Trump’s Policies To Dethrone The US Dollar Dominance

The US dollar has been the world’s de facto reserve currency since the end of World War II.  The US government’s policies of free trade and expansive global alliances nurtured this dominance.  However, President Trump’s disruptive policy changes in foreign trade and relations have mortally wounded the US dollar.  Indeed, the course is now set for Trump’s policies to dethrone the US dollar.

The most recent example of this is his move to exit the Iran Nuclear Deal despite the protests of America’s European allies.  Despite its flaws, the Iran Deal was working and had kept the prospect of nuclear-armed Iran a distant prospect.  The International Atomic Energy Agency (IAEA) could attest to this through their strict monitoring regime.

The United States unilaterally pulling out of the agreement essentially left America’s top allies — the United Kingdom, Germany, and France — in the lurch.  They were forced to choose between keeping their word or backing America.  They chose to keep their word.

This has effectively driven a wedge between the United States and its top allies.  The US Treasury Department will now implement sanctions on Iran that will punish anyone that conducts business with Iran in US dollars.  That includes our allies.

It will also force Iran to sell crude oil in currencies other than the US dollar.   China is ready to step into the void.  The Chinese

This is a first formative step towards dethroning the US dollar.  Until now, US dollar has been the de facto currency for all crude oil sales.  That changed in March when China launched the first Chinese yuan-denominated crude oil futures.  It only stands to reason that Iran will now shift the sale of its oil to China’s new futures and cut the US dollar out altogether.

Trump’s Policies To Dethrone The US Dollar As Looming Trade Conflicts Sap US Dollar Demand

America’s break with its allies and China doesn’t end with the Iran Nuclear Deal.  President Trump has also attacked long-standing trade agreements with China and Europe.   This has further antagonized America’s top trading partners.

That’s not to say US trade with the European Union (EU) and China doesn’t have its problems.  The US runs large trade deficits of $151.4 billion and $375.2 billion with the EU and China, respectively.  These deficits need to be addressed.

However, it is dangerous to wipe out the foundations of the global free trade system because it is not going your way.  Moreover, it is unrealistic to think the world’s largest and third largest economies will allow themselves to be bullied.

President Trump’s heavy-handed trade policies are instead likely to spur resistance.  That will inevitably lead to many countries cutting the US dollar out of transactions and shifting their foreign exchange reserves out of US dollar-denominated assets.  Accordingly, it is only a matter of time before President Trump’s policies to dethrone the US Dollar.

 

 

 

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Al Basoglu

I am a financial services professional with over a decade of experience in various roles. I've lived and worked abroad in 5 different countries while pursuing personal and professional challenges. My interests include markets, history and different cultures. I tend to weave all of my interest into my analysis and articles.