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King Dollar won't just give up its crown. Rivals have to take it away—but they're not ready, currency expert says
King Dollar won't just give up its crown. Rivals have to take it away—but they're not ready, currency expert says

Yahoo

time24-05-2025

  • Business
  • Yahoo

King Dollar won't just give up its crown. Rivals have to take it away—but they're not ready, currency expert says

Predictions that the dollar's dominance will come to an end soon have proliferated since President Donald Trump launched his trade war, but a currency expert said the greenback won't simply step down from its position. Instead, other countries and their currencies have to seize the top spot, but they aren't ready to do so. Reports of the dollar's demise have been greatly exaggerated, according to a currency expert, who said the greenback's dominant position must be seized by others, not just relinquished. In an op-ed in Foreign Affairs, Eswar Prasad, senior professor of trade policy at Cornell's Dyson School of Applied Economics, said President Donald Trump's shocking 'Liberation Day' tariffs, attacks on the Federal Reserve's independence, and erosion of the rule of law have endangered the dollar's strength as well as the institutions that support it. 'And yet the dollar's dethroning, a prospect that has long excited U.S. allies and adversaries alike, is unlikely if other countries don't seize the opportunity to supplant it,' he added. 'It appears that they are unprepared to do so.' That's because assets in other top economies like China, Japan and Europe still aren't as attractive as those in the U.S., Prasad explained. In addition to growth concerns, rivals suffer from governance or political headwinds. China, for example, restricts capital mobility and limits the independence of its central bank. And eurozone political turmoil raises questions about the currency bloc's stability. As a result, global investors are faced with the familiar reality that there is still no alternative to the greenback, which has been the currency of choice for international payments and reserves for decades. 'The U.S. dollar's position at the top of the world's monetary system has never looked more tenuous,' Prasad wrote. 'Luckily for the United States—and unfortunately for the dollar's detractors—there appears to be no competitor strong enough to bump it off its pedestal.' To be sure, there has been a 'sell America' trade that has seen U.S. Treasury bonds and the dollar sell off, bucking their traditional roles as havens during times of economic uncertainty. And there are signs of a 'buyer's strike' on U.S. assets as foreign investors reach the limit of how much debt they are able to stomach, especially as Congress and Trump are poised to deepen deficits with a new tax bill. In Prasad's view, however, it's still unclear if the shift away from U.S. assets marks the start of a long-term trend or is simply due to technical and macroeconomic factors, such as tariff-induced inflation causing hedge funds to dump Treasuries. Meanwhile, foreign investors may also be looking for more diversification in their holdings after relying so heavily on U.S. markets in recent years, he added. 'But this shift could reach its limits soon, because other countries' currencies and financial markets simply lack the depth (the availability of great quantities of high-quality assets) and liquidity (the easy tradability of those assets) to support large inflows of capital,' Prasad said. Of course, de-dollarization has been a years-long trend, and the dollar's lead over other currencies is shrinking. History also shows that a country's financial power can shift gradually then suddenly, he pointed out. In America's case, that could be precipitated by Trump's 'erratic policymaking' or his determination to make the Federal Reserve more compliant. While the Supreme Court recently said the Fed is insulated from a president's ability to oust agency heads, Jerome Powell's term as chairman is expiring next year, and Trump is expected to name a replacement. Still, U.S. economic rivals have problems of their own, Prasad noted. Japan and Europe suffer from weak growth prospects, turbulent domestic politics, and widening deficits. Meanwhile, China remains plagued by deflation as the Communist Party maintains an iron grip over the country. That means that even an increasingly fragile dollar should stay on top, for now. 'As has long been the case, this resilience is less a product of American exceptionalism than of fundamental economic, political, and institutional weaknesses in the rest of the world,' he concluded. 'Unless that changes, the dollar will remain on a much longer leash than any currency should rightfully have.' This story was originally featured on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data

Trump's tariffs will test unity among allies at G7 finance ministers' summit
Trump's tariffs will test unity among allies at G7 finance ministers' summit

