What Future for the Dollar?

The economic policies implemented by President Trump are calling into question the central role that the dollar has held for many years. The Rector of Università della Svizzera italiana (USI), Luisa Lambertini, speaking in her capacity as Professor of Finance, discussed the issue on Modem (Rete Uno – RSI).

The dollar, until recently considered the international currency due to its use in the majority of global transactions, is now losing its appeal. One of the key questions in the current debate is whether owning such a strong currency has, over the years, been an advantage for the United States: "It has certainly been an extraordinary advantage for quite a long time," explained Rector Lambertini, "which can be measured by the return on investments made by the United States compared to the interest it pays on its debts and borrowing. A significant and positive difference, which has allowed the US to continue borrowing and has been a great benefit to them. However, in times of crisis, the US has always played a crucial role in stabilising markets. During the 2008–2009 financial crisis, for instance, they provided liquidity to banks, which was seen as an extraordinary duty."

The value of the dollar has also been used by the "architect" of US tariffs, Stephen Miran, to justify the imposition of steep taxes on foreign goods, as the USI Rector explained:
"Stephen Miran explains the tariffs the US wants to impose on its trade partners as a consequence of an overly strong dollar, which causes a negative trade balance. As we know, this isn’t entirely accurate: if we look at the dollar against the Swiss franc since 1970, the year the Bretton Woods system was dissolved, the franc has appreciated by more than 80%."

The role and value of the dollar are tightly connected to the international role of the United States:
"This is a turning point for the United States’ global role. The dollar has held its position because the US has played an important part as lender of last resort during crises. If the world begins to realise that this will no longer be the case, it’s clear the dollar will automatically lose its status," commented Luisa Lambertini.

Trump’s economic policy might, at least in part, be counterbalanced by the Federal Reserve (Fed), the US central bank, which will appoint a new chair next year:
"As economists, we hope the choice of the next Fed chair will be based on the candidate’s competence, to ensure a continuation of the coherent monetary policy the US has followed in recent years. We therefore hope the role will be entrusted to a professional capable of upholding the important position the US and the Fed have always had—though, understandably, there are some concerns," said the USI Rector.

At present, as Luisa Lambertini explained, there is no real alternative to the dollar:
"There are several currencies that could take its place, such as the euro or the yuan. It’s clear there would be a transitional phase if the US continues with its current policies. It’s worth remembering that the United States is facing a situation of high public debt, with returns that have already shown a strong reaction to these policies and to market responses; this is therefore a very delicate situation in which certain decisions could come back to hit the US Treasury like a boomerang."

In conclusion, Rector Luisa Lambertini noted that:
"The Swiss National Bank could intervene to reduce the appreciation of the Swiss franc. However, from a quantitative standpoint, its capacity to intervene is rather limited: the dollar is currently showing weakness against many other currencies."

The full interview with Rector Luisa Lambertini on Modem (Rete Uno – RSI) is available at the following link.