💱🪖 THE END OF THE TRIFFIN DILEMMA? THE FOREX WAR 🪖💱
After the US victory in WW II, the dollar [USD] became the reserve currency. In that sense, the USD will be necessary for many transactions due to the trust and leverage with the gold standard (from 1944 to 1971). The dilemma is that, as the world will always demand dollars, the issuing country (the US) will be destined to run a deficit to meet global demand (generating more dollars than necessary with controlled inflationary impact). The risk will arise when confidence in the reserve currency is lost.
In the US hegemony era, the above sounded logical. In fact, the dilemma remained in force after the breakdown of the Bretton Woods agreements. Confidence in the US economy and its innovation forced trade in USD, in addition to many plans for coups and interventions to get countries to acquire US debt in exchange for peace (similar to the behavior of any cartel). Today, the CHUSssia tripolarity [China + USA + Russia] urges to break the old order.
In advance to any USD deleverage, USA needs two things to cover itself in the best way: to force the purchase of US bonds and to depreciate its currency. The first is obvious: control of the financial system. However, the BRICS+ will not fall into the US trap easily (but they cannot divest from USD either because it would cause a chain global debacle), so the US needs a cheap currency to attract capital and production. The problem is that there is currently no fixed exchange rate controlled by the government (like China, for example), so tariffs are a soft way.
In fact, tariffs are a way to appreciate foreign currencies [see more: https://jjplindex.blogspot.com/2025/01/como-compensar-un-incremento-en.html ], and indirectly, depreciate their own. If global economies do not want US debt, they will have to absorb tariffs, making foreign products less competitive unless they are produced in USA.
The most difficult thing is to know what will happen. Perhaps, if CHUSssia agree to preserve the USD and divide up the world in an orderly manner, and if the Western Central Banks agree to strengthen their currencies, tariffs will not be necessary. The chart shows the DXY (index based on a basket of currencies: EUR/USD, USD/JPY, GBP/USD, USD/CAD, USD/SEK and USD/CHF)... Will the USD strengthen or weaken?
The best analysis is yours!
J. Joel Padilla
Copyright: Joel Padilla 2025
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