The advantage of the US having the dollar as the world’s reserve currency is that it creates demand for dollars. Countries accumulate dollars and tend to invest them in US bonds, keeping US borrowing costs low.
The curse, especially since Nixon ended the convertibility of the dollar into gold (1971), is that there is no “brake” on the creation of dollars or on spending that widens the US deficit. The US has become the world’s consumer of last resort.
Despite the whining of China and the BRICS, no other country wants this curse, because it would end the export-oriented nature of their economy.
US trade deficits and the dollar as a reserve currency are two sides of the same coin
Europe should deepen ties with non-US trading partners, says ECB chief Christine Lagarde
“While the US is — and will remain — an important trading partner, Europe should also seek to deepen its trade relations with other jurisdictions, leveraging the advantages of its export economy,” Lagarde said on a panel at the World Economic Forum in Geneva. Lagarde has previously spoken about how the European Union should strengthen its institutions and economic resilience as a way to increase the euro’s international influence after the US increased tariffs on its trading partners.
This is wishful thinking; to view the US relationship with Europe as merely one of many equal relationships is to miss the point. The US is not just another destination for exports. Their main role in the global trading system is to absorb global trade surpluses. That is the curse. And no country wants it.
For Europe to reduce its dependence on the US, what it needs is not another country with which it can trade, but another country that is willing and able to run the huge trade deficits required to bring global trade into balance.
It is not just Europe. The whole world is looking for the impossible, unless China cooperates in this process of rebalancing trade relations.
If no other country can play this role (and none wants to…), then either the other countries will be forced to restructure their domestic deficits to eliminate their trade surpluses.
More trade with other countries is almost always a good idea, but that was as true ten years ago as it is today, and it will do Europe no good if the Trump administration manages to reduce its trade deficit. Neither China nor Germany wants to end their export orientation.
And if they don’t, there will be no need for other countries to build up their yuan or euro reserves.
Note: Trade deficits and foreign exchange reserves are two sides of the same coin.
Trump is demanding that countries maintain dollar dominance, while dollar dominance and trade deficits are directly linked. If Trump succeeds in reducing trade deficits, foreign exchange reserves in dollars will automatically fall.
Trade is between individuals, not nations
Basically, trade is not between nations. The mention of trade deficits, such as the persistent trade deficit with China, gives the opposite impression. But the deficit is really the result of individual transactions.
For example, you or I buy a tool from Home Depot, probably made in China. The intermediary buyer, e.g. Home Depot, places large orders with various Chinese manufacturers. The same is true for a Brazilian farmer who buys fertilizer from a Chinese trader.
By accumulating dollars, China buys assets denominated in the U.S. currency, the most liquid asset on the planet. In the process, China maintains its export orientation, subsidizing its exporters at the expense of Chinese consumers.
What would it take for a BRICS currency to succeed?
The new currency would have to be freely traded, while the yuan has a fixed exchange rate with the dollar.
It would have to be a genuine reserve currency to be widely used.
A functioning bond market based on the currency.
Significant desire of individuals to trade in BRICS currency rather than local currencies or dollar.
Willingness of China to stop its export orientation and actively promote (with deficit spending) domestic consumption.
Trust
BRICS are not a threat to dollar dominance, but debt and fiscal diversion…
US Debt Increases by $1 Trillion Every 150 Days The US national debt has exceeded $37 trillion and is growing rapidly.
There are no brakes on US fiscal spending. The problem is with spending, not revenue.
But Trump threatened any Republican who did not agree with the “One Big Beautiful Act” that increased deficits.
Gold Breaks Record
August 8, 2025: New All-Time High for Gold
May 6, 2025: Precious Metal Hits New High
Three Messages from Gold’s Rise:
Gold Doesn’t “Believe” the Fed Has Control of Monetary Policy
Gold Doesn’t “Believe” Congress Has Control of Fiscal Policy
Gold Doesn’t “Believe” Trump Has Control of Economic Development
No other country wants the curse of reserve currency, and none is qualified to do so even if they did. Mathematically, someone must own every dollar printed. As a result, Trump is succeeding in maintaining the dominance of the dollar for the time being. But what value will that dollar have on the path we’re on?
A currency crisis is upon us – buckle up!
