Latest news with #ValéryGiscardd'Estaing
Yahoo
28-05-2025
- Business
- Yahoo
The real cost of driving foreign students away
In 1965, then-French finance minister Valéry Giscard d'Estaing came up with the 'mot juste' for describing the way that the supremacy of the dollar provided the foundation for the financial supremacy of the US. The fact the dollar was so dominant in international transactions gave the US, d'Estaing said, an 'exorbitant privilege.' Because every country needed dollars to settle trade and backstop their own currencies, foreign countries had to buy up US debt, which in turn meant that the US paid less to borrow money and was able to run up trade and budget deficits without suffering the usual pain. The exorbitant privilege of the dollar was that the US would be able to live beyond its means. It's always been an open question as to how long that privilege would last, but President Donald Trump's harsh tariff policies, paired with a budget bill that right now would add trillions to the budget deficit, might just be enough to finally dislodge the dollar. Annual federal deficits are already running at 6 percent of GDP, while interest rates on 10-year US Treasuries have more than doubled to around 4.5 percent over the past few years, increasing the cost of interest payments on the debt. As of the last quarter of 2024, 58 percent of global reserves were in dollars, down from 71 percent in the first quarter of 1999. The dollar may remain king, if only because there seems to be no real alternative, but thanks to the US' own actions, the exorbitance of its privilege is already eroding — and with it, America's ability to compensate for its fiscal fecklessness. But the dollar isn't the only privilege the US enjoys. Since the postwar era, America's best universities have led the world. Harvard, Princeton, MIT, CalTech — these elite universities are the foundation of the American scientific supremacy that has in turn fueled decades of economic growth. But also, by virtue of their unparalleled ability to attract the best minds from around the world, these schools have given the US the educational privilege of being the magnet of global academic excellence. In the same way that the dollar's dominance has allowed the US to live beyond its means, the dominance of elite universities has compensated for the fact that the US has, at best, a mediocre K-12 educational system. And now that privilege is under attack by the Trump administration. Cutting off federal funding for universities like Columbia and Princeton and eviscerating agencies like the National Institutes of Health and the National Science Foundation were bad enough — but the administration's recent move to bar international students from Harvard would be a death blow, especially if it spread to other top schools. The ability to attract the best of the best, especially in the sciences, is what makes Harvard Harvard, which in turn has helped make the United States the United States. Just as losing the privilege of the dollar would force the US to finally pay for years of fiscal mismanagement, losing the privilege of these top universities would force the country to pay for decades of educational failure. As Vox contributor Kevin Carey wrote this week, foreign students are a major source of financial support for US colleges and universities, many of which would struggle to survive should those students disappear. But the financial picture actually understates just how much US science depends on foreign talent and, in turn, depends on top universities like Harvard to bring in top students and professors. An astounding 70 percent of grad students in the US in electrical engineering and 63 percent in computer science — probably the two disciplines most important to winning the future — are foreign-born. Nineteen percent of the overall STEM workforce in the US is foreign-born; focus just on the PhD-level workforce, and that number rises to 43 percent. Since 1901, just about half of all physics, chemistry, and medicine Nobel Prizes have gone to Americans, and about a third of those winners were foreign-born, a figure that has risen in recent decades. It's really not too much to suggest that if all foreign scientists and science students were deported tomorrow, US science would grind to a halt. Could American-born students step into that gap? Absolutely not. That's because as elite as America's top universities are, the country's K-12 education system has been anything but. Every three years, the Program for International Student Assessment (PISA) is given to a representative sample of 15-year-old students in over 80 countries. It's the best existing test for determining how a country's students compare in mathematics, reading, and science to their international peers. In the most recent PISA tests, taken in 2022, US students scored below the average for OECD or developed countries in math; on reading and science, they were just slightly above average. And while a lot of attention has been rightly paid to learning loss since the pandemic — one report from fall 2024 estimated that the average US student is less than halfway to a full academic recovery — American students have lagged behind their international peers since long before then. Other wealthy nations, from East Asian countries to some small European ones, regularly outpace American peers in math by the equivalent of one full academic year. To be clear, this picture isn't totally catastrophic. It's fine — American students perform around the middle compared to their international peers. But just fine won't make you the world's undisputed scientific leader. And fine is a long way from what the US once was. America was a pioneer in universal education, and it did the same in college education