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There’s a paradox at the heart of global
inance. The U.S.
share of the world economy has drifted lower for decades,
and now President Trump is retreating from the American
chief executive’s traditional role as Leader of the Free World.
Yet the U.S. dollar remains, as the saying goes, almighty.
“American exceptionalism has never been this stark,” Ruchir
Sharma, head of emerging markets and chief global strategist
for Morgan Stanley Investment Management, said at a Council
on Foreign Relations symposium on Sept. 24.
By the latest tally of the European Central Bank, America’s
currency makes up two-thirds of international debt and a like
share of global reserve holdings. Oil and gold are priced in
dollars, not euros or yen. When Somali pirates hold up ships
at sea, it’s dollars they demand. And threats to be cut of from
the dollar-based global payments system strike terror into the
likes of Iran, North Korea, and Russia. It’s no exaggeration to
say that the dollar’s primacy is at least as valuable to the U.S.
as a couple of aircraft carrier strike groups.
Now the dollar paradox shows signs of unraveling. Political
leaders who once accepted the dollar’s hegemony, grudgingly
or otherwise, are pushing back. Jean-Claude Juncker, the pres-
ident of the European Commission, said in September that
it’s “absurd” that European companies buy European planes
in the American currency instead of their own. In March,
China challenged the dollar’s dominance in the global energy
markets with a yuan-denominated crude oil futures contract.
Russia slashed its dollar holdings this year, claiming (inaccu-
rately) that the greenback is “becoming a risky instrument
in international settlements.” And French Finance Minister
Bruno Le Maire told reporters in August that he wants inanc-
ing instruments that are “totally independent” of the U.S.,
14
REMARKS
○ The incumbent international
currency has been American
for decades. Is it time for regime
change?
○ By Peter Coy
The
Tyranny
Of the
U.S.Dollar
saying, “I want
Europe to be a
sovereign conti-
nent, not a vassal.”
This disturbance
in the force isn’t good
news for the U.S. The
dollar’s preeminent role
in global finance is an
“exorbitant privilege,” as
Valéry Giscard d’Estaing, then
France’s inance minister, said
in 1965. If the dollar loses its cen-
tral role—to be sure, not an immi-
nent threat—the U.S. will be more
vulnerable when there’s a loss of
investor confidence. The Federal
Reserve might even have to do what
other nations do when global investors
panic: jack up interest rates to painful lev-
els to keep speculative money from lowing
out. As it is now, when trouble breaks out,
investors lood into U.S. markets seeking ref-
uge, oddly enough even when the U.S. itself is
the source of the problem, as it was in last decade’s
global inancial crisis.
A slippage in the dollar could also be viewed as
a symptom of U.S. isolationism. “In a hypothetical
scenario where the U.S. withdraws from the world,”
damage to the dollar’s standing could cause average U.S.
interest rates to rise by 0.8 percentage point, according
PHOTO ILLUSTRATION BY 731; PHOTO: GETTY IMAGES