Will Donald Trump end US financial dominance? You asked, Alphaville answered

Question asked by: Anonymous
Question: Who will take over as the dominant economic super power when the US distance themselves from that position?

Answered by: Robin Wigglesworth
Answer: Norway!

Question asked by: Anonymous
Question: Could you elaborate on the answer “Norway!” to the question of who could take over as the dominant economic super power? I particularly challenge this based on the Norwegian fiscal model with limited debt issuance. What about the Euro (and potential of a European safe asset)?

Answered by: Robin Wigglesworth
Answer: I was only joking (im Norwegian, despite the name). Though I like the idea of sending a team of taciturn Nordic technocrats to DC to sort things out. It would be a heavy burden, but our shoulders are strong.

Question asked by: JanneB
Question: How should a small, export dependent country like Sweden act in times like this?

Answered by: Robin Wigglesworth
Answer: As someone sitting in neighbouring Norway, I also think about this a lot. I think the only answer is even closer cooperation across more spheres in Europe. At least Sweden has now joined NATO. Norway is sadly still having a debate about having a debate about whether it should join the EU.

Question asked by: Anonymous
Question: Isn’t the reality here we all just wait it out until Trump leaves office and (hopefully) some level of normality can resume in the US leadership position. Particularly given outside of USD the EUR isnt a replacement and there is arguably even less trust in governments like China or other ccys?

Answered by: Toby Nangle
Answer: 🤞

Question asked by: George Sloan
Question: Will we see a new Bretton Woods type of agreement?

Answered by: Robin Wigglesworth
Answer: No, is the short answer.

Question asked by: Anonymous
Question: If the TACO trend continues, is it possible the market becomes partially desensitized to any new proclamations and if so what impacts could this have

Answered by: Toby Nangle
Answer: Katie’s joked that future historians will look back and attribute blame for WWIII on Rob Armstrong’s TACO phraseology. You can see how it could play out: markets don’t react because doing so ends up hurting them after the TACO; Trump doesn’t then need to TACO (and is wounded by the whole TACO phraseology anyway, so pushes against it). I know it’s a joke, but I also hope it’s wrong.

Question asked by: Brockdorf
Question: What will replace the US?

Answered by: Robin Wigglesworth
Answer: Not really an answer, but I feel this is a good excuse to share one of the last poems Leonard Cohen wrote before he passed away, because of the last line:What is comingten million peoplein the streetcannot stopwhat is comingthe American Armed Forcescannot controlthe Presidentof the United States and his counselorscannot conceiveinitiatecommand or directeverythingyou door refrain from doingwill bring usto the same placethe place we don’t knowyour anger against the waryour horror of deathyour calm strategiesyour bold plansto rearrange the middle eastto overthrow the dollarto establish the 4th Reichto live foreverto silence the Jewsto order the cosmosto tidy up your lifeto improve religionthey count for nothingyou have no understandingof the consequencesof what you dooh and one more thingyou aren’t going to likewhat comes after America

Question asked by: idlerwheel
Question: What is the biggest driver of the US dollar’s persistence as the global reserve currency? Is it the full faith and credit of the US? Military spending? Institutional inertia and transactability? Something else?

Answered by: Toby Nangle
Answer: I think there’s a lot to be said for institutional inertia.To take one example, the vast majority of FX trades in the world go through a USD leg. So If you’ve got MXN and want GBP you’ll almost certainly sell MXNUSD and buy GBPUSD. Of the bank you transact with will do this in the background. A huge impetus to then have any variation margin and collateral transfers on forward FX legs done through USD. Nowhere in the process is someone sitting there going ‘wow, I just loooove the dollar’, but the architecture has evolved over the years for the dollar to just be the neutral unit of account. Changing that requires a whole bunch of inorganic decisions by motivated people.

Question asked by: Anonymous
Question: Thank you for doing this. It seems to me that US dollar and US treasuries dominance will remain until there is a viable alternative. What key development milestones should we look out for in a currency or payment regime (e.g. Yuan, Crypto etc.) which would herald a real move away from the US?

Answered by: Robin Wigglesworth
Answer: China fully opening its current account would be the big one. Europe getting its act together would be another one. What the intermediate steps are in those is unclear to me though (or that either will ever happen).

Question asked by: Humean
Question: How alive are central banks to the risks of a post-powell central bank using credit swap facilities for leverage during whatever the next banking or whatever crisis is that involves USD liabilities? What are central banks and policy markers doing to hedge against this mafia style extortion risk?

Answered by: Robin Wigglesworth
Answer: I think they are acutely aware of this vulnerability. I’m not sure what they can do to mitigate against this danger in the short or medium term, but Bob McCauley wrote a really interesting Alphaville post last year arguing for a “dollar coalition of the willing”. https://www.ft.com/content/67616e19-9827-47d7-a4e0-ccaf344b7f57

Question asked by: Anonymous
Question: Is there a possibility for China to reduce restrictions on the yuan, in order to make the Chinese yuan a reserve currency for Asian countries, or though the HKD.

