eyes on the U.S.

The Infuriating, Durable Power Of The American Dollar

As U.S. hegemony fades, the dollar has become the worst currency in the world — expect, of course, for all the others.

The New York Stock Exchange
The New York Stock Exchange
Jean-Marc Vittori


PARIS — Can we just be done with dollar? This fiscal fantasy has been a French obsession for decades. In 1964, the young finance minister and future president, Valéry Giscard d'Estaing, denounced the U.S. dollar as an "exorbitant privilege." Later, when leaders across the political spectrum agreed to create the euro, their goal, in large part, was to be more independent from the American currency. And today, as Donald Trump plunges America into isolationism, the desire to dump the dollar has gone global.

"It is absurd that European companies buy European aircraft in dollars and not in euros," European Commission President Jean-Claude Juncker said in his recent State of the Union address. It was in a similar spirit that China, earlier this year, created an oil futures contract that is based, for the first time, on the yuan rather than dollar, long the standard currency for oil transactions.

This idea that the dollar is under fire has even begun to circulate in the United States, as evidenced by comments several U.S. players made last January at the World Economic Forum in Davos, Switzerland. Larry Fink, the head of BlackRock, the world's leading asset manager, attributed the dollar crisis to the migration of investments to other currencies. On Wall Street, major players have sought to protect themselves in case the dollar begins to drop.

Instrument of blackmail

And yet, at first glance, the end of the greenback's reign as the king of currencies seems inconceivable. It's everywhere, from how we define extreme poverty (less than $ 1.90 a day) to global billionaire rankings. Chinese loans to African nations are in dollars. Even terrorist groups deal in dollars.

Why is the U.S. currency so ubiquitous? It satisfies the three missions of a powerful currency: First, it serves as a measuring instrument. Most commodities are quoted in dollars, starting with oil. Second, it is an instrument of exchange. Companies in dozens of countries settle their trade in dollars and the greenback currently accounts for 88% of transactions on the foreign exchange market. And third, it is a reserve instrument. Half of all international bonds are denominated in dollars and more than 60% of foreign exchange reserves are in the U.S. currency.

Even terrorist groups deal in dollars.

Unfortunately, the dollar is also used as an instrument of blackmail, which is why some are saying enough is enough. Indeed, U.S. authorities have been using the dollar — in the form of massive fines — as a way to attack European companies for doing business in countries sanctioned by Washington. In that sense, the dollar has become a means of intimidation. When Donald Trump pulled the United States out of the Iran nuclear deal, Washington made it clear to foreign multinationals that if they continue to work with Tehran, they'll punished.

This new threat has infuriated Europe's public and private-sector leaders. Brussels responded by cobbling together a barter platform that allows firms in the Old Continent to continue working in Iran without going through the dollar and without, therefore, risking American punishment.

Trump's best weapon — Photo: Kurtis Garbutt

This is only the beginning. In the coming years, many European and Asian companies will scrutinize their cash and billing to limit their risk of fiscal confrontations with the United States. In a world where American preeminence is fading, the monetary order will also change. "The euro must become the active instrument of the new European sovereignty," says Juncker.

The Triffin Paradox

The real fight, however, won't be over the currency used in accounts or exchange, but in reserves. That's where the money is really amassed. It's also where the role of trust is the greatest, because what's at stake are savings.

A reserve currency shouldn't, of course, last forever. This is the so-called Triffin Paradox, named after a Belgian economist who sounded the alarm, 60 years ago, on the dollar. For a particular national currency to become the global reserve currency, the country that issues it must sell more assets than it buys. In other words, it must have a permanent trade deficit (which the United States has been trying to do for decades). But these deficits, then, result in an external debt, which inevitably ends up worrying lenders.

In addition, the weight of the United States in the world economy is decreasing — it has fallen by more than a third in 40 years. In the meantime, Trump has allowed for an even greater budget deficit, another cause for concern among investors, and enacted a protectionist trade policy that may push certain countries to reduce their purchases of dollar-based assets.

Yes, the dollar is indeed exorbitant, not to mention infuriating.

Still, investors have to invest their money somewhere. And as Patrick Artus, chief economist of the bank Natixis, observes: "Other currencies don't offer a unified, liquid and large bond market."

In Europe, the financial market is fragmented and its currency politically fragile. And China, for all its growth, is still not a key player when it comes to finance. As economist Barry Eichengreen explained in his 2010 book Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System, the dollar is the dominant currency of the world because it has no real rival.

Nearly a decade later, this is still the case, and it may remain so for a long time. Yes, the dollar is indeed exorbitant, not to mention infuriating. But it also seems we're stuck with it, at least for the foreseeable future.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!

