Bank of America is reportedly warning clients that President Donald Trump’s monetary policies could trigger a currency war.
Trump is trying to jumpstart the US economy and boost lagging business investments. One path to achieving his goals would be to make the dollar more competitive against other currencies, leveling the playing field.
Currently, a strong, overvalued dollar can lead to depressed overseas trade, slower investments and less manufacturing activity across the US. It also makes consumer items expensive compared to other countries.
The Economist’s burger index shows, for example, that a Big Mac is now 19% cheaper when purchased in euros in the eurozone than it is when purchased in dollars in the US. Six months ago it was 17% cheaper.
“The administration has several ways it could weaken the dollar. One would be to explicitly abandon the strong-dollar policy that has been in place for more than two decades. Or Trump could order the Treasury Department to sell dollars in a bid to lower their value. That type of intervention hasn’t happened since 1995.”
In order to weaken the US dollar, Trump would need the support of the Federal Reserve, confirming a major criticism of the existing financial system – that US monetary policy is based on economic goals and strategies, human intervention and political aims that necessitate, for example, a currency watchlist to monitor manipulators.
As the world’s reserve currency, the US dollar is in constant demand, but unlike 1995, the dollar now has competition from Bitcoin which is establishing itself as a more efficient reserve currency. Bitcoin, its supporters point out, is based on math and a fixed supply,