AIn the midst of the global repercussions of the announcement of the “Liberation Day” by Donald Trump, he does not appear in safety. The equity prices, a sale of bonds and chaos of money eraaring billions of dollars in wealth in a few days.
Friday, the dollar dropped by more than 1% compared to a basket of other currencies to reach its lowest level in three years, aggravating a slide of almost 10% since the start of the year. In the space of a week, he lost about 3 cents against the pound and 4 cents against the euro.
Even after the partial turnover of the president – the freezing of the 10% prices on all American imports, with the exception of those of China for 90 days – the markets went from the rescue rally to a new rout, while the investors questioned the status of refuge without prejudice?
“The damage has been caused,” said George Saravelos, Chief Exchange Research at the Deutsche Bank. “The market re -evaluates the structural attractiveness of the dollar as a global world reserve currency and is undergoing a rapid decisions process.”
Unlike a typical market sale, the Trump crash has included American shares, state bonds, called treasury bills, and the dollar losing value in synchronization. It is unusual because investors normally enter dollars and cash obligations in periods of uncertainty and financial distress.
Over the past 80 years, the dollar has held the status of the main global reserve currency; Used as a reserve of value worldwide, as grease in the wheels of the financial system and as a means of trade in trade.
The belief is that a currency supported by the government being at the top of the pre -eminent economy in the world, with the deepest capital markets, the most powerful soldiers and a political system that respects the rule of law is almost as well as things.
However, Trump changes all of this, after slapping punitive prices on the allies and traditional enemies of the United States.
Raghuram Rajan, former governor of the Reserve Bank of India and chief economist of the International Monetary Fund, said that the currency crisis came from investors concerns about the American economy and Trump’s erratic policy changes.
“There is concern about how the volatile and unpredictable American policy has become, as well as increasing fears that the high level of prices must remain, the United States will head for a recession,” he said. “(However) of course, the pricing policy seems to be a target in motion.”
The sudden loss of confidence has been striking on the US Treasury market, widely considered to be the most important in the world, because investors normally use it as a “risk” reference to determine the price of all other financial assets.
In the strongest weekly decision since 1982, the yield – in fact the interest rate – on the 30 -year -old American government obligations rose from around 4.4% to 4.8%. The return on 10 -year bonds has also increased.
Investors say that a lot is happening. While a clear crisis of confidence is preparing, the turbulence of the US dollar and treasury bills also reflects the probable economic damage that Trump’s policies inflict; Including a probability of more than 50 to 50 years of an American recession and the increase in the reduction in interest rates of the federal reserve.
In the middle of the wider route of the market – with more than 5 TN (3.8 tn £) Annated American equity prices – the sale in the bonds also reflected hedge funds rushing to sell treasury bills to reduce risky transactions, as well as investors rushing into cash.
“I think that Trump’s trade opinions are madness and madness. He will harm the American economy and has created a useless crisis,” said Mark Sobel, a former senior American treasure who is now president of the official forum of monetary and financial institutions, a central banking bank.
“My basic thesis is that the dollar will remain the dominant world currency in the foreseeable future because there are no viable alternatives. But I think Trump, by weakening the economic and institutional foundations of America by not being part of a trusted partner, undermines the foundations of what has given rise to the domination of the dollar.
“His actions during last week will resolutely accelerate the erosion of the domination of the dollar and will give rise to much more volatility on the world in the world.”
The figures compiled by the IMF have shown that the US dollar was the reserve currency of choice for the countries of the world, representing almost 60% of the world’s exchange reserves. The euro is a distant second, at around 20%, followed by the Japanese yen at almost 6%. STERLING – Global reserve currency before the United States increases to domination after the Second World War – represents around 5%.
Sobel said there was a recent increase in the use of the Canadian and Australian dollar, as well as the Swiss and the Yen francs. The euro has made little ground, while the Chinese yuan – supported by a communist government, with a relatively closed economy in the whole world – still lacking in global favor.
Some within the Trump administration, however, consider the status of the dollar as the international reserve currency with disgust, like another sign of the world slowing down the United States.
The president had long wanted a lower dollar with the idea that this would help make American products cheaper for buyers abroad, support national manufacturing and reduce the country’s trade deficits.
Stephen Miran, president of the Council of Economic Advisors, suggested a plan with parallels with the approach of the 1985 place-when the United States agreed with Japan, Great Britain, West Germany and France to depreciate the dollar-in what could be called “the Mar-A-Lago agreement” after Trump’s residence in Florida.
Generally, trade deficits – when imports exceed exports – balance in time, because they create downward pressure on the currency of a country (following the demand for foreign currency exceeding that of the national currency). However, the “exorbitant privilege” of the United States at the top of the global reserve currency – guaranteeing demand in dollars – has enabled the country to manage a persistent trade deficit since the 1970s.
Many economists see few problems with this; If consumers benefit from cheaper imported goods.
Among investors, there are also fears that the United States could continue a strategy to force other countries to pay the “exorbitant privilege” of the use of the dollar as reserve currency. This, however, would result from serious damage to the global economy, while knowing more confidence in the dollar.
“The world should be prepared (for that),” said Karsten Junius, chief economist at J Safra Sarasin Sustainable Asset Management. “We consider that it is likely that the United States will try to combine preferential tariff treatment, access to its market and its financial infrastructure in countries that follow the United States by isolating China.
“Countries should take sides, which would be particularly difficult for European countries and Eastern Asia which have equally important relations with the United States and China.”
In response to the uncertain future of the dollar, the EU in particular envisages emergency plans. José Luis Écrivá, the governor of the Spanish bank and member of the board of directors of the European Central Bank, told Financial Times that the block could become a more attractive alternative.
“We can offer a very important economic field and a solid currency, which benefit from the stability and predictability which result from solid economic policies and the rule of law.”
Pascal Lamy, the former EU trade commissioner and ex-head of the World Trade Organization, also said that Trump’s trade war could lead to other countries to work more closely.
“The EU is the obvious candidate to rally a number of others. It will not work if China does or even if India does,” he said.
“It is an American crisis. It is not a global crisis. The United States represents 13% of global imports. But there is no reason why the 87% will remain contaminated by these voodoo economies. ”
