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EXPERT COMMENT

The argument that the erosion of the dollar’s global status could benefit the US is gaining traction in Washington. That move would be a needless act of self-harm.

Attempts to explain the dollar’s declining value in recent weeks will naturally focus on the growing likelihood of a US recession: the prospect of a sharp fall in growth tends to repel rather than attract capital inflows, and currency depreciation is the result. 

Yet there may be a deeper cause of the dollar’s decline, rooted in the view of some within the Trump administration that the reserve currency status of the dollar is more of a burden to the US economy than a blessing. 

Their remedy is to erode the dollar’s status in the international monetary system as part of an effort to weaken it permanently against other currencies, hoping that a more depreciated dollar might reduce the trade deficit and attract manufacturers to the US. 

That view is very hard to defend. But if the administration really does aim to erode the dollar’s status, the international monetary system could enter a form of anarchy it hasn’t experienced since President Richard Nixon disconnected the value of the dollar from gold more than 50 years ago.

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