot of pundits are missing is that the people are willing to make some sacrifices in order to right the boat.
The same was true about Brexit. The pro-Brexit voters didn’t care too much about the GDP of the UK, as long as immigration got fixed. The GDP never did plummet as predicted, but unfortunately the Brits are still waiting for immigration to even just slow down a bit.
Yup, the “extraordinary privilege” is bundled with extraordinary burdens, and those burdens are largely borne by the kind of people who populate films like Michael Moore’s The Big One (1997).
It is very nice that this essay makes some contact with the question of what alternatives there may be to the dollar. Do folks really want to hitch their wagon to the Renminbi or the Euro? Who knows where the Bitcoin phenomenon will go, but at least it operates under tight rules unlike fiat currencies.
It’s the end of hegemony by design. America doesn’t need/want to be global policeman any longer
Another doom and gloom wish list for America.
I do hope Unherd doesn’t slide off into the same leftist pit so many other publications have done. It’s tough to stay the course because so many journalists are leftists.
Great analysis of where the geopolitical World finds itself, and it all makes good sense, except …
what about the possibility of #Trump revaluing the US gold stocks from $42 to … $3000 or $23,000
what would that do to the dollar, trade and bitcoin ?
Oil exporters’ reliance on the U.S. dollar as the principal means of exchange and store of value reflected the dollar’s already established role as the global reserve currency, which continues without serious challenge. The USD stands at about 58% of the world’s reserve currencies, down from more than 70% at the beginning of the century, but still far higher than competitor currencies.(1)
The U.S. formed a series of strategic agreements with Saudi Arabia and other OPEC countries to stabilize the dollar and maintain its global dominance. Though not mandating using dollars for oil transactions, these agreements created a system where oil-exporting nations would price their oil in dollars, invest their surplus dollar reserves in U.S. Treasurys, and buy U.S. goods and services. In return, the U.S. tacitly provided military protection and access to its markets.(28)(29) As a result, the dollar became the default currency for oil transactions.
However, Saudi Arabia had increasingly denominated much of its oil transactions in USD in the ensuing decades. This changed in the early 2020s as the kingdom began negotiating oil sales in other currencies.(25) But this is six and one-half dozen of another: the Saudi riyal remains pegged to the dollar, and the country’s financial assets are primarily denominated in dollars. The dollar’s reserve status depends more on how money is stored than how transactions are denominated.
The petrodollar system’s demise is not looming, and the U.S. dollar’s strength remains secure despite the gradual diversification of global reserves.(27)
In mid-2024, inaccurate headlines claimed that Saudi Arabia failed to renew a secret 50-year deal with the U.S. to keep oil priced in dollars.(24)
The viral story, which seems to have originated in the crypto world, is an example of confirmation bias among those eager to see the dollar’s decline; there’s profit for many out there holding crypto and other assets if others can be convinced to put their dollars there instead. Always treat such stories skeptically: while events happen, the U.S. dollar has what cryptocurrencies won’t have for a long time, if ever—a vast global system premised on its success.
As of 2023, approximately 80% of the world’s oil transactions are priced in U.S. dollars.(25)
As of 2023, the U.S. economy still accounted for almost a quarter of global gross domestic product—and was more than 40% larger than its nearest rival, China.(20)(21)
Global economies continue to evolve in ways that can ease stress on the system. For example, the U.S. has been a net oil and petroleum products exporter in recent years, reducing the flow of “petrodollars” in favor of dollars accruing to oil-producing states like Texas.(23)
$888 Billion
The global net oil export revenue from OPEC members in 2022, according to the U.S. Energy Information Association. (13)
Recycling of petrodollars: Oil-exporting countries often invest their excess U.S. dollars in U.S. Treasury securities and other dollar-denominated assets to keep them safe while earning a return. This process, known as petrodollar recycling, helps finance the U.S. government’s budget and trade deficits.(3)
https://www.investopedia.com/articles/forex/072915/how-petrodollars-affect-us-dollar.asp
Excellent piece but there should be an acknowledgment of @michaelxpettis who has been saying these things (except for bitcoin and gold) for years now.
Dream on.
I’ll be honest. I have not read any anti-Trump articles by UnHerd although I am a subscriber. What articles I have perused they are all ant-Trump or anti-American. I expect more from UnHerd. I can get enough anti-Trump from any lamestream media. What I did read at a glance is outright stupid and narrow minded.
The US owes too much and has gotten bogged down in the Ukraine. It is dependent on shale gas exports but that could dry up with the very same Ukraine truce. It is malaise and confirms the fears I had about a confused 2nd Trump administration, certainly confused about the right economic direction.
The problem with bitcoin is its value is only in what it’s worth in a fiat currency. I know people who have said a version of “if I had of held onto my bitcoin I’d be x rich by now”. It’s only worth anything to you when you sell it. It’s a bit like billionaires who are worth their weight in paper shares. But those shares can go down very quickly if they were to be converted to actual cash.
The great intrigue of economics is that it isn’t science. It’s speculation at best, guess work at worst. If a single person had ever worked out economics the system would be working smoothly by now. But the law of unintended consequences means this just isn’t so.