through the postwar GI Bill, which opened up college education to the masses. By 1950, 34 percent of US adults aged 25 or older had completed high school or more, compared to 14 percent in the UK and 11 percent in France. When NASA engineers were putting people on the moon in the 1960s, the US had perhaps the world's most educated workforce to draw from. Since then, much of the rest of the world has long since caught up with the US on educational attainment, and a number of countries have surpassed it. But thanks in large part to the privilege that is elite universities like Harvard or the University of California, and their ability to recruit the best, no country has caught up to the US in sheer scientific brainpower. Take away our foreign talent, however, and US science would look more like its K-12 performance — merely fine. It seems increasingly apparent that the Trump administration wants to make an example of Harvard, proving its own dominance by breaking a 388-year-old institution with strong ties to American power and influence. On Tuesday, the New York Times reported that the administration planned to cancel all remaining federal contracts with Harvard, while Trump himself mused on redirecting Harvard's $3 billion in grants to trade schools. Grants and contracts are vital, but they can be restored, just as faith in the US dollar might be restored by a saner trade policy and a tighter budget. But if the Trump administration chooses to make the US fundamentally hostile to foreign students and scientific talent, there may be no coming back. Politico reported this week that the administration is weighing requiring all foreign students applying to study in the US to undergo social media vetting. With universities around the world now competing to make themselves alternatives to the US, what star student from Japan or South Korea or Finland would choose to put their future in the hands of the Trump administration, when they could go anywhere else they wanted? The US once achieved scientific leadership because it educated its own citizens better and longer than any other country. Those days are long past, but the US managed to keep its pole position, and all that came with it, because it supported and funded what were far and away the best universities in the world. That was our privilege, as much as the dollar was. And now we seem prepared to destroy both. Should that come to pass, we'll see just how little is left. A version of this story originally appeared in the Future Perfect newsletter. Sign up here!
Vox
28-05-2025
- Business
- Vox
The US is squandering its two most important privileges
is an editorial director at Vox overseeing the climate, tech, and world teams, and is the editor of Vox's Future Perfect section. He worked at Time magazine for 15 years as a foreign correspondent in Asia, a climate writer, and an international editor, and he wrote a book on existential risk. In 1965, then-French finance minister Valéry Giscard d'Estaing came up with the mot juste for describing the way that the supremacy of the dollar provided the foundation for the financial supremacy of the US. The fact the dollar was so dominant in international transactions gave the US, d'Estaing said, an 'exorbitant privilege.' Because every country needed dollars to settle trade and backstop their own currencies, foreign countries had to buy up US debt, which in turn meant that the US paid less to borrow money and was able to run up trade and budget deficits without suffering the usual pain. The exorbitant privilege of the dollar was that the US would be able to live beyond its means. Future Perfect Explore the big, complicated problems the world faces and the most efficient ways to solve them. Sent twice a week. Email (required) Sign Up By submitting your email, you agree to our Terms and Privacy Notice . This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply. It's always been an open question as to how long that privilege would last, but President Donald Trump's harsh tariff policies, paired with a budget bill that right now would add trillions to the budget deficit, might just be enough to finally dislodge the dollar. Annual federal deficits are already running at 6 percent of GDP, while interest rates on 10-year US Treasuries have more than doubled to around 4.5 percent over the past few years, increasing the cost of interest payments on the debt. As of the last quarter of 2024, 58 percent of global reserves were in dollars, down from 71 percent in the first quarter of 1999. The dollar may remain king, if only because there seems to be no real alternative, but thanks to the US's own actions, the exorbitance of its privilege is already eroding — and with it, America's ability to compensate for its fiscal fecklessness. Related Trump figured out how to hit Harvard where it really hurts But the dollar isn't the only privilege the US enjoys. Since the postwar era, America's best universities have led the world. Harvard, Princeton, the Massachusetts Institute of Technology, CalTech — these elite universities are the foundation of the American scientific supremacy that has in turn fueled decades of economic growth. But also, by virtue of their unparalleled ability to attract the best minds from around the world, these schools have given the US the educational privilege of being the magnet of global academic excellence. In the same way that the dollar's dominance has allowed the US to live beyond its means, the dominance of elite universities has compensated for the fact that the US has, at best, a mediocre K–12 educational system. And now that privilege is under attack by the Trump administration. Cutting off federal funding for universities like Columbia and Princeton and eviscerating agencies like the National Institutes