{"id":2622,"date":"2025-01-12T08:26:00","date_gmt":"2025-01-12T07:26:00","guid":{"rendered":"https:\/\/kraftscharling.dk\/?p=2622"},"modified":"2025-04-08T12:40:45","modified_gmt":"2025-04-08T10:40:45","slug":"trump-wants-a-drop-in-the-usd-value-3","status":"publish","type":"post","link":"https:\/\/kraftscharling.dk\/en\/trump-oensker-en-lavere-usd-kurs\/","title":{"rendered":"Trump wants a drop in the usd value"},"content":{"rendered":"


Trump wants a drop in the USD value of at least 30%. This is the last of at least three monetary policies, that will shape 2025. See previous posts for the others, all of which can have short- and especially long-term impacts on the financial system.<\/em><\/p>\n\n\n\n

Trump wants a 30% Drop in the USD value, at least<\/h2>\n\n\n\n


During the campaign, Trump repeatedly argued that U.S. industrial exports are hindered by an overly strong USD. According to Robert Lighthizer, the U.S. Trade Representative during Trump\u2019s first term, the USD was overvalued by more than 30% at the time. That figure may be even higher today, as the USD has largely appreciated since the campaign.<\/p>\n\n\n\n

Forcing the USD Lower Could However Backfire ...<\/h2>\n\n\n\n


According to Robert Mundell and Marcus Fleming\u2019s \u201cimpossible trinity\u201d theory<\/a>, it is impossible to control a currency\u2019s exchange rate while maintaining independent monetary policy and free capital flows. Free capital flows are essential for a currency to remain attractive as a global reserve.<\/p>\n\n\n\n

... as Undermining the USD\u2019s Role as a Reserve Currency ...<\/h2>\n\n\n\n


The USD's status as the world\u2019s leading reserve currency is vital to U.S. geopolitical influence<\/a>. Financially, this status translates into interest-free currency loans and a steady demand for U.S. Treasuries. It also diminishes the impact of the U.S. trade deficit, as the country can always meet its obligations by increasing its money supply.<\/p>\n\n\n\n

... Also Erodes its \u201cExorbitant Privilege\u201d<\/h2>\n\n\n\n

Trump is keenly aware of the USD\u2019s \u201cexorbitant privilege\u201d and repeatedly demonstrated during his campaign that he is prepared to defend this position by any means necessary. Ahead of the BRICS+ summit in Kazan this past October, Trump declared on X (formerly Twitter) that he considered any attempt to establish a BRICS currency as \u201ctreason.\u201d He threatened to impose a 100% punitive tariff on goods from countries that voted in favor of a BRICS currency.<\/p>\n\n\n\n

Although the BRICS currency initiative is currently on hold, as confirmed by South Africa\u2019s foreign ministry, this likely stems from the diverging geopolitical interests of the member states<\/a>rather than Trump\u2019s threats alone.<\/p>\n\n\n\n

Market Mechanisms Will Work Against Trump\u2019s Plan ...<\/h2>\n\n\n\n


Exchange rates are determined by supply and demand. Efforts to increase a currency\u2019s share of global reserves or to issue high-yield bonds relative to other currencies naturally boost long-term demand for that currency. Consequently, rising fiscal deficits increase the risk of upward pressure on the USD, running counter to Trump\u2019s intentions.<\/p>\n\n\n\n

... and Achieving a Lower USD thus Requires Cooperation from Other Central Banks<\/h2>\n\n\n\n

Trump has proposed a new Plaza Accord to address this challenge.<\/p>\n\n\n\n

The original Plaza Accord took place in September 1985, when G5 nations (the U.S., Japan, West Germany, France, and the U.K.) agreed to collectively weaken the USD through direct currency interventions.<\/p>\n\n\n\n

This was in response to the dollar\u2019s strength, fueled by high interest rates and expansionary fiscal policy under the Reagan administration. The accord successfully devalued the USD, with its value against the yen dropping nearly 50%.
However, this devaluation is now considered a key trigger for Japan\u2019s subsequent deflationary spiral, exacerbated by domestic policy missteps.<\/p>\n\n\n\n

The World Has Changed Since 1985 ...<\/h2>\n\n\n\n

It is doubtful that Trump\u2019s plan would succeed as the Plaza Accord did, for several reasons: <\/p>\n\n\n\n