Answered by: Robin Wigglesworth
Answer: It’s possible, but the revealed preference of China is pretty clear by now.

Question asked by: David Lesperance
Question: Currently the market is supporting the US dollar because of the TINA (there is no alternative) theory. Do you see a viable alternative on the horizon? If so, is it something like the euro, yuan or an e-currency?

Answered by: Toby Nangle
Answer: A single unit of account is pretty useful, although there’s nothing to stop this being something other than the dollar.I find it hard to see how it could be a currency that doesn’t operate an open current account/ capital account. Which looks like it rules out the Renminbi. The euro could work, or some basket of currencies.It would need to be something that wasn’t insanely volatile, and whose value could be easily manipulated. It’s not obvous though that the price of the dollar is wildly wrong. Sure, people will have views. I read a lot of analyses arguing that the dollar should collapse because US government debt is on an unsustainable path or because the authors don’t like Trump’s policies. There’s an easy trade for anyone with that view.

Question asked by: AJDop
Question: Is the US government and economy and government resilient enough to continue being so powerful without being able to obtain so much cheap debt?

Answered by: Robin Wigglesworth
Answer: I do think a lot of people — Americans included — radically underestimate the resilience and adaptability of the US economy. Its performance since 2008 might have been flattered by ongoing fiscal and monetary largesse, but it really is incredible to behold.

Question asked by: Lefevre
Question: “I’m waiting with interest to see how the politicisation of USD swap lines may or may not play out the next time they are called upon.” Now I’m nervous – can you imagine Trump on a conference call in the 2008 meltdown?

Answered by: Toby Nangle
Answer: Who knows, maybe he’d surprise us all 👀

Answered by: Robin Wigglesworth
Answer: Yes, as Toby mentioned earlier in a question about how a 2008 would play out today, I think this is a huge issue. I think that faced with the disasters that could ricochet back to the US that even the Trump admin would bless the Fed’s swap lines, but my confidence in that bet is pretty low.

Question asked by: AB
Question: Isn’t freedom of navigation non-negotiable? Will not most countries in the region insist that DJT restore fee passage to Hormuz and not declare victory and withdraw?

Answered by: Robin Wigglesworth
Answer: Yes, it would be fascinating to hear what the likes of Qatar, Kuwait and the UAE are telling their friends in DC right now…

Question asked by: Anonymous
Question: Iran – Venezuela, some say this is a play to control countries that are trying to de-dollarize. Is this really a valid argument? The administration knows that the petrodollar is important and this is why he is setting up the blockade.

Answered by: Robin Wigglesworth
Answer: No. Firstly, I suspect the whole petrodollar argument is a bit overblown. Secondly, countries like Iran and Venezuela could decide to use whatever whotsit currency they wanted and it wouldn’t really matter a jot to the dollar’s position. They’re just too small to matter.

Question asked by: Lefevre
Question: James Carville, 1993: “I used to think if there was reincarnation, I wanted to come back as the President or the Pope or as a .400 baseball hitter. But now I would want to come back as the bond market. You can intimidate everybody.” The US bond mkt has stopped Trump again, is Carville’s rule safe?

Answered by: Toby Nangle
Answer: It’s a great quote, and pretty reliable. Though the logic of the bond market is really about working out what the right price should be for interest rate risk.Seize control of the interest rate (by, like, popping a number of political puppets in to run the Fed) and you invite the CURRENCY MARKET to the party. And if the bond market looks intimidating, wait til you meet its violent alcoholic uncle.

Question asked by: Kick the can
Question: Is keeping oil trading in USD the only realistic way for the US to retain reserve currency status.
In a world where energy is valued in USD, the US prevails!? Hence also the wish to move away from renewable energy….

Answered by: Toby Nangle
Answer: While not unimportant, I think the role of oil in supporting the dollar’s global hegemony is overstated. If every barrel of oil consumed last year was sold in dollars last YEAR, this would constitute around $2.6tn of USD transactions. This is a big number. But it’s only around 30% of the DAILY over the counter FX global turnover (according to the BIS survey).

Question asked by: MelissaS
Question: How likely is it that petrodollars become petroyuan or petrobitcoin and if that happens, what are the implications on us assets (stocks and bonds) ?

Answered by: Toby Nangle
Answer: Bitcoin is a pretty terrible unit of account given its volatility, the transaction costs involved, and the delays in final settlement. The Renminbi might work if the Chinese state decided to open its capital account, but the direction of travel loks to have been going the other way.

Question asked by: Cotswold Scouser
Question: “Why does the US electorate allow MAGA to stay in power?”: Polls show US voter disapproval is still roughly the same as Starmer’s in Britain . And most Americans insist they’re fine with no idea how backward America is: eg: same life expectancy as Bangladesh, worse public IT than Brazil etc.

