US presidential candidate Trump declared yesterday that ‘tariff’ was the most beautiful word in the dictionary. He threatened that if other countries tried to move away from the USD as the world’s dominant reserve currency, he would increase trade tariffs on that country, says Jane Foley, an FX analyst at Rabobank.
USD’s position as dominant reserve currency will continue to decline
“Although the IMF’s aggregate FX reserves data shows no evidence that the use of sanctions and tariffs in recent years has accelerated the move away from the USD, it is difficult to ignore the potential impact of changes in geopolitical factors. Although Trump’s threats, in our view, the USD’s position as the dominant reserve currency is likely to continue to decline, although the pace will likely remain slow.”
“For many countries, particularly those strongly aligned with the US, the risk of trade tariffs could be enough to prevent a shift away from using the USD as the dominant billing currency. However, the implications for countries that already have a deteriorated geopolitical relationship with the US, the implementation of sanctions could provide a greater incentive to avoid the USD over time.”
“Domestically produced products, however, are usually more expensive or of lower quality than the import they replace. Therefore, tariffs tend to be inflationary, which should lift the USD and for this reason we would expect the USD “Be stronger in the first months of a Trump presidency than in a Harris one. Over time, however, tariffs can reduce productivity and growth potential.”
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