of Health and the National Science Foundation were bad enough — but the administration's recent move to bar international students from Harvard would be a death blow, especially if it spread to other top schools. The ability to attract the best of the best, especially in the sciences, is what makes Harvard Harvard, which in turn has helped make the United States the United States. Just as losing the privilege of the dollar would force the US to finally pay for years of fiscal mismanagement, losing the privilege of these top universities would force the country to pay for decades of educational failure. American science runs on foreign talent As Vox contributor Kevin Carey wrote this week, foreign students are a major source of financial support for US colleges and universities, many of which would struggle to survive should those students disappear. But the financial picture actually understates just how much US science depends on foreign talent and, in turn, depends on top universities like Harvard to bring in top students and professors. An astounding 70 percent of grad students in the US in electrical engineering and 63 percent in computer science — probably the two disciplines most important to winning the future — are foreign-born. Nineteen percent of the overall STEM workforce in the US is foreign-born; focus just on the PhD-level workforce, and that number rises to 43 percent. Since 1901, just about half of all physics, chemistry, and medicine Nobel Prizes have gone to Americans, and about a third of those winners were foreign-born, a figure that has risen in recent decades. It's really not too much to suggest that if all foreign scientists and science students were deported tomorrow, US science would grind to a halt. Could American-born students step into that gap? Absolutely not. That's because as elite as America's top universities are, the country's K–12 education system has been anything but. Every three years, the Program for International Student Assessment (PISA) is given to a representative sample of 15-year-old students in over 80 countries. It's the best existing test for determining how a country's students compare in mathematics, reading, and science to their international peers. In the most recent PISA tests, taken in 2022, US students scored below the average for OECD or developed countries in math; on reading and science, they were just slightly above average. And while a lot of attention has been rightly paid to learning loss since the pandemic — one report from fall 2024 estimated that the average US student is less than halfway to a full academic recovery — American students have lagged behind their international peers since long before then. Other wealthy nations, from East Asian countries to some small European ones, regularly outpace American peers in math by the equivalent of one full academic year. To be clear, this picture isn't totally catastrophic. It's fine — American students perform around the middle compared to their international peers. But just fine won't make you the world's undisputed scientific leader. And fine is a long way from what the US once was. America was a pioneer in universal education, and it did the same in college education through the postwar GI Bill, which opened up college education to the masses. By 1950, 34 percent of US adults aged 25 or older had completed high school or more, compared to 14 percent in the UK and 11 percent in France. When NASA engineers were putting people on the moon in the 1960s, the US had perhaps the world's most educated workforce to draw from. Since then, much of the rest of the world has long since caught up with the US on educational attainment, and a number of countries have surpassed it. But thanks in large part to the privilege that is elite universities like Harvard or the University of California, and their ability to recruit the best, no country has caught up to the US in sheer scientific brainpower. Take away our foreign talent, however, and US science would look more like its K–12 performance — merely fine. Life after Harvard It seems increasingly apparent that the Trump administration wants to make an example of Harvard, proving its own dominance by breaking a 388-year-old institution with strong ties to American power and influence. On Tuesday, the New York Times reported that the administration planned to cancel all remaining federal contracts with Harvard, while Trump himself mused on redirecting Harvard's $3 billion in grants to trade schools. Grants and contracts are vital, but they can be restored, just as faith in the US dollar might be restored by a saner trade policy and a tighter budget. But if the Trump administration chooses to make the US fundamentally hostile to foreign students and scientific talent, there may be no coming back. Politico reported this week that the administration is weighing requiring all foreign students applying to study in the US to undergo social media vetting. With universities around the world now competing to make themselves alternatives to the US, what star student from Japan or South Korea or Finland would choose to put their future in the hands of the Trump administration, when they could go anywhere else they wanted? The US once achieved scientific leadership because it educated its own citizens better and longer than any other country. Those days are long past, but the US managed to keep its pole position, and all that came with it, because it supported and funded what were far and away the best universities in the world. That was our privilege, as much as the dollar was. And now we seem prepared to destroy both. Should that come to pass, we'll see just how little is left. A version of this story originally appeared in the Future Perfect newsletter. Sign up here!