Answered by: Toby Nangle
Answer: Elections?

Question asked by: TutorInAntibes
Question: If China and Japan sold their US Treasuries in unison, could it seriously destabilize the US dollar financial system? What is the current value of US Treasury holdings in China & Japan (plus Brazil, Russia, Saudi Arabia, South Africa, for balance)? Two questions, I understand.
Andrew POWYS

Answered by: Toby Nangle
Answer: Nobody knows the true value of Chinese government holdings of US Treasuries — not even the US Treasury secretary. All holdings DO sit on a spreadsheet at the Fed, but underlying ownership is masked by nominee accounts etc. They do conduct estimates though, and some (most?) central banks identify themselves. Here’s the monthly table: uncertainties on precise numbers, Japan and China are fairly certainly huge holders. And any huge holder that seeks to dump an asset is going to cause a stir — in this case one big enough to likely prompt a policy response. It would be pretty easy for the Fed to take the other side of any massive selling, issuing them newly imagined dollars in exchange for their bonds. But what would someone who’d previously held maybe $1tn of bonds do with $1tn of currency? This currency can be sold to other foreigners in exchange for their holdings of other currencies (euro, yen, sterling) at some price. Or Americans could exchange their foreign currency holdings for the new dollars. Or the currency could be swapped for US dollar-denominated assets like stocks, if they can find someone willing to do the trade. But the new dollars have to be owned by someone somewhere. If there are destabilisation risks, they come establishing the clearing price for these new dollars.

Question asked by: Countedsheep
Question: Will the GCC start pulling investments from across the world to fund deficits caused by the blockade and the impact on investments across the global?

Answered by: Robin Wigglesworth
Answer: It’s a good question. Most of the money will be locked up for multiple years and offer limited liquidity, but some public market funds should probably worry about potential redemptions, and some earlier commitments to private capital funds might be trickier to meet now.

Question asked by: Anna S.
Question: Are $ stable coins an effective tool to support the international role of the $ and if so, in what way, apart from supporting demand for treasuries?

Answered by: Toby Nangle
Answer: IDK, people like US dollars, people like low transaction costs, and people like anonymity. Owing to the mahoosive fees levied on international dollar transfers, as well as pesky anti-money laundering rules and financial sanctions applied to dodgy regimes and criminals, it’s easy to see why dollar stablecoins have become more popular. Although they are so far still pretty small.Some recent research form the BIS posits that they could serve to undermine EMFX valuations — the flip side of supporting the dollar ( So am maybe a little more positive on this possibly being the case than Robin.

Answered by: Robin Wigglesworth
Answer: I’m deeply sceptical of this argument. Never say never, but even if some of the more out-there forecasts of stablecoin market sizes come true, it isn’t really a big deal for Treasuries compared to other buying bases.Remember, under the GENIUS Act only US-regulated ones have to have one-to-one US dollar backing, and I don’t know how assiduously that is being supervised or audited.

Question asked by: tsumsa
Question: If a country with a world reserve currency is heavily indebted and forced to pay interest below inflation due to budget deficits, it needs to devalue its currency against gold. What can Trump do? These are part of that.

Answered by: Toby Nangle
Answer: The basic heuristic of an equation for the debt stabilising primary balance is generally given as (r-g)/(1+g)]D, where r is the post-inflation interest rate, g is the real GDP growth rate, and D is the initial debt-to-GDP ratio. So any country paying a negative real interest rate (and positive economic growth rate) will find that it can stabilise its debt with a fairly chunky primary deficit. BUT — as you say — currency markets might not like this form of debt deleveraging. Whether this dislike takes the form of general depreciation against a basket of trading currencies or against a shiny rock is not obvious. It’s also not obvious how to seperate any other pricing considerations from gold in its initial valution. So I’d be wary of anyone saying that gold prices had to rise (or fall) based on a single macro view.

Question asked by: YouBohrMe
Question: How should investors (institutional or otherwise) think about/price the continued attack on Fed independence, and how do you see that playing out down the road?

Answered by: Toby Nangle
Answer: I think that humans/ citizens worry about political manipulation, but that investors try to price risk. This can end up in the same place, but needn’t always.If bond investors think that policy will result in an inflationary spiral, they’ll price this risk — and the results won’t be pretty. If international investors reckon that Fed swap lines won’t be available in a crisis, they’ll change behaviour. If investors see independence disappearing but reckon that a politically dependent Fed will do ball-park same things as an independent Fed, it’s quite feasible that we don’t get the kind of meltdown that’s storied.

Question asked by: DecencyNeeded
Question: If the Trump administration selectively defaults on Treasury debt and bond-payments to punish “woke’” banks, ESG funds and/or Chinese holders, how severe will dollar sell-off, constitutional crisis, and debt restructuring be? How should investors hedge against falling US creditworthiness?

