- If elected, Donald Trump has promised to maintain the dollar as the world’s reserve currency.
- But his policies risk deteriorating faith in the greenback, according to one think tank.
- His presidency also risks geopolitical fragmentation, OMFIF said.
The Republican National Committee unveiled Donald Trump’s presidential platform this week, a 20-point list of principles that will guide the party.
At number 13, the former president pledged to keep the US dollar in place as the world’s main reserve currency.
But a second Trump term might actually erode greenback’s dominant role, wrote Mark Sobel, US chair of the Official Monetary and Financial Institutions Forum.
If a threat were to materialize, its source would not be foreign, he wrote in a paper last February. Instead, the likely risk would stem from “severe deterioration” in the US’s economic and financial conditions, as fiscal soundness under Trump would be unlikely, Sobel said.
“While dollar dominance remains entrenched, both the platform and Trump policies would mean less confidence and trust in American leadership, weakened macroeconomic management and enormous burdens on markets to finance a large supply of Treasuries,” the former Treasury economist summarized.
Take fiscal policy, for instance. Sobel writes that the US needs to abandon its “mammoth deficits” if it wants to keep US debt levels manageable over the coming decades, and yet Trump’s pledges large tax cuts and no decrease to Social Security or Medicare.
Trump has also promised implementing a universal tariff of 10%, which most economists agree would be inflationary. Meanwhile, plans for mass immigration are expected to slow US growth, Sobel cited.
Together, these would weigh on dollar’s stability, although stop short of giving another currency an opening to dethrone it, he said.
Sobel has previously noted that dollar reserves would slip if the geopolitical environment keeps fragmenting. This too looks likely under a Trump administration.
During his first term, Trump threatened to leave NATO and took the US out of key agreements, such as the Iran nuclear deal, Paris Climate Accord and Trans-Pacific Partnership, Sobel wrote.
“Despite the platform’s assertion that alliances will be strengthened, will the US remain a trusted partner? Can its strong ties persist?” he asked.
And Trump more frequently deployed sanctions than president Biden has — the practice is often cited as a key reason other countries are look to de-dollarize their reserves.
Sobel doesn’t expect the greenback’s dominance to slip in any meaningful form over the next four years, even if these conditions do deteriorate. But Trump’s own policies get in the way of his platform, he said.
“Policy and actions speak louder than slogans,” he wrote.