Daily Maverick
20-05-2025
- Business
- Daily Maverick
America's deindustrialisation began many years before China entered the equation
Part 2 in a five-part series. Read Part 1 here. Even in the late 1950s, stresses were building up in the US' external position. Having run external surpluses after World War 2, between 1958 and 1960 the US averaged annual balance of payments deficits of $3.7-billion, and gold started leaving the US. The 1960s extended these trends as the age of guns and butter grew out of Lyndon B Johnson's simultaneous pursuit of an expensive Vietnam War and his costly Great Society programme. (The Social Security Act was passed in 1968, the same year that Medicare and Medicaid were introduced.) By 1965, when US current account deficits were growing and shortfalls were being paid for more with printed US dollars than gold, Valéry Giscard d'Estaing, the French Minister of Finance, protested at the ' exorbitant privilege ' that the dollar's status as the global reserve currency gave the US. (Little could d'Estaing foresee just how exorbitant that privilege would become by 2025!) In 1973, the Gold Standard was replaced by fiat money The Bretton Woods system had presupposed that its guarantor, the US, would always run a current account surplus from which it could supply investment capital to the rest of the world. By the early 1970s, this was the dream of yesteryear: bullion was leaving Fort Knox for the likes of the Banque de France at an accelerating pace. The ensuing 1973 'Nixon Shock' — a complete suspension of the gold standard so delinking gold from the US dollar — was 'a shot that was heard around the monetary world' at a time when the US dollar was unquestionably the centre of the monetary universe. It quickly became clear that, with the era of the 1944 Bretton Woods Accord over, some hydra-headed construct would have to replace it: thus, the era of US dollar fiat money was born. By the end of the messy decade that was the 1970s — it saw rampant inflation and sky-high interest rates as well as frequent dislocations in global capital flows that even led Britain to seek International Monetary Fund assistance in 1976 — it was also apparent that the US would, indeed could, no longer be an exporter of capital to the rest of the world on a structural basis. The capital gamekeeper had turned poacher. Siamese Twins: the US's twin deficits, external trade and internal budget Because of its rising current account and budget deficits, the US thereafter had to be a net capital importer… or see the US dollar weaken materially, thereby risking compromising the US dollar's reserve currency status. Except briefly in 1991 (when the five-year bounce in US export competitiveness engineered by the 1985 Plaza Accord's controlled devaluation of the dollar was about to wear off), the world's largest and most capitalist economy has since had to rely on what Tennessee Williams called 'the kindness of strangers' — foreign savers — to balance its external account. As noted above, in 2024, foreigners sent more than $1-trillion of their surplus savings into US capital markets. A deeper dimension of this was that, with a budget deficit/net dissaving of 7.1% of GDP in 2024, notwithstanding the small positive savings of consumers and companies (collectively plus 6%), the US combined was not generating savings: it had a national negative net savings rate of 1%. In 2024 so much so that foreigners were for the first time being called upon to fill this dissaving gap. Exactly when Congress started to realise that foreign investors could be leant upon to fund a share of the US's ever growing federal deficit is impossible to pinpoint. Yet, especially since 2000, this dependency has been the underpinning reality of the US's fiscal expansionism. From 2008 to 2024, a mere 16 years, US federal debt grew more than fourfold, from $8-trillion to more than $34-trillion; it is now $37-trillion. This debt grew out of a combination of lower taxes and higher expenditure plus Covid-19 handouts. Yet for as long as the US dollar remained strong, foreigners underwrote an average of 30% of each recurring annual budget deficit. From 2000, the US Congress has in effect relied upon the monetisation of the US dollar's store of value function and used the proceeds to help fund its excess domestic budget expenditure. But the ructions in the US bond market since 2020 are hinting that the well of foreign savings that has provided this foreign cover financing may now be showing signs of running dry. The name's Bond, Treasury Bond If all those foreign savings did was to flow into US equity markets in the free market spirit of corporate capitalism, then at least this arrangement might seem to be justified. As Walter Wriston, the 1970s Chief Executive of Citicorp, famously observed: 'Capital goes where it is welcome and stays where it is well treated.' And US equity markets had a welcome mat unmatched worldwide. Yet US bond markets — which treated foreign capital well too — became an even more important destination, a fact that further anchored the US dollar's reserve currency status. For the 50 years that followed the 'Nixon Shock', the preferred destination for the bulk of the world's surplus savings has been not just the United States nor even its equity market, but the US bond market. Given that these foreign inflows helped tie together the US's Siamese Twin requirements — 'we need your savings to underwrite both our current account and, interrelatedly, our budget deficits' — it is hardly surprising that, in the 1980s, Ronald Reagan and Margaret Thatcher became self-serving champions of free-flowing global capital. To them, exchange controls became anathema to free markets. Thus, the many-headed financial hydra born in the 1970s