Anthony Rowley

Macroscope | Why Trump, and others, should be careful in talking down the US dollar

As geopolitical confrontation deepens, the dollar could be heading for a steep fall without any outside help, while gold continues to rise

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Gold bars are stacked in a vault at the US Mint in West Point, New York. Central banks in several emerging economies have stepped up their purchases of gold in recent years in an attempt to mitigate the effects of US geoeconomic decision-making. Photo: AP

Anthony Rowley

Published: 4:30pm, 24 Aug 2024Updated: 5:34pm, 24 Aug 2024

Be careful what you wish for, Aesop warned in one of his celebrated fables. Donald Trump and others would be well advised to heed that advice. The former US president, for one, has been trying to “talk down” the US dollar and there is no telling where that process might end.

There is talk within the Trump camp of a new Plaza Accord to devalue or depreciate the dollar. However, a variety of current developments suggest the US currency could be heading for a steep descent anyway without a nudge from official sources.

The US dollar is currently “way overvalued” even after recent weakening against the yen and some other Asian currencies, non-resident senior fellow at the Atlantic Council Hung Tran suggested at a Foreign Correspondents’ Club of Japan (FCCJ) panel discussion in Tokyo last month.

The way in which, for example, the Biden administration has weaponised the dollar as an instrument of economic sanctions is causing a rise in the use of the yuan and other local currencies to settle cross border trade, all at the expense of the dollar.

This multifaceted erosion of US dollar strength, which is still creeping at this stage but prone to potential acceleration, is being reflected in the current surge in the price of gold. The precious metal recently touched an all-time high of more than US$2,500 per ounce, partly under the influence of Asian and Russian buying.

It is not just the fact that US interest rates are set to fall which could set the dollar on a slippery slope. According to Paul Sheard, a Harvard economist and author of the book The Power of Money, the “exorbitant privilege” the dollar enjoys is “not God-given”.