One of the assets you wouldn’t expect to fall on news of Trump’s tariffs is the dollar itself. As Barrons noted today, the dollar index rose ten percent from September in anticipation of these tariffs (the same moment the bond market diverged from the Fed Funds Rate because of Trump). But since the week before his inauguration, the dollar has declined about four percent from its high and has fallen along with everything else after Trump’s Mexico and Canada tariffs went into force. This suggests that the market believes the collapse in growth anticipated by the Atlanta Fed could be sustained in the face of this trade war as Treasury yields continue to fall, further hampering the value of the dollar by projecting a United States defined by slowing economic growth in the future.
The dollar is the core of America’s global power. The whole planet prices everything in it, and agreeing with the oil barons in the Middle East in the 1970s to price the globe’s favored commodity in dollars expanded American power across the world unlike anything we have seen since at least the ages of Rome and Han.
But as Barrons reported, the elemental basis of our global economic dominance is now threatened by Trump’s chaotic authoritarianism. “We do not write this lightly. But the speed and scale of global shifts is so rapid that [the dollar losing its safe-haven status] needs to be acknowledged as a possibility,” wrote Global Head of FX Research George Saravelos in a note sent to Deutsche Bank clients today. “Our dollar views remain neutral for now but the key message is that we are becoming a lot more open-minded about two-sided risks to the dollar.”
It is difficult to comprehend what a non-dollarized world would look like, because everyone who grew up in the post-World War II order knows no other one, but given that America has reached a point of no return with the collapse in global trust of our leadership, we should start thinking about what that might look like (lower living standards for Americans, for one). One of our many economic superpowers is the world’s supreme trust in our economic numbers, and that is officially gone in the age of Trump and Musk. We’re just like China and Russia now. The numbers are fake. They exist to protect the regime.
There are very few alternatives that could try to replace the gargantuan scale of the dollar, but they all have one thing in common: they irrevocably shift power away from the United States, benefiting China and Russia in any outcome.
The reason the United States is so easily accepted as the underwriter for all business on the planet is because open markets are more trusted than the closed markets controlled by the Chinese and Russian and Muskian governments pumping out economic numbers that no one believes. Despite the ungovernable and underwhelming currency it has been since its launch, the Euro still has that trusted Western markets shine on it. Western dollar defectors would be likeliest to use the Euro as the denominator in their safe-haven calculations, at least to start this fundamental monetary shift away from the United States.
This would reinvigorate Europe in a desperately needed way with foreign investment. If countries like Japan, America’s largest foreign investor and holder of Treasuries, reallocated that capital to Europe, its economy would see an initial boom. After cutting itself off from its cheap Russian gas to rescue Ukraine (and to try to aid the U.S.’s goal to bog Putin down in his own version of Iraq), Europe badly needs an economic boost. The dollar’s collapse would benefit Europe simply by just driving more investors to its shores.
But it would likely just be a short-term boost, if any at all, as increased foreign investment cannot fix Europe’s fundamental demographic or economic problems, which would be exacerbated by its largest trading partner committing economic suicide (the net effect of all this chaos is pushing Europe closer towards its second-largest trading partner, China, and to reestablish its connections to its primary energy supplier in Russia). Given that currency regimes tend to last on the order of centuries, Europe’s population decline makes it a non-starter from a long-term perspective (the number of elderly people compared to working aged folks is projected to surge from 33 percent to 60 percent by 2100). The Euro alone simply does not have the economic might to replace the dollar.
The British Pound
Hahahahaha! Oh, you’re serious? I’m going to go out on a limb and guess that investors aren’t going to be jazzed about taking money out of America to invest in the people who previewed America’s economic suicide mission in Brexit, and now are dealing with their own kind of fuck around and find out repercussions. Every other option on this list is likelier than the broken British economy whose main purpose now is showing Americans what their life will be like in a confused and aimless declining empire with an immensely fragile and bruised ego.
A BRICS Currency
This is the thirstiest group angling for the dollar’s throne. Brazil, Russia, India, China, South Africa (BRICS), Egypt, Ethiopia, Indonesia, Iran and the United Arab Emirates all formed an intergovernmental organization to counter America’s influence, and they are attempting to create a basket of their currencies which aims to compete against the dollar. This is a tenuous allyship centered around China whose GDP comprises 70 percent of the bloc’s, and oil is their chief uniting economic principle. Whether this long-promised currency ever really gets off the ground is anyone’s guess (Brazil recently announced they won’t advance it this year), but the BRICS pitch is something of an inverse to the Euro’s. These countries, especially China’s longtime economic manipulation, are defined by governments that open markets do not trust. But on the flip side, the core of the BRICS long-term pitch is stronger than Europe’s long-term demographic problems. These countries all have a shitload of oil, and that provides a level of economic stability these governments never could.