A Dove From Hiroshima: Is Fumio Kishida Tough Enough To Lead Japan?

Japan's new prime minister is facing the twin challenges of COVID-19 and regional tensions, and some wonder whether he can even last as long as his predecessor, who was forced out after barely one year.

Japan's new PM Fumio Kishida in Tokyo on Sept. 29

Daisuke Kondo


TOKYO — When Fumio Kishida, Japan's new prime minister. introduced himself earlier this month, he announced that the three major projects of his premiership will be the control of the ongoing pandemic; a new type of capitalism; and national security.

Kishida also pledged to deal with China "as its neighbor, biggest trade partner and an important nation which Japan should continue to dialogue with."

Nothing too surprising. Still, it was a rapid turn of events that brought him to the top job, taking over for highly unpopular predecessor, Yoshihide Suga, who had suddenly announced his resignation from office.

After a fierce race, Kishida defeated Taro Kono to become the president of the ruling Liberal Democratic Party (LDP), and pave the way for the prime minister's job.

Born into politics

A key reason for Kishida's victory is the improving health situation, following Japan's fifth wave of the COVID pandemic that coincided with this summer's Olympic Games in Tokyo.

The best way to describe Kishida is to compare him to a sponge: not the most interesting item in a kitchen, yet it can absorb problems and clean up muck. His slogan ("Leaders exist to make other people shine") reflects well his political philosophy.

He is an excellent actor.

Kishida was born into a political family: His grandfather and father were both parliament members. Between the ages of six to nine, he studied in New York because of his father's work at the time. He attended the most prestigious private secondary school — the Kaisei Academy, of which about half of its graduates go to the University of Tokyo.

However, after failing three times the entrance exam to , Kishida finally settled for Waseda University. Coming from a family where virtually all the men went to UTokyo, this was Kishida's first great failure in life.

An invitation for Obama

After he graduated from college, Kishida worked for five years in a bank before serving as secretary for his father, Fumitake Kishida. In 1992, his father suddenly died at the age of 65. The following year, Kishida inherited his father's legacy to be elected as a member of the House of Representatives for the Hiroshima constituency. Since then, he has been elected successfully nine straight times, and served as Shinzo Abe's foreign minister for four years, beginning in December 2012. A former subordinate of his from that time commented on Kishida:

"If we are to sum him up in one sentence, he is an excellent actor. Whenever he was meeting his peers from other countries, we would remind him what should be emphasized, or when a firm, unyielding 'No' was necessary, and so on ... At the meetings, he would then put on his best show, just like an actor."

According to some insiders, during this period as foreign minister, his toughest stance was on nuclear weapons. This is due to the fact that his family hails from Hiroshima.

In 2016, following his suggestion, the G7 Ise-Shima Summit was held in Hiroshima, which meant that President Barack Obama visited the city — the first visit by a U.S. president to Hiroshima, where 118,661 lives were annihilated by the U.S. atomic bomb.

Photo of Shinzo Abe, Barack Obama and Fumio Kishida with their backs to the camera, in Hiroshima in 2016

Shinzo Abe, Barack Obama and Fumio Kishida in Hiroshima in 2016


Japanese cynics

In September, 2020 when Shinzo Abe stepped down as prime minister, Kishida put out his candidacy for the first time for LDP's presidency. He didn't even get close. This was his second great failure.

But reading his biography, Kishida Vision, I must say that besides the two aforementioned hiccups, Kishida's life has been smooth sailing over the past 64 years

When one has had a happy and easy life, one tends to think that human nature is fundamentally good. Yet, the world doesn't work like that. And Japanese tend to believe that "human nature is vice," and have always felt a bit uneasy with the dovish Kishida diplomacy when he was foreign minister.

Leftist traditions from Hiroshima

Hiroshima has always been a city with a leftist political tradition. Kishida's character, coupled with the fact that he belongs to the moderate Kochikai faction within the LDP, inevitably means that he won't be a right-wing prime minister.

How long will a Fumio Kishida government last?

Kishida would never have the courage to be engaged in any military action alongside Japan's ally, the United States, nor will he set off to rewrite the country's constitution.

So after barely a year of Yoshihide Suga in office, how long will a Fumio Kishida government last? If Japan can maintain its relatively stable health situation for some time, it could be a while. But if COVID comes roaring back, and the winter brings a sixth wave of the pandemic as virtually all Japanese experts in infectious diseases have predicted, then Kishida may just end up like Suga. No sponge can clean up that mess.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!