has grown up into what it has become today: a bizarre creature where the Anglo-American combine — the US with 4.2% of world population, the UK with 0.8%, a combined 5% — consumes about 75% of globally mobile savings annually: in 2024, the US ran 65% of the world's current account deficits, the UK 10%. Underneath this external deficit, the combined budget deficits of the US and UK as a share of global budget deficits was close to 50%: 42% for the US, 8% for the UK. China 'didn't start the fire', even if it subsequently fanned it Bob Dylan saw the deindustrialisation of the US spreading before the rise of China when, back in 1983, table cloths started arriving from Malaysia and shirts from the Philippines. Job losses in industrial America were becoming commonplace. Elsewhere in Union Sundown, Dylan wrote: Well, you know lots of people are complaining that there is no work I say, 'Why you say that for When nothing you got is US made?' Rising capital inflows in Dylan's early 1980s helped drive the US dollar's appreciation, further reinforcing the deindustrialisation of the United States. Factories across America, notably in the Midwest (in what is today seen as hardcore Trump country), found they could no longer compete with often much lower priced foreign imports. By the 1990s, the value of the US dollar — admittedly recovering from its post-Plaza Accord lows — resumed its rise, appreciating 50% on a trade-weighted basis over the decade. More significantly, over the same period the US dollar was especially strong against Asia's currencies, particularly in the wake of 1997's Asian Financial Crisis: the Thai baht lost 60% of its value; the Korean won 47%; and the Indonesian rupiah 85%. Meanwhile the Chinese renminbi's value fell from 3.73 to the US dollar in the 1990s to 8.28 in 2000. By the turn of the century, searing heat from Asia was being directed towards the export competitiveness of the US' manufacturing industries. And that heat was not just on US export competitiveness. Foreign imports made huge inroads into the domestic US market too. Owners of US factories, if only to stay in business, were obliged to shutter them and instead import products from abroad: this only added salt to the wounds of America's now unemployed blue-collar workers. Retailers in the US, where margins were already tight, had little option but to stop buying 'Made in America ' and buy foreign instead, mostly from Asia. Since then, Walmart has earned the nickname of being 'the Great Mall of China'. Today 70% of Amazon's online offerings are made in China! After Deng Xiaoping's Southern Tour in 1992, which reinforced his 'reform and opening up' programme, Chinese products started entering the global market, and especially the higher priced US market. But it was only after 2001, when China joined the World Trade Organization, that the 1990s Chinese trickle turned into a flood. In 2001, like-for-like blue-collar job wages in the US were 33 times those of China. Middle America's workers stood no chance against those of the Middle Kingdom. A 2004 Business Week cover story declared the three scariest words in US industry to be 'The China Price'. Dylan again: When it costs too much to build it at home You just build it cheaper someplace else. Post-2000, the hydra-headed headed monster grew dramatically In 2000, the US current account deficit was already a negative $402-billion; by 2006, it had doubled to a negative $816-billion; last year, 2024, it was a negative $1.0-trillion. In parallel, (and the two events were not unrelated, if not tightly correlated) after 9/11 the US budget deficit was again growing considerably. In 2000, the US federal budget showed a small surplus of $240-billion; by 2006, it was a negative $250-billion; in 2024, it was a negative $1.8-trillion. The current account deficit was an annual total needing to be financed from abroad. But there was a cumulative total of these annual deficits that required matching capital inflows: the Net International Financial Position (NIFP). This is a measure of how much the US owes the world, less how much the world owes the US. In 1990, the NIFP was broadly balanced. In 2025, the US now owes the rest of the world $26-trillion, of which $9-trillion of that total is US Treasury Bonds alone. Of the Treasuries in issue not owned by the US government — $29-trillion — this means foreigners own 30%. Global savings glut = American consumption glut Ben Bernanke, still to become the Federal Reserve Board chairperson in 2006, was acutely aware of significant capital inflows that were needed not just to cover an ever-increasing US current account deficit, but also to help fund the ballooning US budget deficit. He realised that a significant share of global savings flows had to find their way into the US bond market to fund especially the budget deficit. In 2005, Bernanke famously attributed the US' growing current account deficit to what he dubbed 'the global savings glut'. In his US-centric view, Germany, Japan and Asia at large (led by a fast-rising China) were not spending enough on US exports to bring greater balance to world trade patterns. If one accepts his analysis, then there is an equal but opposite matching bookend explanation to his imbalance: the US must have likewise been enjoying an 'American consumption glut'. On the surface, part of this excess consumption manifested itself as a current account deficit, while beneath the surface the required matching capital inflows were partly being fed into funding the growing US budget deficit. It is a moot point as to whether the growing budget deficit then in turn fed US consumption (often then translated into a greater appetite for foreign imported goods) and so further increased that already rising current account deficit! DM
