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Despite being obsessed with money, Donald Trump does not understand how it works
In Dante's Inferno, the poet reserved one of his most ghastly punishments for the crime of forgery. Canto 30 of the Inferno describes the counterfeiter 'Adamo' condemned to the eighth circle of hell, just one above Lucifer in the ninth.
In this Canto, Dante and Virgil, his guide through the underworld, meet two falsifiers, one of whom is Maestro Adamo/Master Adam, a counterfeiter who in Dante's youth had tried to debase the Florentine florin.
Adamo has studied in Brescia, an Italian city in competition with Florence. He was persuaded by prosperous counts from Romena to debase the florin by replacing three carats of the usually pure gold coin with copper. The coin weighed almost the same, but it was a fake.
Dante compares Adam to another liar, Sinon the Greek, the man who tricked the Trojans into believing the Trojan horse was an innocent gift. This betrayal led to the destruction of an entire civilisation.
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Why would Dante equate Adam, an everyday opportunistic counterfeiter, with Sinon, the man who betrayed Troy? It seems disproportionate, but only if we fail to appreciate the central role of the florin in underpinning the might of Florence.
In Dante's tale, the man who was undermining the reserve currency was a two-bit fraudster, Adam, whereas today the man undermining the world's reserve currency, the US dollar, is the president of the United States,
Donald Trump
.
Traditionally, when the world is at war, financial markets experience a flight to quality, meaning to dollars. The opposite is happening and, for the first time in 100 years, the world is starting to doubt America's commercial credibility.
In the Florentine Republic one florin was worth about €125 in today's money, and to give you a sense of what that meant at the time, a slave girl or a mule could be bought for 50 florins – about €6,000.
As the Florentines expanded commercially throughout Europe, the florin became the trademark of the strength of the city as much as a medium of exchange. Pure gold, weighing 3.53 grammes, it became the reserve currency of mercantile Europe, giving it the pre-eminent role in international finance, like the US dollar today.
Across the Continent, goods were exchanged in florins, debts were settled in florins, loans were extended in florins and wealth was measured and stored in florins. In the 14th century, the florin became the hardest currency in Europe, accepted widely as the unit of account from London and Bruges in the north, to Alexandria and Tyre in the south.
When the world accepts your currency readily, it gives the currency that most elusive of qualities: liquidity. A simple definition of liquidity is the ease and time it takes to settle a trade in a currency. The more liquidity, the easier it is to trade.
If, in the case of a coin, there is significant demand for the products underpinning the coin, the number of coins supplied will go up and, while their value will stay the same, their intrinsic usability and therefore practical value increases.
Given its liquidity, everyone wanted to settle their account with the florin.
The state that mints the money that everyone wants has soft power. Soft power is the power of persuasion.
In today's context, consider the power the US dollar gives the United States. Oil, copper, steel, uranium, rare earths, timber, cotton, silk, diamonds – all these commodities are priced internationally in dollars, and to buy them the purchaser must first buy dollars, which the US generates for free. This gives the US a big advantage in global financial affairs.
Given such high stakes, why would any president mess with America's most potent weapon? Because, despite being obsessed by money, he doesn't really understand money, how it works and what maintains its mystique. It's about trust (that most ephemeral of characteristics), financial stability and the long-term robustness of entire economic system.
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US borrowing costs top 5% after Moody's downgrade
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Reputations are very hard to establish but easy to squander. Donald Trump is squandering America's reputation as a serious country. The US's economic mix is now a unpredictable mess of unfocused tax cuts, broadening but incoherent tax loopholes, incremental attacks on the rule of law and, of course, chaotic trade wars and tariffs. While these may generate headlines, they do not promote financial stability.
In the meantime, in plain sight, the Trump family are enriching themselves in cryptocurrencies. Congress is blessing this heist, while the US president
habitually insults the Federal Reserve chairman, stating this week that he'd do a far better job himself, if only he could appoint himself
.
Is it any surprise that rational people are avoiding the dollar? The real dilemma is that Trump is behaving like a medieval king burning through the kingdom's treasury, which is already overspending.
The US federal debt-to-GDP ratio is at its highest level in postwar history and climbing. At 97 per cent to 99 per cent of GDP, the debt is up from 35 per cent of GDP in the 1980s and about 60 per cent before the 2008 financial crisis. This level is comparable to the debt burden just after the second World War (when it peaked around 106 per cent of GDP in 1946).
In the past 12 months, the US government spent in excess of $1.8 trillion more than it took in, marking the fifth year in a row with a deficit above $1 trillion.
One of the most immediate consequences of high debt is the surging cost of interest. As debt has grown, and the Federal Reserve's rate hikes in 2022–2023 filtered through to government borrowing costs, interest costs have skyrocketed. Last year, the US Treasury paid about $882 billion in interest on the federal debt, roughly 3.1 per cent of GDP.
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Donald Trump pressures Republicans to back his 'big, beautiful' tax Bill
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To put that in perspective,
America now spends more just to service its debt than it spends on national defence or Medicare.
On top of this already-fraught situation, the One Big Beautiful Act with its tax cuts for the wealthy, will add more debt to the existing $36.7 trillion pile. Official estimates suggest the Trump tax cuts will add another $2.4 trillion to the debt.
So who is going to buy all this new debt?
Foreigners who historically buy a large share of US Treasuries bought only about 59 per cent of a recent 30-year Treasury auction, the lowest foreign participation since 2019. If foreign investors are to be coaxed to buy more US IOUs then they will have to be offered a higher rate of interest, which could push the US into recession, or a lower dollar which means that the US debt is made cheaper for foreigners. Once this occurs, the dollar and the Donald become intertwined. As US economic credibility is shredded, so too the mystique of the reserve currency.
It's early days but a world where the US dollar is not the only reserve currency could be upon us. The Florentine florin was the world's reserve currency for close to 250 years, from the time of Dante to the discovery of the Americas. Wars, poor decision-making and over-spending at home in Florence, as well as the emergence of other commercial powers abroad, chipped away at its elevated status.
Could something similar be happening to the US dollar now? Of course it could.
