What Trumpian Chaos Is Doing to the Dollar
One potential long-term casualty of continued political instability sown by the administration: America’s centrality to the international monetary system.
By Grace Seger
Natural gas futures charts on the floor of the New York Stock Exchange on January 20. Stocks, bonds and the dollar fell after President Donald Trump threatened tariffs on various European countries before high-level meetings in Davos, Switzerland. For more than 80 years, the U.S. dollar has been central to the international financial system, in no small part because it is the primary global reserve currency. But as in politics, narratives are incredibly important in understanding stock market moves….“What it typically takes to be a reserve currency is a deep and liquid market—which the U.S. has unquestionably—clear rule of law, and policy predictability. And the latter two are a lot less clear these days,” said Karen Petrou, co-founder and managing partner at Federal Financial Analytics….“If Trump not only says something, but then does it, you could see significant market turmoil—shock, panic—but so far, adverse market reaction seems to slow him down,” said Petrou. This is sometimes referred to as the “TACO” effect: “Trump Always Chickens Out.”…By comparison, only around 20 percent of global foreign exchange reserves are held in the Euro, and the Chinese renminbi accounts for roughly 2 percent. Investing in the Chinese renminbi is more of a risk than in the dollar, said Petrou, because it has neither the requirements of clear rule of law nor the policy predictability to become a global reserve currency…
https://newrepublic.com/article/205673/trump-threats-dollar-reserve-currency