We have featured John D. Mueller here on this blog previously. Now he has written a new opinion article carried by The Wall Street Journal calling on President Trump to work towards replacing the US dollar as the global reserve currency.
In this new article, Mr. Mueller says that the US dollar acting as the world's global reserve currency is actually a problem rather than an advantage for the United States. Below are a couple of excerpts from his article and then a bullet point summary of some of the key points.
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"Donald Trump promised to "make America great again," but he might make America Great Britain. To re-industrialize the U.S. economy, President Trump must avoid the mistake that de-industrialized Britain: Namely, he must end the dollar's role as the world's chief reserve currency.". . . . .
"French economist Jacques Rueff described the fatal weakness of foreign-exchange reserves in a 1932 lecture. He explained that when a monetary authority accepts dollar or sterling claims for its official reserves rather than gold, purchasing power "has simply been duplicated," so that, for example, "the American market is in a position to buy in Europe, and in the United States, at the same time." In other words, when a foreign nation accepts repayment in U.S. dollars it increases its money supply without diminishing the U.S. money supply, allowing both countries' central banks to lend in dollars.
This credit "duplication" is not only inflationary in the reserve-currency country and any country whose currency is tied to the reserve currency; it also necessarily causes the average price of goods to rise faster in the reserve-currency country than among its trading partners. This is why Britain's and America's manufacturing industries lost their competitiveness as exporters, resulting in deindustrialization."
. . . . .
"The Triffin Dilemma can't be solved without a monetary reform that ends the dollar's use as the world's chief reserve currency.
Here's a deal that could place Mr. Trump in Alexander Hamilton's league:"
Summary of Key Points
- President Trump should work towards removing the US dollar as global reserve currency
- Using a national currency as global reserve currency leads to the "Triffen Dilemma"
- This very problem contributed to the "deindustrialization" of Great Britian
- the glut of reserve currency leads to inflation and lack of global competitiveness
- Tariffs cannot restore competitiveness
- The Triffin Dilemma cannot be solved without monetary reform ending the US dollar as the global reserve currency
- President Trump should offer a plan to convert all foreign US dollar reserves to long term government to government debt
- This debt should be paid off in gold over a period of 50 years, similar to a plan used by Alexander Hamilton to pay off American revolutionary war debt
The article concludes as follows:
"Like Mr. Trump, Hamilton's contemporaries originally thought his glaring character flaws far outweighed his virtues. But after the formerly penniless immigrant managed to make a fortune for his adopted country, even those who had been his worst political enemies found it in their interest to carry out his plan for decades. Today, young people whistle the songs not from "Jefferson" but "Hamilton." There will be no whistling of tunes from "Trump" if he makes America Great Britain."
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