The Independent

time21-05-2025

  • Business
  • The Independent

Trump's tariffs will test unity among allies at G7 finance ministers' summit

Leading financial officials from the world's richest countries are gathering in a Canadian mountain resort this week for what may prove a contentious meeting in the wake of President Donald Trump 's sweeping tariffs. The annual meetings of the Group of 7 finance ministers, known as the G7, are typically congenial and in previous years have produced joint commitments to combat inflation and counter the COVID pandemic. There may be less agreement this year as Trump's tariffs threaten to slow growth in many of the gathered nations, including host Canada, which Trump has also suggested become a potential 51st state. 'I expect it will be somewhat of a testy conversation among the G7 officials,' said Eswar Prasad, an economist at Cornell University and former top official at the International Monetary Fund. 'This is a very difficult period for the relationships among the G7 countries.' The Trump administration has reached an initial trade deal with one G7 member, the United Kingdom, and is engaged in talks with Japan and the European Union. But Canada still faces 25% duties on many of its exports to the United States, including autos, and the other three G7 members — France, Germany, and Italy — all face a baseline tariff of 10% on all their exports as part of the European Union. It will be the first formal meeting of the G7 attended by U.S. Treasury Secretary Scott Bessent, who participated in a brief G7 gathering last month on the sidelines of the International Monetary Fund and World Bank meetings in Washington, D.C. Federal Reserve Chair Jerome Powell will also attend along with central bank governors from the other G7 nations. 'The message from colleagues is pretty clear is that a free and fair and a rules-based multilateral trading system, is a system in which we all win,' Francois-Philippe Champagne, Canada's minister of finance, said Tuesday. While many finance ministers gathered in Banff this week will likely seek one-on-one meetings with Bessent, it's unlikely any trade deals will be reached, according to a person briefed on preparations for the meeting who spoke on condition of anonymity because they did not have authorization to speak about it publicly. Instead, the finance officials will seek to smooth the way toward any agreements before a meeting of the heads of state of the G7 countries in June in nearby Kananaskis, Canada. Bessent may be able to bring a more conciliatory tone to the meetings, Prasad said, as he is often seen as a relatively moderating influence on tariffs in the Trump White House. And there will likely be some areas of agreement, particularly around the Trump administration's goal to address what it calls 'global imbalances' in world trade, a reference to the United States' large annual trade deficits, which reflects that it imports more than it exports. The White House sees China as the key driver of such imbalances. China has a large trade surplus. 'Intentional policy choices by other countries have hollowed out America's manufacturing sector and undermined our critical supply chains, putting our national and economic security at risk,' Bessent said in a speech last month during the IMF and World Bank meetings. The status of the U.S. dollar may also come up, at least in informal conversations. The dollar dropped in value unexpectedly last month after Trump unveiled his widespread tariffs, while the interest rate on Treasury bonds rose, a sign international investors may have been dumping American assets as confidence in the country's governance and economy eroded. 'In the hallways, they're going to talk about nothing but tariffs and the dollar,' said Steven Kamin, a senior fellow at the American Enterprise Institute and former senior economist at the Federal Reserve. At last year's meeting of G7 finance officials in Stresa, Italy, they agreed on a joint statement that said the members have a 'strong commitment to a free, fair, and rules-based' trading system. It's not yet clear whether they will be able to agree on such a statement this year. Another question hanging over the meetings will be whether the G7 can come to agreement on a new round of sanctions on Russia. The European Union and U.K. announced sanctions on Russian oil Tuesday, targeting Russia's 'shadow fleet' of unregistered oil tankers that are shipping its oil and allowing it to fund its war with Ukraine. Proposals to lower a price cap on Russian oil, set as part of earlier rounds of international sanctions, down from its current level of $60 may also be discussed in meetings Wednesday. Yet the Trump administration, while it has called for greater sanctions on Russian oil, hasn't yet signed on to the new restrictions. Trump spoke with Russian President Vladimir Putin and Ukrainian leader Volodymyr Zelensky on Monday, and said the two countries would soon begin ceasefire talks, though no details were available. Ukrainian Finance Minister Sergii Marchenko will also attend the G7 meetings this week, though Ukraine is not a member. Daleep Singh, chief global economist at PGIM Fixed Income and a former deputy national security adviser in the Biden administration, said the issue of Russian oil sanctions will be a key test of what unity remains in the G7. 'If you're looking for something to engender a just and lasting peace, oil sanctions are the place to look,' he said.

As a major crypto bill advances, skeptics see ‘a slow moving car crash'
As a major crypto bill advances, skeptics see ‘a slow moving car crash'

Yahoo

time20-05-2025

  • Business
  • Yahoo

As a major crypto bill advances, skeptics see ‘a slow moving car crash'