Answered by: Robin Wigglesworth
Answer: Trump actually seemed to float something like this at the beginning of 2025, which seems to be memoryholed already. like Toby I don’t think it’s a real danger. This would be apocalyptic for the global economy, the US included. To paraphrase Bill Murray in Ghostbusters, it would be like “cats and dogs living together — mass hysteria!”

Answered by: Toby Nangle
Answer: A lot of big questions there!Selective default would be a monumentally humungous step. It would crush the whole point of holding dollars for anyone who was not completely confident that they couldn’t command this — and any future — administration’s respect. While there are no obvious successors to the dollar in the global financial system, it’s not hard to see any port being rushed to in this kind of storm. But it’s hard to see who in the US administration would think that this would be a winning policy. (Trump has said that losing dollar reserve-currency status would be “like losing a world war”.)

Question asked by: Simonas L
Question: Do you think situation in Iran is/will go as the ultimate proof for the concept of “never bet against America”, considering stock markets are constantly responding to Trump’s statements even if situation is barely changing days or weeks after, if changing at all.

Answered by: Toby Nangle
Answer: It’s amazing isn’t it? What my colleague Chris Giles reckons is maybe half a COVID in terms of a global supply shock has barely left a scratch on headline stock index levels (though the same can’t be said about bond markets).But my contender for the ultimate proof though is the 1933 US gold clause abrogation. Congress retroactively amended gold clauses in private debt contracts which cost creditors 71% of US GDP over the following twelve months. A lawsuit was taken to the Supreme Court but creditors were defeated 5-4 — despite the Court reasoning that the abrogation was unconstitutional. The minority opinion, authored by Justice James C. McReynolds concluded “Shame and humiliation are upon us now. Moral and financial chaos may be confidently be expected”, but markets basically said “whatevs”.

Question asked by: RagnarK
Question: Appreciate you both !! Can you think of any field of competence where deep knowledge correlates less with accuracy in predictions and financial success, than macro economics? Is it the capitalistic epicenter of masochism?

Answered by: Robin Wigglesworth
Answer: I do love to joke that God invented economists to make astrologers seem accurate, but it’s pretty unfair. I think we forget just how hard it is to make predictions, especially about the future!

Answered by: Toby Nangle
Answer: IDK — some macro hedge funds have done pretty well. More generally, macro punters sitting in funds and investment banks tend to sit close to the top of their country’s income distributions — even if their forecasts are bunk.

Question asked by: San Jor
Question: Toby and Robin, how do you see the price of gold evolving in this context of blockade of the Gulf? Have the investors sold it enough to deleverage, so we should see another spike in price, also due to a devaluation of dollar or de-dollarisation of the world’s economy? Thanks

Answered by: Toby Nangle
Answer: My simple model as to how to think about gold prices *specifically* broke a while back.So I guess you need to look at who the buyers and sellers appear to be, who has capacity to buy and sell, and what models of the world all these people deploy to justify their actions.What was interesting to me following the outbreak of war was the sharp sell-off — apparently sparked by one or two central banks who’d accumulated holdings selling to help prevent their currencies from crashing. If the blockade continues a while I can see Azerbaijan (whose SOFAZ SWF has been a big buyer) have more resources to bid for gold, but can also see that China and India (the two largest net oil imporrters who are also major gold buyers) will have less. So, once again, ¯\_(ツ)_/¯

Question asked by: RS24
Question: Even with Trump’s unpredictability and the danger that poses, is there incentive for the EU to actively avoid a challenge or collective rebuttal against the USA now, with the idea that any escalation jeopardizes the strong likelihood that Democrat-elect would look to restrengthen ties with the EU?

Answered by: Toby Nangle
Answer: *Sucks teeth, thinks hard.* Not really AV territory, but if we were running the EU we’d probably focus on executing the Draghi plan, building out executive capacity in areas like defence, enhancing resilience across supply chains, etc with the view to thriving in whatever world we’re entering.This doesn’t mean staying silent on core values or crumbling on the first sign of pushback. But actively escalating conflict with the US seems a poor use of resource.

Question asked by: Twolegs
Question: We are one third of the way through this administration. For those taking a long term view, do you believe the next political cycle, starting with the mid terms and into the 2028 Presidential election should be our focus and maybe not the current noisy environment.

Answered by: Robin Wigglesworth
Answer: I dont think we should ignore the here-and-now, but yes, the midterms and the 2028 election are obviously going to be important (even more than usual). However, one thing I’ve heard European foreign policy types and increasingly some investors mutter is that if Americans can elect Trump not just once but twice, then they can do it again. Ie, not that he might run for a third term (though lets face it, its not outside the realm of possibility) but that the US might end up electing another Trump-like president. So whatever happens with the midterms, I dont think this genie can be recorked.

Question asked by: pliny
Question: Given the decline in international cooperation, would the global financial system survive a 2008 style crisis today?

