The dollar’s reputation as the “flight-to-safety” trade is undergoing a significant stress test. You correctly note (“Cracks appear in the almighty dollar”, The Big Read, April 17) that the Trump administration’s trade policy has prompted global investors to confront a question which has been otherwise relegated to the realms of armchair reckon-omics — namely, could the dollar’s reign as the world’s reserve currency be nearing its twilight?
The Trump tariff shock, much like the Nixon shock half a century earlier, has become a defining rupture. Whereas Richard Nixon’s decision to untether the dollar from gold inadvertently entrenched the greenback’s global primacy, Trump’s trade stance has had the opposite effect — eroding the trust and stability upon which dollar hegemony rests.
The White House instruction to world leaders not to retaliate, holding out the prospect of some reward for those that comply, was an effective litmus test of America’s hegemon status. China’s defiance was a clear challenge to Pax Americana and to global stability, prompting some investors to re-evaluate their faith in US stewardship of the international monetary order.
There may still be no clear replacement for the dollar, but what matters most to investors is not when or if the dollar’s attractions recede as a flight-to-safety trade, but rather how turbulent the flight is in the interim. The recent erosion of the flight-to-safety premium, reflected in a 10 per cent residual discount to historically-calibrated fair value, suggests the world may already be pricing in the risk of a new, more fractured monetary landscape.
Karim Henide
London SW13, UK
