Dollar Dominance Under Threat from US Politics

According to economic historian Barry Eichengreen, the biggest threat to the dollar's dominance is the US itself, specifically its domestic politics. He believes that global currency status has both economic and financial preconditions as well as political ones, including respect for the rule of law, separation of powers, and control of corruption. These conditions are currently at risk.

Eichengreen points out that foreign central banks rely on the US to act as a global lender of last resort, providing dollar swap lines to facilitate cross-border trade. However, if the Fed becomes more nationalist and focuses solely on domestic responsibilities, this could undermine the dollar's global status.

The expert also draws parallels between the Nixon administration's attempts to deal with balance-of-payments deficits in the 1970s and the Trump administration's current policies. Both administrations used tariffs to try to devalue the dollar, but ultimately failed. Eichengreen argues that the dollar is not as crucial to US competitiveness as some believe.

He also highlights the challenges facing the euro in becoming a global reserve currency, citing resistance from special interests and a lack of political will at the national level. The renminbi, on the other hand, is seen as a potential rival to the dollar, with China building infrastructure to promote its use for cross-border trade settlements.