Yahoo
14-05-2025
- Business
- Yahoo
Could the euro replace the dollar as global reserve currency? It's not getting any less likely
A global reserve currency is one that is extensively held by foreign Central Banks. Since the 1944 Bretton Woods agreement this position has been occupied by the US dollar and it still holds true – according to IMF data from late 2024, the dollar represented 54% of global official reserves, while the euro came in a distant second at 19%. The concept of money was historically underwritten by valuable assets. This is no longer the case, as today we use fiat money: essentially paper with a stamp from a legal authority. However, nothing precludes people from using other commodities as currency. One well-known example occurred during the Second World War, when cigarettes were widely used as money in prison camps. Money is therefore any asset that can be used as a store of value, a medium of exchange and measure of count, but its value depends primarily on how much we trust that others will respect it. If I, for instance, handed over a signed piece of paper instead of money to pay for a coffee, the barista would not be very happy with it. Were I Tom Cruise, however, my autograph would be worth far more than a cup of coffee. In both cases the object is just a piece of paper with markings on it, but one is worth infinitely more than the other. The same goes for national currency, as the official stamp on a banknote does not guarantee that a piece of paper will be used in transactions. This is why money loses its value in countries with runaway inflation – why would you exchange a cup of coffee for piece of paper that says '100 pesos', if tomorrow the same piece of paper can only purchase the sugar packet on the side? The US dollar is different. Anyone holding a dollar knows that it will be accepted in most countries in the world, either to pay for goods directly or in exchange for the domestic currency in secondary markets. Moreover, since the dollar is so widely used and accepted, many people – investors and ordinary folk alike – prefer to keep their money in dollars. However, this will only continue for as long as people perceive the dollar to be the safest option. The main advantage of having the global reserve currency is that investors see your currency, and by extension your country, as safe, which leads them to also see your government debt as safe. This means that the borrowing costs of your government decline, allowing you to spend more and support a larger stock of debt than other countries. By its nature, the global reserve currency also increases in value. This creates a feedback loop – people want US dollars, regardless of their intention to buy US goods, and this increases the value of the dollar, making people want more of them, and so on. It means that foreign goods and services (like tourism to Europe) are also cheaper for US citizens, but the counterweight is that US exports become more expensive for everyone else. In the 1960s, French Minister of Finance Valéry Giscard d'Estaing famously coined the term 'exorbitant privilege' to describe this imbalance. Leer más: Widespread change is no mean feat. To take a commonplace example, just look down at your keyboard. Almost every English speaker uses a keyboard starting with QWERTY, even though this jumble of letters came about by accident. Changing the world's keyboards at this point in time would be costly and extremely difficult, even though it might result in a system that is easier to use. A similar force of habit applies to currencies, but the US dollar has not always been the preferred currency. Until the 1950s it was the British pound that held this prominent role, and it was mainly the US's position as the largest economy among the Allied powers that made the dollar the global reserve after Word War II. As global trust in the dollar weakens, many are asking if we could see a similar shift towards the euro, or perhaps a different currency. US policy is certainly hastening this change. In order to buy US government bonds and US stocks, investors need US dollars, but all these transactions involve a current account deficit in the US, which the Trump administration wants to eliminate. The current uncertainty of US trade policy is not making US assets more attractive, as the turmoil in US government bond market illustrates. There is also a rumour that the US government might default by converting their short-run debt into long-run debt. Leer más: Beyond Trump, these past few months have shown investors that the checks and balances of the US constitution are not as strong as previously thought, and that the president has almost absolute power in some areas. The fact that Biden's last act as US president was to pardon his family and potential political targets did not help foster trust in US governance either. Realistically, global use of the euro will have to increase massively for it to replace the dollar anytime soon, but it seems much more likely now than it did three months ago. Este artículo fue publicado originalmente en The Conversation, un sitio de noticias sin fines de lucro dedicado a compartir ideas de expertos académicos. Lee mas: Why Donald Trump's election could hasten the end of US dollar dominance Trump's plan for a strategic bitcoin reserve could trigger a crypto 'arms race' and reshape the global economic order UK's India trade deal offers wider access to a surging economy – and could make food imports cheaper Sergi Basco no recibe salario, ni ejerce labores de consultoría, ni posee acciones, ni recibe financiación de ninguna compañía u organización que pueda obtener beneficio de este artículo, y ha declarado carecer de vínculos relevantes más allá del cargo académico citado.
