This Bessent clip offers a good insight into what’s really going on with the Trumpian economic agenda. Also supports why I think all “the dollar is trash” commentary misses the point. The argument squares with the work I did about three years ago highlighting that by becoming overly politicized through sanctions and FATF, the dollar had stopped being neutral. This was impairing its capacity to offer true price discovery in a floated regime world. Neutral money is a key characteristic of a trading currency and a reserve asset. Holders want to hold the most neutral option that won’t be confiscated on a whim. As I argued in 2022, one of the main forces that brought down the USSR was the tacit tolerance by the US of the dollar funding Soviet parallel grey and black markets. So even while officially the U.S. engaged in tariffs and sanctions on trade in certain goods, it almost never prevented dollar access and happily turned a blind eye to corporate countertrade and smuggling of superior western goods into the Soviet bloc. Unofficially/practically there were always plenty of financial interaction, especially via Eurodollar markets or trade-related channels, which was happily tolerated. And this was because “free” black market trade helped to show up price and capital inefficiencies within the Soviet systems, in a way that put pressure on centrally planned sectors, eventually bankrupting the whole thing. I think something similar is happening now. Trumpian policies seem designed to liberate the dollar so that it can serve that neutralising price discovery role in international markets again. Most likely via stablecoins. This may lead to bifurcation of the exchange rate system depending on whether you are in the western free trade club or not. And herein also lies the under appreciated downside with being the reserve currency. Being the reserve currency in a system where your major trade counterparts allow your reserve currency to trade freely within their own markets is a true privilege. But being a reserve currency where domestic trade of your currency is repressed to stifle price signals that might highlight capital misallocation is the exact opposite, a true burden. It is this sort of situation that the IMF and World Bank should never have tolerated. And by jumping on the ESG wagon they simply undermined those neutralizing qualities of the dollar. Christine says the euro’s moment has now arrived, but unless China signals a free domestic exchange rate with the euro and open financial/capital account I think the US is more than happy for Europe to take on that burden. The US sees itself as better off championing actual free trade* and forcing China to liberalise. This is what Bessent means about China having to change and America being happy to help it change. A lot of that help will come via helping the dollar become the pricing tool of unrepressed black market trade in foreign unfree systems. And given China has more than happily turned a blind eye to decades worth of illicit grey market trade that undermined US IP or helped to flood U.S. markets with banned substances, it wouldn’t be less than reciprocal to do so. *yes, you can champion free markets via extreme tariff policy because the whole point is art of the deal escalate to deescalate logic. The tariffs are a means to an end and far more effective than sanctions on dollar use. Again it replicates western policy during the Cold War when Western countries leveraged trade blocks and tariffs selectively as a means to: 1) reward reformist regimes (like Yugoslavia or Romania at certain times). 2) To widen rifts within the bloc. 3) To support détente when strategically convenient (e.g., after the Helsinki Accords).