1. The paradox of a strong dollar
The dollar lies at the center of the international monetary system. This grants the United States what was already described in the 1960s as an “exorbitant privilege” (B. Eichengreen): the ability to issue debt in a currency that the rest of the world wants to hold.
However, this privilege has a downside:
- a strong dollar tends to inflate the U.S. trade deficit,
- it makes exports less competitive and imports cheaper,
- it hampers reindustrialization, a key goal for the Trump Administration.
2. Devaluing the dollar to export inflation… and debt
Here lies the key element: U.S. federal debt has surpassed 124% of GDP.
Now, under normal conditions, such high debt would require fiscal consolidation policies or — more insidiously — letting inflation and devaluation erode the real value of debt.
Devaluing the dollar aims to:
- reduce the real value of foreign-held dollar-denominated debt (which the U.S. has to repay),
- push up domestic inflation, thereby eroding the real value of public debt,
- stimulate foreign demand for U.S. goods, boosting industry and, eventually, tax revenues.
3. The knot: contradiction between hegemony and competitiveness
But here comes a strategic knot. The Administration faces a near-insoluble dilemma:
To preserve the dollar’s dominant role while also seeking its devaluation to enhance competitiveness.
In fact, devaluing the dollar risks:
- discouraging foreign investors from buying Treasury bonds (risk of massive sell-offs),
- undermining trust in the dollar as a safe-haven currency,
- raising the cost of debt servicing, should interest rates rise.
4. A strategy of power: currency coercion
Unable to achieve devaluation through domestic tools (due to Fed independence and international commitments), the Trump Administration seems to be moving toward “coercive devaluation,” that is:
- leveraging tariffs, security guarantees, and swap lines,
- pressuring other countries (especially China and the EU) to strengthen their currencies,
- thereby obtaining an indirect devaluation of the dollar.
This is a strategic operation to redistribute the burden of the Triffin dilemma, namely the cost of currency hegemony can no longer be borne by the United States alone.
5. Not a conclusion: a risky move
The objective is clear: devalue in order not to repay (everything). But the strategy is fragile:
- it risks fragmenting the international monetary system,
- it could accelerate de-dollarization,
- and above all — as the analysis itself warns — it could backfire on the U.S., leading to a world where the dollar is less central and American influence less pervasive.
It’s the calculated risk of an empire that knows it can no longer bear the weight of its own currency.
Post scriptum: What about the euro? Could it become a global reserve currency?
The answer is: potentially yes, but not without significant changes. Currently, the euro accounts for about 20% of global foreign exchange reserves, while the U.S. dollar holds around 58%. So although the euro is the second most widely used reserve currency, it still has a considerable gap to close. If the United States were to deliberately devalue the dollar, it could push governments and investors to seek alternatives. The euro, backed by a large and stable economy, could gain ground. However, there are still major hurdles. Europe lacks a fully integrated capital market, making euro-denominated assets less attractive. It also doesn’t have a centralized fiscal authority or a common budget, which weakens its ability to respond to crises compared to the U.S. And the economic differences between eurozone countries often make it difficult to agree on shared monetary and fiscal policies. So, while the euro could play a larger role on the global stage, becoming a true rival to the dollar would require deeper financial integration and stronger political unity within the European Union.
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