MW How the twilight of 'king dollar' could be the dawn of a new world currency

By Peter Morici

The overvalued dollar has benefits for Americans, but also costs. A true global currency might be the answer.

America's international arrangements are too expensive for the country to sustain.

These costs include security alliances in which America bears too much of the burden, the World Trade Organization $(WTO)$ in which the United States offered low barriers to its market with little reciprocity, and a U.S. dollar (DX00)-anchored global monetary system that requires large issuance of U.S. government debt to expand liquidity for global commerce.

These challenges have given rise to three problems that the Trump administration has been looking to fix:

-- A burdensome national debt pays for an outsized military and to prop up domestic demand, drained by Americans importing more than exporting.

-- An overvalued dollar exacerbates the damage imposed by weak foreign compliance with WTO norms and imposes unfair competition on American industries and workers.

-- Income inequality and social decay.

Printing the world's reserve currency may permit Americans the exorbitant privilege of consuming more than they produce, but the industries mostly based on the two coasts - finance, high-end services, technology and creative media - have much larger incomes while middle America struggles with lost manufacturing jobs, low paying service-sector employment, opioid addiction and worse. This status quo is rotting the heart of America. Deaths of despair are on the rise, and Americans without college degrees have lower life expectancy. The U.S. birthrate has fallen sharply since 1990, and the U.S. is losing its high-tech supremacy.

As a way to address this, Stephen Miran, chair of the Council of Economic Advisers, authored a widely circulated tract in November 2024 on the dollar and trade. Entitled "A User's Guide to Restructuring the Global Trading System," the paper justified Trump's tariffs and promoted a Mar-a-Largo accord, like the 1985 Plaza Accord, to devalue the dollar and make U.S.- based manufacturing more attractive.

To deal with the large U.S. national debt, Miran suggested swapping outstanding Treasury debt for 100-year zero-coupon or low-interest government notes, or taxing foreign central bank holdings of Treasurys. But if anything like that happened, investors would view the move as a debt default. A Treasury buyers' strike would ensue and ordinary Treasury bondholders would take losses.

To a more conventional economist, Miran's paper is full of contradictions. For example, while high tariffs would initially boost U.S.-based manufacturing, the existing global framework would ultimately come to bear: international dependence on the U.S. defense budget; generous social benefits and disincentives to work in both North America and Europe, and a yawning gap between funding America's budget deficits and financing for private investment on one hand; U.S. household and business savings on the other.

Moreover, the engineered devaluation of the dollar described by Miran would erode the real value of outstanding Treasurys, diminish international investor confidence in U.S. debt, and risk collapsing the dollar-based payments and international-credit systems.

Miran's tract suggested reform in the progressive spirit of Adam Smith's Wealth of Nations. But in a perverse twist, it apologized for Trumpian mercantilism and ignored the consequences of foreign retaliation to U.S. tariffs. And it failed to lay out a workable framework for the resulting post-dollar system.

Here are my prescriptions:

-- In varying measure, the United States and its industrialized allies must spend less on social programs and recalibrate pension systems to encourage later retirements. This would free up more resources for militaries financed by taxes, and not through more borrowing that creates ever-larger government debt.

-- Germany and other European NATO nations don't want to make trade-offs. But, if they won't going to reduce military spending, they must raise taxes to finance adequate armies and navies.

-- Nations should join to create a new global reserve currency. This would be similar to Meta's failed cryptocurrency libra. This new currency would consist of a basket of major Western currencies weighted by GDP, and would replace the dollar as the world's reserve currency.

Read: Trump's policies are pushing countries to distrust the U.S. and the dollar - putting America in a tight spot

Nations participating in this world currency should agree to only issue sovereign debt in that currency. A new financial institution should be established to enable both the currency and a market for debt denominated in it.

This would relieve upward pressure on the dollar. But bringing manufacturing back to the U.S. based on a cheaper currency will be tough. So much factory-based production has left the U.S., and many workers don't have the necessary technical skills required to bring manufacturing back to America. After all, look at the difficulties Apple $(AAPL)$ would encounter in securing the engineers needed to bring iPhone production to the U.S. - and India offers more of what Apple needs at better prices.

With trade relations, the U.S. should seek genuine reciprocal free trade among the nations that would be the foundation of the new global currency - including Canada, the eurozone, Japan, the Association of Southeast Asian Nations (ASEAN), India and other Pacific-region nations.

As for China, the U.S. needs to keep tariffs high. It's unlikely that the U.S. can reach a workable trade agreement with Beijing - each country's systems are just too incompatible. For economic and security reasons, decoupling is essential.

Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.

More: Trump's 'reciprocal' tariffs are dangerous - and will make Americans poorer

Plus: Trump's election fueled expectations for strong U.S. growth. Then came the tariffs.

-Peter Morici

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April 29, 2025 07:05 ET (11:05 GMT)

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