President Trump and his economic advisor Stephen Miran are trying to justify their aggressive pricing policy by the need to reduce the chronic deficit in the United States trade balance and avoid an exponential increase in public debt.
The problem that arises is: how to maintain the confidence of international investors when, year after year, the American trade deficit exceeds 3 % of GDP? Trump’s budgetary projects, which combine tax reductions for the richest and ambitious expenditure, could increase the public debt of the United States by 20 %, which already reaching 110 % of GDP.
Would this not risk considerably increasing the cost of interest, which already goes beyond the country’s military budget, in a context where the share of the American economy in the world economy continues to decrease?
The outrageous privilege of the dollar …
What is new is that Stephen Miran and his supports have realized that the global use of the dollar as reserve currency and the incessant demand for investors for workers labeled in dollars, perceived as the safest, lead to an overvaluation of the dollar, harming the competitiveness of the American manufacturing industry. Stephen Miran refers to the Belgian economist Robert Triffin (1911-1993), who, from the 1950s, had formulated his famous dilemma: “A national currency used as a global currency cannot simultaneously meet the macroeconomic stability objectives of the issuing country and the liquidity needs of the global economy”.
However, the American and other well -popular heads, refuse to draw the systemic consequences of this awareness, namely the need for a cooperative approach aimed at establishing a multilateral currency which would not be backed by a national economy, in order to lastingly respond to the needs of liquidity and safe assets worldwide.
Instead, they wish to maintain what Giscard d’Estaing had called in 1965 ” The exorbitant privilege From the dollar, allowing the United States to live above its means and impose its foreign policy objectives by controlling international payments, which almost always pass through American banks due to the use of the dollar.
The Trump administration’s economic and monetary program essentially aims to transfer the cost of the current system to other nations, preserving the financial and geopolitical advantages of Dollar supremacy. By establishing a pricing shock, the administration seeks to intimidate its partners and to create a new balance of power, while announcing that a more restrictive next step would force the partners of the United States to accept monetary realignment, substantially devalting the dollar, while imposing on them, under the threat of a loss of military protection, to continue to finance the American treasury on favorable conditions and more and more and more long.
A plurality of reserve currencies?
The disorder on the financial markets, with the increase in the rates of long -term US long -term obligations, reflects an increasing doubt as to the dollar capacity to maintain its status of refuge currency. As recently wrote by an editorialist of the Financial Times, “a post-Dollar world is possible”, while the American economist Michael Pettis argues that ” America would be better without the world dollar “, A thesis defended for a long time by the Tracfin International Association, then by the countries” BRICS ».
But then, what would be the system that could replace that based on the dollar? In the short term, many macrofinancers envisage a transition to a plurality of reserve currencies. The European Union could, through massive bond emissions, encourage the internationalization of the euro, while the United Kingdom, Japan and China would do the same with their respective currencies.
However, none of these currencies has a large and liquid capital market to replace that of the dollar. In addition, such a multipolar system could prove to be very unstable, investors that can at any time go from one currency to another, depending on the variations in monetary policies of the emitting central banks.
However, the Triffin dilemma would also apply to this system, each central bank risking losing control of its monetary policy to meet the liquidity needs of external partners.
A new Bretton Woods?
Faced with the serious crisis, it’s time to start considering a new Bretton Woods.
In the longer term, an alternative could consist in relieving both the United States and their potential competitors of the almost impossible task of issuing and managing a global currency, by entrusting this responsibility to a multilateral institution, such as the International Monetary Fund (IMF), whose mandate, resources, authority and governance should be deeply reinforced. A global currency embryo already exists: the special drawing right (DTS).
Unfortunately, so far, industrialized countries have only allowed the DTS to play a marginal role in exchange reserves. In 2011, Michel Camdessus, former Director general of the IMF, supported by Alexandre Lamfalussy, former director general of the Bank of International Regulations, and 18 leading financial personalities, including Paul Volcker, former president of the Fed, had published a report proposing to build a more efficient and equitable international monetary system, where the DTS, managed by the IMF, would become the main instrument for managing international liquidity.
Unfortunately, this report remained a dead letter
Wouldn’t it be time for Western countries, BRICS, Africans … to bring this increased proposal up to date on the table and promote it within the framework of a more global and fairer international financial system?
This will require patience and determination, a reform of such magnitude being difficult to envisage without the explicit or implicit consent of the United States.
However, faced with the imminent crisis that threatens us, it is high time to think about a new Bretton Woods.
… to follow …
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* Dr. Tahar el almi,
Economist-Econometer.
Former teacher-researcher at the Isg-Tunis,
PSD-founder of the African Institute
Financial economy (IAEF-NG)
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