A recently resurfaced video of Vice President J.D. Vance has brought renewed attention to his argument that the US dollar’s status as the world’s reserve currency is a raw deal for America. Vance contends that global demand for dollars generates demand for dollar-denominated assets, which supports the dollar’s value. In his view, that makes American exports more expensive for foreign buyers and puts US producers at a competitive disadvantage.
Yes, read those remarks, greetings to the Triffin Dilemma.
JD Vance has argued that the U.S. dollar’s status as the global reserve currency acts like a “resource curse”, and contends it functions as a subsidy for cheap import consumption and financialization while acting as a heavy tax on domestic manufacturing and producers.
So, will the market start to doubt that this administration will have the resolve to ‘save the system’ (a system they are not that convinced of) once it’s needed again?
The cracks seem to be becoming more obvious:
Rank
Region / area
Crack
What it says
1
Global
Sovereign debt / long-duration bonds
Governments are having to pay more to borrow
2
Global
Reserve diversification
Investors are becoming less willing to concentrate wealth in traditional sovereign/financial liabilities
3
Global
Private markets
PE can’t easily buy attractive assets or exit existing ones; private credit sits underneath much of it
4
United States / Europe / Asia
Cross-border capital flows
Some foreign institutions are reallocating rather than automatically recycling savings into U.S. assets
5
Japan / global
End of ultra-cheap Japanese capital
The world’s largest low-yield funding source is becoming less reliable. Debt bailout.
6
United States / Asia / global
Crowded leverage
AI/chips/other concentrated trades can turn a valuation correction into forced liquidation