Unlock the White House Watch watch newsletter for free
Your guide on what Trump's second term for Washington, Business and the World means
We all knew that Donald Trump thinks that the security burden supported by America is unfair and that other countries have been tearing it away for years trade and defense. It was more surprising to note that the re -elected president of the re -elected president also saying that the pre -eminent global role played by the US dollar is not the “exorbitant privilege” that it was qualified as Valéry Giscard d'Estaing as Minister of Finance of France in the 1960s, but an exorbitant charge. Now, one of the many big questions about Trump's second term is whether Kenneth Rogoff calls “the dollar era” could end.
Professor of economics at Harvard and former IMF chief economist, Rogoff is best known for This time is differentA beautiful book on financial booms and gaps through the ages he co-written in 2009 with his colleague Carmen Reinhart. This work should now have cement its title of four words in the minds of investors as a sales signal whenever it is heard, although such is the power to think that it probably did not do it.
Rogoff's new book, Our dollar, your problemAlso adopts a historic approach to global finance, although over seven decades rather than eight centuries, and has a timely warning. The net sale of the US Treasury bonds after the announcement of Trump on April 2 in the highest in America price wall For a century, Rogoff's point of view confirmed that the recently dominant belief that real interest rates will be “lower forever” is a dangerous myth. Because he sees America, and therefore the dollar, “Achille Talel”, as the 36 TN stock of the country's federal debt and the associated danger that a burden of increasing interest could lead it to a budgetary crisis.
This well written book, often surprisingly animated, reminds us of two forms of continuity. The first is that this is not the first time that an administration of Washington believed that “all foreigners are there to kiss us and it is our work to kiss them first”. These are the words of John Connally, the secretary of the Treasury of President Richard Nixon, in 1971, when he and his boss ended at the Bretton Woods exchange rate system which had fixed currencies in the dollar and gold since 1944, and briefly imposed a 10% tariff on imports until a new agreement of money is reached.
Connally is also the source of the expression that Rogoff has chosen for his title. What he meant is that America would do everything it wanted with its currency, and the world would only have to live with the consequences. Because another coherent reality has been that the dollar is the world dominant reserve, commercial and investment currency since 1945. Some 90% of all exchange transactions involve the dollar on one side or the other; The American economy represents approximately a quarter of world production, but 60% of foreign exchange reserves are held in dollars.
A series of chapters explains why in turn the Soviet Union (although never really the ruble), the Japanese yen, the European euro and the China's renminbi have all been supposed as potential rivals, but not all have managed to overthrow the powerful Dollar. The pure convenience of the greenback, thanks to the unequaled liquidity of the American financial markets, a faith widely retained in the rule of law in America and the reliability of its institutions, and the world role of the country in military security and financial surveillance have all maintained it supreme.
In recent years, the growing use of America of financial sanctions To punish or put pressure on adversaries, most radically on Russia after the invasion of Ukraine in 2022, and the associated extraterritorial use of American law, led to efforts to diversify far from the dollar by creating new payment mechanisms and even dreaming of new shared currencies, such as that discussed by the “group”. China has worked particularly hard to make itself less vulnerable to American sanctions in the event of a future conflict by building its own payment system. But none of this so far seems likely to weaken the grip of the dollar, at least as long as China makes it difficult to exchange the renminbi or convert it to other currencies.
Instead, Rogoff's condemnation is that, although other currencies such as the euro and the renminbi have a role to play as secondary reserve agents, the real threat to the dollar lies in America itself. Mainly, this lies in what he considers the carefree attitude, or perhaps reckless, towards his growing level of public debt, combined with a potential undermining institutions such as the federal reserve when inflation revives and political pressures to increase again, as they did in the Nixon era.
Had Our dollar, your problem Not gone to the press shortly after the November presidential election, this would undoubtedly have added a very immediate concern concerning the inflationary impact of the price wall that Trump established and the trade war He leads with China. Sale in US Treasury bills and the fall of the dollar after the “Liberation Day” had a lot of loss of confidence in American assets by foreign holders, but also to an increase in inflation expectations thanks to the direct impact of taxes on importing and potential for disruption of the supply chain.
In This time is differentRogoff and Reinhart drew a lot of attention, and certain criticisms, by their observation that the economic growth rates of countries tended to be slower if their public debts exceeded 90% of GDP. This was not intended to indicate a direct causal link, but rather than beyond a certain size, public debts tend to divert the resources of productive uses while requiring higher interest rates. America’s raw public debt now exceeds 120% of GDP, which gives it the highest fourth of this type among the rich countries after Japan, Greece and Italy.
The real “exorbitant privilege” of the dollar was that interest rates on American treasury bills were lower than what they could have otherwise thanks to the thirst of dollars around the world. While some Trump advisers complain that a strong dollar has given us less competitive exports, they must now pay attention to what they want, because faith in American assets among foreigners who hold around 30% of American treasury bills can fade quickly, sending interest rates in harmful spiral.
The conclusion that gives to think about Rogoff is that “if the American debt policy continues to collapse against higher real interest rates and geopolitical instability, and if political pressures limit the capacity of the federal reserve to tame inflation regularly, it will be the problem of everyone”. We will soon be able to quote Ernest Hemingway on the two ways of going bankrupt: gradually, then suddenly.
Our dollar, your problem: the vision of an initiate of seven turbulent decades of world finance and the road to come by Kenneth Rogoff Yale University Press £ 25 / $ 35, 360 pages
Bill Emmott is a former editor -in -chief of The Economist and now chairs the International Institute of Strategic Studies
Join our online books online on Facebook in Ft Books Coffee And follow the FT weekend on Instagram And X
