US exit from IMF would be true dollar shock: Mike Dolan

Zawya

30-04-2025

LONDON - The U.S. dollar has suffered its worst start to any year since 1989 as the Trump administration has put forward once unthinkable economic policies, unnerving global investors.
But one proposed shift would be of a different order altogether: an exit by the U.S. from the International Monetary Fund.
Sweeping global trade barriers, broken alliances and blistering verbal attacks on the U.S. central bank and other federal institutions have taken a toll on what many consider an already over-valued U.S. currency and assets.
In the process, the dollar index has shed 8.4% so far in 2025. That compounds heavy Wall Street losses for global funds that have driven U.S. markets higher for more than a decade. Consider that dollar weakness transformed a 6% drop in the S&P 500 index into a 15% hit for unhedged euro-based investors, who would have also seen modest Treasury losses in dollar terms turned into drops of almost 10%.
If nothing else, the fog of uncertainty surrounding Washington has seriously dented the attraction of U.S. Treasuries and the dollar as predictable havens amid global trouble.
But the impact of an IMF exit on the greenback would go far beyond frayed trust or investment rethinks. That's because this step - openly advocated by the controversial "Project 2025" conservative wish-list for President Donald Trump's second administration - would mechanically unravel overseas dollar reserve holdings.
Many observers breathed sighs of relief at the IMF and World Bank spring meetings last week when Treasury Secretary Scott Bessent merely demanded reform of these multilateral institutions rather than broaching U.S. withdrawal.
But Project 2025's "Mandate for Leadership" document, compiled ahead of last year's U.S. elections by the Heritage Foundation, held nothing back about what it thinks should happen with what it termed "expensive middle men".
"The Treasury Department plays an important role in these international institutions and should force reforms and new policies," it stated. "The U.S., however, should withdraw from both the World Bank and the IMF and terminate its financial contribution to both institutions."
Trump doubled down on that idea after his inauguration in January, issuing one executive order on membership of "all international intergovernmental organizations" that set in motion a 180-day review to "provide recommendations as to whether the United States should withdraw from any such organizations, conventions, or treaties."
That review is due in July.
Trump's withdrawal from the Paris climate accord, World Health Organization and effective exit from the World Trade Organization already speak clearly to the administration's wider intentions.
'OWN GOAL'
Hesitation about departure from the IMF may be related to the scale of the financial disentanglement likely involved - one with potentially ominous implications for the dollar's global reserve status and its value on open exchanges.
In a op-ed for the Financial Times last week, former Treasury Under Secretary for International Affairs Ted Truman detailed the gigantic financial implications of a U.S. exit from the IMF that he said would be a "significant own goal" and "dramatically diminish" the dollar's global role.
Truman said the vast bulk of IMF operations is conducted in dollars, as that's what distressed sovereign borrowers typically need and seek, and countries as a result pool their dollar reserves.
He argues that the dollar would be excluded from use by the fund if the U.S. were no longer a member, raising the question: "What nation would want to hold assets in a currency that cannot be used in IMF transactions issued by a country that has abdicated its international financial responsibilities?" The IMF's unit of account - Special Drawing Rights (SDR) - is a structure of five main currencies. The dollar currently holds the biggest weight at 43%, the euro 29%, the yuan 12%, the yen 8% and sterling 7% - and global reserves piles are often held roughly in those measures.
A U.S. exit would see redistribution of shares and voting rights around the biggest remaining members, with the yuan and the euro set for much higher weightings in the SDR, which would expand those currencies' international roles as a result.
Consequently, what to date has been a glacial drift away from dollar reserve holdings over the past decade could accelerate sharply.
"Withdrawal from the IMF would spell the end of America's status as the principal reserve provider to the rest of the world," Truman wrote.
The exchange rate implication of that could be huge.
While a dollar devaluation on that scale may be welcomed by many administration advisers who see it as another way to regain global competitiveness for U.S. goods, the big question - much like higher import tariffs - is whether that is worth the price of massive U.S. financial disruption.
It's possible the whole IMF membership question will get sidelined. But the prospect will remain another powerful weight on the dollar as long as it lingers.
The opinions expressed here are those of the author, a columnist for Reuters
(By Mike Dolan; Editing by Paul Simao)