As America is about to learn, it’s a tough sell for markets to trust regimes who manipulate economic data, but there’s a chance the BRICS countries could thread this needle in a world filled with flawed choices, which is part of why Trump has threatened a 100 percent tariff on them. If the U.S. did this, it would be the nuclear option for trade, tantamount to Moscow and Washington bombing both each other and themselves back to the stone age during the Cold War. In a world where Trump speedran the planet through a modern Great Depression, it’s not out of the question that while building a new world out of America’s rubble, markets coalesce around the producers of the only consistent partner in our climate emergency.
The Japanese Yen
Japan answers the question for safe-haven currency seekers of “what if you turbocharged Europe’s demographic problems, but had more competent management of them?” This isn’t ageism or Elon Musk’s weird population collapse fetish, but a simple economic principle that an older population means less working aged people which means less economic growth (which is why immigration is so great, it keeps countries young, and the GOP’s desire to curb it is another one of their many terrific ideas to destroy the greatest economic engine the world has ever seen). Investors need long-term stable economies to stash their cash in, and uh, look around. Given what America is doing right now, I’m not sure there’s a single economy on the planet you could describe as stable.
Japan has literally bet its economy on the U.S. economy, so the unwinding of the dollar would surely not be good for the Yen. I am no FX expert, but as a veteran of the crypto wars, I do understand the concept of leveraging your assets on other assets and what happens when those other assets decline in value. If Europe isn’t a long-term safe haven, Japan definitely isn’t either.
That leaves…uh…um…uhhhhhhh…don’t get mad at me…but…
Bitcoin
This is literally why it was created. Sick of a world where Western economic titans had dominion over not just markets, but money itself, the pseudonymous Satoshi Nakamoto and his cyberpunk allies launched a new form of more transparent money backed by cryptography. Sure, in the sixteen-plus years since its birth, Bitcoin has become a cult for Austrian economists and a braindead number go-up machine, all while spawning the dumbest and most cynical market mankind has ever seen, culminating by betraying its origin story as it was subsumed into the Wall Street order, but the tech is still the tech. It’s a tool that can be used for different things, and there’s no reason that in a world filled with more volatile currencies changing in value like shitcoins, that the originator of shitcoins would become less volatile and thus more appealing.
Bitcoin has been used in Latin America for this exact purpose. Many of the South American economies warped by America’s Monroe Doctrine have experienced extreme levels of inflation recently, and before the advent of stablecoins allowing people to retreat to the dollar as their safe haven, many would protect their net worth in Bitcoin while their native currency fell in value. It sounds crazy to us Americans who price Bitcoin in dollars, but if you switch USD out of the denominator and replace it with the Argentine Peso, Turkish Lira, or any other currency falling in value, the Bitcoin chart looks very different and much less downwardly volatile.
I don’t think this is likely to happen, as markets would take a risk on my invented last option well before so-called digital gold that acts more like a triple leveraged Nasdaq, but I wouldn’t rule out Bitcoin’s cryptographic solution becoming more attractive to this core problem of economic trust in a world abandoned by the United States, filled with only terrible and untrustworthy options. We are now forced to ask impossible questions, like who do you believe more: Donald Trump, the architects of a deteriorating currency union that doesn’t have a political union to govern it, a currency literally built upon Donald Trump’s dollar, Vladimir Putin, Xi Jinping, or the Bitcoin bros? Welcome to the 21st Century!
A New Golden Western Alliance
After the United States, the three next largest (reported) gold reserves in the world are in Germany, Italy and France (the Washington D.C.-based IMF would be third if it was a country). Switzerland has the seventh largest global gold reserves, with the Netherlands (11th), the European Central Bank (12th if it were a country), Poland (13th) and Portugal (15th) rounding out the largest gold holders on the planet. Mexico is not on their level, but they still have quite a bit, ranking 33rd in reported gold reserves.
Canada is rich in black gold as the globe’s fourth biggest oil producer, and there is a pretty clear framework for a BRICS-style commodity-based currency within the Western alliance the United States is abandoning. The Euro alone is a tough sell as a safe haven currency on the scale of the dollar, and Canada’s 9th largest economy is not large enough to hold the weight of the world on it, nor is Mexico’s 15th largest, but gold and oil sell in any age. If they could find a way to combine these currencies and commodities into a basket to function as a reserve controlled by the only Western countries that haven’t gone completely insane this century, it could provide the world with a trusted alternative should Donald Trump and Elon Musk make Deutsche Bank’s “open-minded” dollar concerns come true.
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