Opinion | The Price Of Trump’s Bullying: A Retaliatory Attack On The Greenback?
From Bretton Woods to Beijing’s bond threats, the greenback’s supremacy has faced challenges before — but Trump’s tactics may be accelerating its global decline
POTUS Donald Trump may have pressed the pause button on the implementation of a cataclysmic, sledgehammer tariff hike against most countries of the world—except China—in the name of discouraging imports and “Making America Great Again" (MAGA). However, this should not be misconstrued as him smoking the peace pipe with them. His bullying and stomping tactics in geopolitics, as well as global trade, are likely to continue for the duration of his term. Other nations, too, are unlikely to take it lying down. The riposte may take several forms, including a potentially deadly strike against the greenback.
The first such attempt to dethrone the US dollar as the world’s sole international reference currency came in 1973, at the height of the first oil shock, when the Eurodollar and petrodollar blocs joined hands to dump millions of tranches of 35-dollar claims on the US government—each tranche demanding an ounce of gold in return.
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Back in 1944, hot on the heels of the Second World War, the US government had brilliantly foisted its currency on the rest of the world. It began by forming the Bretton Woods twins—the IMF and the World Bank—ostensibly to revive war-ravaged economies. Almost immediately after, it announced the gold exchange standard: IMF member nations could present tranches of US$35 and receive an ounce of gold in exchange.
If you thought this was an honest attempt to underwrite the dollar with solid gold backing, perish the thought. The US never had that much gold in reserve. It was little more than bluff and bluster, underpinned by the blithe belief that the gold price would never breach this threshold—and that if it did, the US would cross that bridge when it came to it.
The time for crossing that bridge arrived in 1973, but the Nixon administration—led by the wily Secretary of State Henry Kissinger in tow—simply dropped the gold exchange standard like a hot potato. The gullible world had long believed the standard was cast in stone, when in truth it was made of straw. The mutiny was thus crushed through the simple expedient of what, in legal terms, is called a breach of trust.
What’s more, the US dollar soldiered on as the international reserve currency, unfazed—firmly entrenched and having become a byword for foreign exchange, much like Xerox for photocopying. The advent of the Euro in 1999 slightly eased this stranglehold.
While the Russian attack on Ukraine rendered Russia a pariah in the Western world, India seized the opportunity to purchase oil from it in INR. This trend is now capturing global imagination—so much so that the US dollar’s share in settling international trade has fallen to 58 per cent, with a near-identical reduction in its share of global forex reserves as of 2023, down from a dominant 80 per cent just a few decades ago. Eurozone members now conduct trade among themselves in Euros, further edging out the US dollar.
While it may take considerable time to loosen the vice-like grip of the US dollar on international trade and investment, the fact that the quantum of greenbacks circulating outside the United States now exceeds that within could be disquieting for the Trump administration. China—bearing the brunt of the US tariff offensive more than any other nation—has accumulated an estimated US$3 trillion in reserves and now appears poised to teach the Trump administration a lesson by offloading a sliver of its US Treasury bonds onto the market.
This incipient rebellion has already set the cat among the pigeons in Washington’s policy circles. And if China were to join hands with other nations in an effort to humble the dollar—whether by shorting it or otherwise undermining its status—the Trump administration may well come to regret having raised the stakes.
To be sure, China is aware that such retaliation could inflict short-term financial losses. But when a nation is enraged, it often takes such losses in its stride.
Unlike in 1973, when the gold exchange standard was unceremoniously scrapped without so much as a raised eyebrow, the United States may, for the first time, openly regret having allowed its greenback to slosh around so freely abroad. It should have recognised long ago that the status of an international reserve currency is a double-edged sword. That the US never truly deserved that status—but nevertheless secured it thanks to the slimy and deceptive gold exchange standard—could be a subject of another article, another time.
The writer is a senior columnist. He tweets @smurlidharan. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect News18’s views.
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