Answered by: Toby Nangle
Answer: Amazing thought experiment!From my limited interaction with senior central bankers, I see a strong willingness to communicate and collaborate internationally. But it’s not clear that the kind of license given to the Fed in 2008 would be afforded them today. I’m waiting with interest to see how the politicisation of USD swap lines may or may not play out the next time they are called upon.I don’t think that the Fed has ever really acted out of anything but American self-interest in the past. But the notion as to what self-interest looks like seems to have evolved.

Question asked by: Eclecticviews
Question: One of the recurring critiques of Trump is that he lacks the persistence to follow through on complex initiatives that don’t yield quick wins. Given that pattern, can we realistically expect him to meaningfully reshape the global financial architecture?

Answered by: Robin Wigglesworth
Answer: Just because an elephant can’t blow glass doesn’t mean it can’t cause a lot of damage by trampling through a crockery shop.The US can and arguably is de facto reshaping the global financial system already, by fraying international relationships, changing the implementation of Basel III Endgame framework, aggressively deregulating domestically, and undercutting the IMF and the World Bank. Given the centrality of the US, even seemingly US-only issues often have global ramifications.That said, I agree that we should be sceptical of things like a “Mar-a-Lago Accord” or even less ambitious reforms to the international financial system — simply because the administration hasn’t shown a lot of interest or aptitude for the kind of work that this would require.

Question asked by: Old schooler
Question: How do you view the real risk of the dollar losing its global reserve status in the coming years regardless of what happens in the Middle East ?

Answered by: Robin Wigglesworth
Answer: Extremely low. It’s a cliché, but the dollar is still the least dirty shirt in the closet.

Question asked by: Humble investor
Question: What is your opinion on the increasing hyperscaler investment in the AI infrastructure? Or should we consider this as an 100% arms race investment?

Answered by: Toby Nangle
Answer: Looks like some combination to me. Hyperscaler AI build-out sometimes gets compared to the fibre build-outs in the late 90s that saw waves of bankruptcies.I wonder whether the downside is a bit more like the 3G spectrum auctions in which UK mobile telecom companies competed at the end of the 1990s.Back then, each firm had a vision of the future and was accorded a market cap based on this future. To realise the future they’d told themselves and their investors, each firm had to take on huge financial commitments. The IRL future was pretty much realised, although didn’t come with quite the financial rewards they’d hoped. All of them had big enough balance sheets to absorb the cost, but the whole episode is remembered as a cursed chapter that largely borked the industry.

Question asked by: Anonymous
Question: Do you think Trump has done irreparable damage to the status of the US dollar or is there still room for successive governments to walk it back and restore confidence?

Answered by: Toby Nangle
Answer: I’m constantly amazed by quite how forgiving financial markets are and quite how short their memory is. That said, it feels like a number of US allies have had their priors tested, and it’s hard to see how the case for resilience over returns will be rowed back — with everything that entails across supply chains and financial system architecture.

Question asked by: Lefevre
Question: “If building in Europe, you’d probably be locating in Iberia (1/2 UK price) or Scandinavia (1/3 UK price).” – daft question, why doesn’t Scandinavia export more electricity to the UK? Isn’t that what Inter Connectors are for

Answered by: Toby Nangle
Answer: *looks to the Scandinavian in the chat* 👀

Question asked by: Shell
Question: How will GCC countries affected if dollar weakens given the peg? Do you think these country might try to find a solution away from peg?

Answered by: Robin Wigglesworth
Answer: No. The Gulf dollar pegs are ironclad. But I’m sure it won’t stop people like Bill Ackman from periodically blowing some money on SAR puts or calls.

Question asked by: Eynon
Question: Given the size of US debt and deficits, which look increasingly insurmountable, isn’t it inevitable that at some point in the future markets will lose confidence in the US. Perhaps there could be a good old fashioned debt crisis, probably not now but when there’s another stress to the system.

Answered by: Toby Nangle
Answer: Stein’s Law states that “if something cannot go on forever, it will stop”. And given the explosive trajectory of US government debt it seems reasaonable that — at some point — confidence will be lost. But forecasting such an eventuality is hard.The British government debt/GDP exceeded 250% back in 1820 and again post-1945. Each time the debt was shrunk through some combination of economic growth and inflation rather than a debt crisis. When I’ve looked internationally to see what provokes a kind of national conversation that precedes debt consolidation, it’s generally come after interest as a share of GDP exceeds five per cent. We’re still a little way off this level (though fast-approaching). Lastly, Herb Stein came up with his eponymous law, all the way back in 1986 specifically looking at federal debt to GDP.So ¯\_(ツ)_/¯

Question asked by: East Finchleyite
Question: What should the UK do now?

