By Chandran Nair
Financial Times / Letter
Sir, It would appear from your headlines (February 1) that Donald Trump and his trade chief are accusing others of currency manipulation, playing the money market and free riding. Surely this is rich coming from Americans, who are the chief beneficiaries of the best free ride in the world: the extraordinary privilege of the dollar as the global reserve currency.
To use President Trump’s language, this would constitute a “rigged” system. It may have been a necessity in the postwar construct but neither the US nor the world is best served by it today. It is begrudgingly tolerated because of the massive pain its unravelling will cause, given the deep interdependence within the global financial system and a respect for the rules of the existing order.
The fact is that the US is funded by global savings mostly from Asia. The world’s financial system compels nations and especially those in Asia with the highest savings to build huge dollar-reserve holdings. Much of this is because countries such as China and Japan still dangerously rely on the American consumer for their export-led economies. They should instead be finding ways to wean themselves off this and at the same time channel their reserves to address the region’s challenges. It is this that has allowed American consumers to live the American dream built on low interest rates, which has now been reduced to buying things you don’t need with money you don’t have.
It is because of this privilege and the hegemony of the dollar, which is not loved by all, that American politicians should be wary of bullying the world, as it will backfire. Not everyone is sitting around like a bunch of dummies.