How to dismantle a reserve currency
How to dismantle a reserve currency was written by Daniel McDowell in 2025. It was published online as an Atlantic Council issue brief.
The author explores why and how the Trump administration is dis-establishing the USD as a global currency.
Winding down security commitments to e.g. NATO.
- Monetarist policies and deregulation of international monetary markets have made the U.S. an attractive investment, and therefore provided a glut of capital domestically, but this carries opportunity cost.
- Exports are not competitive with a strong dollar.
- National debt would be cheaper to service if the dollar devalues.
The independence of the Federal Reserve is now seen as inconvenient.
The author puts this in the context of political economy academia:
Gilpin argues that all international monetary regimes are built on foundations of a world order. Ending the liberal international order (LIO) inherently means ending the USD-backed status quo.
Frieden and Kenan demonstrate that globalization is a policy, not a status. The polity pushing for that policy can, and perhaps has crumbled.
The administration has put forward several proposals which shake confidence in the USD-backed system.
- Pressure on Federal Reserve to lower rates
- Also extra-legal attempts to remove federal reserve bank governors
- Swapping short-term Treasury bills for 100-year bonds
Exiting the international agreements that established dollar swap lines between the Federal Reserve and central banks, esp. ECB
- Capital controls
Reading Notes
I think the author is waffling between a policy brief on the administrations fiscal/monetary goals, and an op-ed that is critical of the decision to walk away from the USD-backed global system. There is much reporting on what policies the administration has pursued and proposed, and there is speculation about what the alternative is to this system. There isn't really a connection made between actions and consequences though. The implied connection is something like a slippery slope argument. Quoting (and linking) a few academics doesn't actually add much, it's just a signal of 'hey, if you agree with these smart people, you should agree with me'. Feels like an article right out of The Economist.