Answered by: Toby Nangle
Answer: 😬😬😬

Question asked by: Jason Henderson
Question: Currency strength, historically, seems to rely on trade, immigration, military power and alliances, strong institutions, and the rule of law – quite literally everything the Trump administration actively undermines. Is there any historical parallel where these weaken, and the currency doesn’t?

Answered by: Toby Nangle
Answer: That’s a lot of variables, and the story sounds convincing.Taking any one of these individually, I’m not sure that the data would be convincing. Among the strongest currencies of the past two decades are the Swiss franc and Singaporean dollar — two military minnows that have found a way to navigate the geopolitical tides without binding themselves too strongly to any bloc — albeit ones with strong institutions and property rights.But broadly I’d agree that the world looks more challenging for dollar bulls when institutions are undermined and alliances weakened.

Question asked by: JohnMerrick
Question: Is there any chance at all we are all shrugging this off in a few years?

Answered by: Toby Nangle
Answer: Great question!It feels like my career has been marked by once in a lifetime shocks that changed EVERYTHING (Asian Crisis; DotCom bubble/pop; 9/11; Iraq War; GFC; Eurozone Crisis; Covid-19).But then I think about my grandparents generation (WW1; Russian Rev; Weimar hyperinflation; Great Depression; WWII; Bretton Woods; Cuba; Vietnam; End of Bretton Woods) and the last thirty years look like a walk in the park.

Question asked by: RDL2000
Question: Will Trump blow up fiscal dominance in the US?

Answered by: Robin Wigglesworth
Answer: One could argue that fiscal dominance is already a fact in the US, albeit in a subtle form (the Fed is now reinflating its balance sheet again, to ensure that there’s enough money sloshing around the system). Kevin Warsh last year indicated that this was what he thought — though he framed it as monetary dominance, ie the central bank running loose policy to enable fiscal profligacy. Of course, I rather suspect that he will change his tone when/if he becomes the new Fed chair…

Question asked by: plw
Question: Given that Treasury and Energy was completely out of the loop on Iran, and there is no functioning NSC, is the greater risk that there is just no co-ordination, even for ill thought out ideas, to spiral out of control as each arm takes independent actions?

Answered by: Robin Wigglesworth
Answer: Yes. 100%.

Question asked by: Barty
Question: What indicators would convince you that the ‘exorbitant privilege’ is genuinely deteriorating rather than just being tested?

Answered by: Robin Wigglesworth
Answer: That’s a great question, and I think it’s easier to say what ISN’T a good indicator, despite their popularity.For example, I dont think the fluctuating value of the dollar actually says much about the waxing and waning of America’s exorbitant privilege. I don’t really think the slowly declining share of global reserves is quite as meaningful as many people make out, either. I guess it’s a bit like the famous observation of US Supreme Court justice Potter Stewart regarding pornography: it’s hard to define, but I know it when i see it. But we won’t be able to see it until after it’s a fact…

Question asked by: I Drive Fast
Question: If the ROW decides to slowly decouple from the USA, how could trump possibly react and retaliate?

Answered by: Toby Nangle
Answer: Very hard to retaliate against a slow decoupling. Though as the global military and economic hegemon, pretty much every country will always seek to engage the US and influence it if they can.

Question asked by: Smell My Cheese
Question: How worried should we be about developments in the private credit space from a macroeconomic point of view?

Answered by: Toby Nangle
Answer: I’m generally pretty relaxed about private credit developments from a macroeconomic perspective. It’s big but not THAT big, and leveraged, but not THAT leveraged. It provides finance largely to PE companies, and so any slowdown will bung up the PE flywheel even more than is currently the case. This is different to being relaxed about whether returns will continue to hit the kind of double digit levels they have over recent years — which looks very doubtful. And it’s different to being relaxed that defaults won’t increase (which I think they will). The area that does worry me a bit is the life insurance space. Insurers are leveraged, though their exposure is overwhlemingly to investment grade private credit that should really be less vulnerable to the credit cycle. Regulation in the US is delegated to the state level, and how some of the regulatory arbitrages that the sector has executed will fare in the next credit cycle is something that I’m wary about.

Question asked by: Anonymous
Question: We’ve begun to see the possibility of yield curve control like measures considered in the US. How far are we from capital controls (on capital leaving the US) being within the realm of the possible? And what are the likeliest measures if so?

Answered by: Robin Wigglesworth
Answer: Oh it’s definitely in the realm of possible these days. But I suspect it’s still extremely unlikely. If we were to see something, then it might also be about keeping some forms of capital from entering the US — for example, the “user fee” for foreign investors buying Treasuries that Stephen Miran among others has touted. there IS one area where I think there’s a kernel of truth to the Trump administration’s economic complaints, and that’s the view that the dollar is unfairly overvalued because of its status as the dominant global currency. This obviously comes with advantages (it can borrow more cheaply) but it also entails costs (its exports are less competitive). As I once wrote, paraphrasing Nixon’s old Treasury secretary, the dollar is everyone’s currency, but America’s problem.I don’t think a “user’s fee” would ever work in practice — and it could cause all sorts problems if it was even tried — but a proposal of some kind of levy on foreign purchases of Treasuries is at least conceivable these days.