A version of this story appeared in CNN Business' Nightcap newsletter. To get it in your inbox, sign up for free here. There is a 'first of its kind' crypto bill making progress through the Senate that you're going to be tempted to snooze on because a) it's about 'stablecoins,' which is a subcategory of crypto – a parallel financial system almost no one understands, and b) opponents are focusing their criticism on corruption, which may be accurate but perhaps you're tired of reading all the news about the Trump family's alleged use of the power of the presidency to make a profit? (ICYMI: see here, here, here and here.) But there's a big planting-seeds-for-the-next-financial-crisis kind of reason why you should understand what this bill is. So let's get into it. The crypto industry-backed bill is called GENIUS, or 'Guiding and Establishing National Innovation for US Stablecoins.' Stablecoins are a digital asset designed to maintain a 1-to-1 peg with the dollar (or other traditional, 'stable' currency). One stablecoin should always equal one dollar, forever and ever. They are essentially a way for crypto investors to keep their cash in the crypto universe, where tokens like bitcoin and ether and solana tend to swing wildly in value. They aren't nearly as well known as bitcoin, the biggest crypto by market value. But in terms of trading volume, stablecoins are by far the biggest players. The crypto industry wants the Genius bill because it would lay down, for the first time in the industry's 16-year history, rules of the road for a key sector of their business. Which, of course, encourages greater adoption of crypto and thus makes them more money. The bill would require stablecoins to, among other things, hold reserves of safe, liquid assets like US dollars and Treasury bills, and publicly disclose those holdings monthly. It would also place some light restrictions on publicly traded companies that want to issue their own stablecoins (more on that in a moment). But 'the bill is light on consumer safeguards and limitations to corporations' ability to issue their own stablecoins,' said Eswar Prasad, a Cornell University professor of international trade and the author of the 2021 book 'The Future of Money.' 'Moreover, the Trump administration's boosterism of crypto and light-touch approach to regulation suggests that any such safeguards and limitations will not be enforced with much force,' Prasad added. Well. There's the potential for corruption, as Democratic Sen. Elizabeth Warren and other critics have been shouting from the rafters. In fact, Democrats initially refused to vote for the bill in part because of Trump's out-in-the-open crypto schemes, such as the private dinner taking place this week among the biggest holders of his $TRUMP memecoin, a kind of token whose only purpose is to attract money for its issuer. The White House has repeatedly pushed back on any questions about the president's potential ethical conflicts, from his interest in accepting a luxury jet from Qatar to his family's crypto holdings. ('This White House holds ourselves to the highest of ethical standards,' press secretary Karoline Leavitt said earlier this month.) Not much has changed in the bill between then and now. But some Democrats dropped their opposition anyway, likely because they're just accepting the 'apparent inevitability of blockchain-based finance and of crypto more generally,' Prasad said. One of those Democrats was Sen. Mark Warner of Virginia who defended his reversal on the bill Monday. 'Many senators, myself included, have very real concerns about the Trump family's use of crypto technologies to evade oversight, hide shady financial dealings, and personally profit at the expense of everyday Americans,' Warner said in a statement. 'But we cannot allow that corruption to blind us to the broader reality: blockchain technology is here to stay. If American lawmakers don't shape it, others will – and not in ways that serve our interests or democratic values.' The Trump family owns a crypto platform called World Liberty Financial, which issues a stablecoin called USD1. A few weeks ago, an Abu Dhabi investment firm called MGX chose USD1 to finance a $2 billion investment in crypto exchange Binance (see related crimes). That is 'essentially giving Trump a cut of this enormous financial deal,' Warren said Monday in prepared remarks. So, yeah, it sure looks like once again Trump could get richer off an industry he directly oversees through a regulatory apparatus he is rapidly working to defang. Meanwhile, the crypto industry has plowed millions of dollars into industry Super PACs that gave heavily to both Republican and Democratic campaigns last year. No, there's more! A lot of the focus on corruption is merited, said Hilary Allen, a law professor at American University who has been studying stablecoin policy, in an interview Tuesday. But that's not what's keeping her up at night. She referred to the GENIUS bill as 'a car crash in slow motion.' 'The thing that makes me lose the most sleep is that this bill would allow the largest tech platforms to essentially become the functional equivalent of banks,' said Allen, who was part of the commission appointed by Congress to study the causes of the 2008 financial crisis. 'The last crisis was caused by 'too big to fail' financial institutions. The size of some of these tech platforms makes that look quaint.' Let's step back for a moment. The bill provides almost no resistance for a tech giant like Meta or Amazon or Google to issue its own stablecoin. (In short, companies would have to get approval from a regulatory triad representing the Treasury, the FDIC and the Federal Reserve. As Prasad notes, that isn't much of a hurdle under Trump's broadly pro-crypto administration.) Meta already tried to get in on the crypto biz back in 2019 with a project called Libra (later renamed Diem), but abandoned it in 2022 in response to opposition from lawmakers and regulators. Now, according to a report in Fortune this month, Meta is once again testing the stablecoin waters, discussing various ways to introduce stablecoins as a means to manage in-app transactions. The benefits for Meta (or whomever) are clear: Stablecoin transactions keep users in the app, and the company then gathers all kinds of valuable information about its users and how they spend their money. But what happens when there's a run on stablecoins, or some other financial shock that causes those financial businesses to fail? Proponents say there's no reason to think there'll be a run on stablecoins if they've got 100% cash reserves backing them. Of course, that thinking is premised on a 'ridiculously optimistic assumption' that there will never be a run on a stablecoins, Allen says. She notes that money-market mutual funds are 'almost identical in structure,' and are not immune from the kind of panic that causes bank runs. 'Money-market mutual funds experienced runs that required bailouts in 2008 and again in 2020, so 'I think runs on stablecoins are likely.' In fact, she notes, the government has already had to bail out a stablecoin when Silicon Valley Bank failed in 2023. The lender has more than $3 billion worth of a stablecoin called USDC among its vast uninsured deposits. 'We may be setting ourselves up to essentially have to bail out these large tech platforms,' Allen says. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data

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