Zawya
14-03-2025
- Business
- Zawya
Exorbitant disruption risks undermining US 'privilege': Mike Dolan
LONDON - There's something more than U.S. tariffs and recession risks gnawing at financial markets. There's the growing sense that the chaotic policy disruption in Washington is eroding the world's trust in U.S. institutions and its assets. Broken political alliances and economic wars with major trade partners are having many effects - not least heightened business uncertainty over what will happen next - but one of the most notable is the brewing investor concern that America could lose a chunk of its "exorbitant privilege". This term, first coined in the 1960s by then French finance minister Valéry Giscard d'Estaing, essentially refers to the benefits the U.S. gains from the outsize demand the world has for U.S. assets as a safe haven. The privilege hinges variously on the extensive use of the dollar internationally, the U.S. rule of law and institutional rigor as well as the projection of its soft power. The list is much longer than that, but you get the picture. The sheer size, depth and transparency of U.S. markets, in combination with the reliability and openness of its governance, have - for decades - given the U.S. a disproportionate slice of world capital and the cheaper financing that goes with that. Could Donald Trump's avowedly disruptive administration call all that into question and whittle this advantage away? Financing metrics, such as long-term U.S. borrowing costs, don't yet suggest that a major fracture is afoot. But U.S. equity prices have started to correct over the past month, even as the dollar has weakened - an ominous combination. Ultimately, though, the very fact that trust - or the lack thereof - is part of the U.S. conversation at all is the most remarkable thing. On Wednesday, JPMorgan's chief global economist Bruce Kasman spoke openly about the challenges during a roadshow in Singapore. He opined about how the U.S. secured its "exorbitant privilege", citing many of the reasons noted above and including things like the "integrity of information flow". The administration's cutbacks to government agencies and moves to disband the advisory committees assisting with data collection are also potentially jarring, he said. "All of those things are part of the uncertainties that have moved into U.S. policy, and that (form) part of the risk in the outlook this year I don't think has been appreciated." 'EXORBITANT BURDEN'? Referring to exorbitant privilege, Kasman added: "The risk that stuff starts to come under pressure and becomes a structural issue in the markets is not something I would, by any means, underplay." This is likely what investors and strategists both within the United States and around the world have been thinking for weeks - even if relatively few have verbalized it. And Kasman is not alone in saying something. Writing about speculation surrounding the prospect of a "Mar-a-Lago Accord" to correct U.S. deficits and global imbalances, former Reserve Bank of India governor Raghuram Rajan questioned the diagnosis of Trump adviser Stephen Miran and said it was dangerous for America to play around with its exorbitant privilege. Rajan expressed doubt that reforming U.S. macroeconomic policy would somehow deter overseas savers from the U.S., thereby weakening an overvalued dollar or helping to cut U.S. deficits. "It is not clear where the Trump administration's current path of 'shock and awe' is supposed to lead," the former International Monetary Fund chief economist wrote in Project Syndicate this week. "The claim that the dollar's attractiveness is an exorbitant burden rather than an exorbitant privilege is unpersuasive, especially when those making such arguments are so reluctant to give up the burden," he said, referring to the administration's regular support for the dollar's global status while promoting policies that undermine it. "Markets are unnerved by the punishment that the administration, convinced that the U.S. is a victim, is willing to inflict on close allies," he concluded. "If such behavior reduces the attractiveness of the dollar, perhaps it really will become an exorbitant burden. But that is not a future that any American should want." It's good to remember that foreign holdings of U.S. financial assets nearly doubled over the past decade to some $60 trillion before the recent market ructions. Given the scale of this cross-border money, if faith in the U.S. truly is shaken, the outcome could make the year's market shakeout to date seem very small indeed. The opinions expressed here are those of the author, a columnist for Reuters (By Mike Dolan; Editing by Lisa Shumaker)