Question asked by: Anonymous
Question: The UK tech business is losing HPC and AI Companies to the USA and Europe because of the price of its electricity. Why does the UK have such high prices (~x10 more than the USA and ~x2 France) and what is a the quickest solution?

Answered by: Toby Nangle
Answer: Not completely sure about your precise numbers (the latest Table 5.3.1 industrial electricity prices incl taxes published by DESNZ using IEA data don’t accord), but the point is a very good one!If you were looking to locate a data center today, the price and reliability of electricity is going to be a key determinant. If building in Europe, you’d probably be locating in Iberia (1/2 UK price) or Scandinavia (1/3 UK price).

Question asked by: IGold
Question: Has the Venezuelan scuffle earlier this year safeguarded the US from the global oil fallout, in any way whatsoever? Cognisant the energy index leapt +12.5%, but is there an argument to say the US is the most / one of the most oil-resilient economic powers going at the mo?

Answered by: Toby Nangle
Answer: As a net energy exporter you’d expect the macroeconomy to be more resilient to any oil price shock. But oil price shocks are going to have wild distributional impacts in the US across firms and households, so pretty hard to game this one out IMO.

Question asked by: Anonymous
Question: Could the euro become the new benchmark for oil?

Answered by: Toby Nangle
Answer: I don’t see a great reason why it couldn’t be, but I also don’t think this would shift the dial quite as much as people expect when it comes for global reserve currency dominance.

Question asked by: Discocentralbanker
Question: When will you relaunch the meme contest ?

Answered by: Robin Wigglesworth
Answer: OK OK OK, the people have spoken. We’ll relaunch this sometime later this spring.

Question asked by: Anonymous
Question: If America are to lose their financial dominance, who is best placed to take their place?

Answered by: Toby Nangle
Answer: As long as China wants its current account closed, it’s hard to think that they will take their place any time soon. If the Eurozone pulled its act together, it would have a shot.

Question asked by: Frank Ramsey
Question: What would an abandonment of the USD as the world’s reserve currency look like?

Answered by: Toby Nangle
Answer: Slow. Or else very very fast and chaotic. But probably slow.

Question asked by: Anonymous
Question: If the US is on course to lose its financial dominance in the long term – would there be a replacement or what would a multilateral ‘no one dominant power’ look like? Is a return to the gold standard the only option??

Answered by: Toby Nangle
Answer: It’s really helpful to have a common unit of account in global financial plumbing. And having that common unit not zigzag wildly relative to traded value of stuff in general is also helpful — because it means that contract values shouldn’t be wildly volatile, and things like variation margin can be set relatively tight and without needing to be replenished like every day. Is there a reason that the common unit of account has to be that issued by the global hegemon? Probably many. But it’s entirely possible to imagine one that’s linked to another government, or maybe a basket of currencies like the SDR (if it has currencies with closed capital accounts stripped out). The gold standard has been abandoned before for good reason. Its drawbacks make it a non-obvious option.

Question asked by: Kit Juckes
Question: Which matters more, the currency in which FX trades are denominated or China’s desire to keep the yuan competitive and willingness to own dollar assets in order to keep it that way?

Answered by: Toby Nangle
Answer: Having pretty much the entirety of global FX trades pass through the dollar looks like a pretty immoveable barrier for anyone intent on dismantling dollar hegemony, though with enough will (or carelessness) anything’s possible. My gut is that this is one of those things that generates a huge demand for dollar balances just as part of the nuts and bolts of financial system plumbing. (Eg, those FX forwards have moved into the black? Receive USD cash collateral. Oh, they’ve moved into the red? Post USD cash collateral.) And this looks really important.Meanwhile, China’s desire to manage its exchange rate against the USD, while it can (and does) generate huge demand for USD assets, feels like something that has greater immediate resonance in the real economy — contributing to large current account surpluses and what’s being called China Shock 2.0. Another big deal.If I was an auto firm CEO the second probably sounds more important. If I was a financial plumber maybe the first. If I was a central banker I would be maybe put this in the same category of difficulty as the question as to whether it would be better to fight a horse-sized duck or a hundred duck-sized horses.This all feels like a question for a professional currency strategist — I hear SocGen have a good one 😉

Question asked by: Flaco
Question: Is freezing the US denominated reserves of a foreign government really a shot in your own foot?

Answered by: Toby Nangle
Answer: Financial sanctions certainly look like they’ve made some countries wary of parking their reserves in US government debt, and the sanctions imposed on Russia coincided with the beginning of gold’s latest bull run.But this, together with *gestures everything everywhere* hasn’t exactly kneecapped the dollar or the US government’s ability to finance itself.Moreover, I think financial sanctions can be useful leverage when applied judiciously and so I’m not sure I’d completely agree.

Question asked by: Lovelyday57
Question: What proportion of US dollar dominance can be attributed to Oil and Gas being priced in USD?

Answered by: Toby Nangle
Answer: While the real answer is IDK, let’s plop some numbers in a spreadsheet and have a guess.Google tells me that global oil demand last year was 37.4bn barrels. Let’s say the average price was $70 and all transactions were in US dollars. That would generate $2.6tn of demand for USDs (pretending that it was all traded internationally). Moreover, it means that folks who might want to hedge their oil demand might have greater appetite to accumulate financial assets denominated in dollars. So big number. But UN trade and development (UNCTAD) reckon global trade was c$35tn in 2025. Meanwhile, the BIS’s triennial survey of OTC FX turnover estimates DAILY turnover in currency pairs of which the USD was one leg at $8.5tn. Of course, we don’t know which transactions are attached to that FX turnover (and some will be demand for oil). But overall, pricing oil in dollars looks important – but maybe not the be all and end all.

Question asked by: Edge123
Question: What is the potential impact of oil being paid for in Chinese Yuan on the global economy and more specifically the US? Does the notion that the dollar is the worlds reserve currency still hold?

Answered by: Robin Wigglesworth
Answer: This is my personal opinion — and smarter people than me often think otherwise — but I think the denomination of oil trading is a hugely overhyped issue for the dollar.The sums of oil trading in renmimbi are still really small, and the oil derivatives market (and hedging is really key here) is overwhelmingly in dollars. Even if ALL Chinese oil imports were settled in renmimbi I don’t think it would be a massive deal for the dollar’s global usage.And wider usage of RMB still looks like a distant prospect. China doesn’t seem keen to open its capital account any time soon, and do you really trust Beijing more than Washington, even given recent events? Here’s a great recent blog by a former Treasury official Brad Setser if you want more detail on all this.

Question asked by: Securitisation
Question: Do you agree that the difficulty is actually worse because it is larger than Trump, who is mortal. The real problem is that the system is capable of electing him while apparently lacking any adequate checks and balances. Won’t this inexorably erode the dominance of US currency, bonds and stocks?

Answered by: Toby Nangle
Answer: I like the idea that the world elects a nation to be financial markets hegemon, whose currency and debt is then used to lubricate the global financial system. And I think that there are parts of this that are true (eg, a US default or selective default would be a real challenge to the dollar as a reserve currency; SWFs and central banks’ willingness to hold Treasuries and dollars is going to be influenced very meaningfully by any hint that the UST is willing to deploy financial sanctions or apply user fees). And the explosive government debt trajectory is going to unnnerve plenty of dollar and Treasury holders and prospective holders. So overall, I can see the dominance of the dollar and US bond market maybe ebbing over time. But more generally, I think that the economic and military might of the United States means that the rest of the world just always has to deal with whoever it is that Americans choose to elect.

Question asked by: Anonymous
Question: Will there be any safe haven assets?

Answered by: Robin Wigglesworth
Answer: Is any asset ever really safe?

Question asked by: David Lesperance
Question: With the short or possibly long term Gulf oil disruption, what will be the impact on Asian tourist destinations like Thailand?

Answered by: Robin Wigglesworth
Answer: The impact on large parts of Asia already seems pretty severe, and for countries like Thailand and the Philippines — which are almost wholly dependent on Gulf oil — it will be acute. This isn’t about higher prices either; outright shortages of all sorts of hydrocarbon-derived fuels seem to be mounting, Thailand’s fishing industry, for example, has reportedly shut down. and there’s rationing in many industries and countries.

Question asked by: Anonymous
Question: Can bond market history offer insights into what would happen if overall global economic growth hits a road block, such as systemic, energy or other resource limits? e.g. impact of peak oil (EROEI), Stockholm Resilience Centre’s “Planetary Boundaries” etc.

Answered by: Robin Wigglesworth
Answer: My entirely objective answer that the amazing history of the bond market offers tons of insight into all sorts of issues. But I’m unsure whether there are any good ones specifically on these issues beyond the obvious — if the global economy takes a major hit, it will infect the bond market, and bond market ructions could reveberate back into the global economy. We’ve done a pretty good job since 2008 making the banking system a little safer, but I do worry about the bond market’s seemingly growing ability to cause or exacerbate financial, economic and political shocks.

Question asked by: Leke Alabi, Communities Journalist
Question: That’s all we have time for. Thank you FT readers for your questions, as well as Robin and Toby for your insightful replies. We’ll be back with another Ask an Expert next week. Visit www.ft.com/ask-an-expert.

Answered by: Robin Wigglesworth
Answer: Yes, thanks everyone! Let’s meet here again for the Eurovision Song Contest.

Answered by: Toby Nangle
Answer: Thanks everyone for all the questions. It’s been fun!