The Dollar’s Global Role: Built on Trust, Vulnerable to Hubris

ByK.Kamachi

In June 2025, a paper titled A User’s Guide to Restructuring the Global Trading System, authored by Stephen Miran, Chairman of the President’s Council of Economic Advisers and a key influence on the Trump administration’s economic policy, has drawn considerable attention.1 In it, Miran argues that the overvaluation of the U.S. dollar (referring to its exchange rate) is driving America’s current account deficit and hollowing out domestic manufacturing. He proposes a strategy of heightened tariffs and multilateral currency agreements. While this aligns with the “America First” ethos, it neglects the delicate trust upon which any reserve currency system—not just the dollar—depends. This article considers the fragile foundations of dollar hegemony and the internal contradictions of U.S. policy.

The central dilemma in U.S. currency policy lies between protectionism under the “America First” banner and the global dollar system that rests on international trust.

The dollar’s status as the world’s reserve currency means that it serves as the “final means of settlement” in a wide array of global trade, investment, and financial transactions. This is enabled by the unparalleled scale, liquidity, and transparency of U.S. financial markets. Yet more than these technical factors, the true underpinning is trust in the United States as a polity: stable institutions, an independent judiciary, and predictable governance. The dollar’s primacy is not rooted in hard metrics like GDP or interest differentials alone—it rests on a fragile layer of non-quantifiable credibility.

For example, in 2023, Fitch Ratings downgraded U.S. sovereign credit from AAA to AA+ largely due to “repeated debt ceiling standoffs” and “erosion of governance.”2 This move underscored that confidence in the dollar depends less on fiscal indicators than on systemic stability. Moreover, America’s unspoken role as a guarantor of global security has long served as an invisible pillar of dollar reliability.

Despite this delicate structure of trust, former President Trump advocates protectionist trade policies while simultaneously calling for international support of the dollar system. This dual posture is inherently contradictory. As exemplified in Miran’s proposal, the idea of shielding domestic industry through tariffs while advancing multilateral currency frameworks may be politically palatable at home but lacks coherence internationally. The 1985 Plaza Accord succeeded through coordination among U.S. allies—Japan, Europe—who shared democratic values and security ties. Today’s main rival is China, a nation with a fundamentally different political system and worldview.

Allied democracies such as Japan, Germany, and Canada may continue to uphold the dollar framework in form. Yet at the same time, they are likely to strengthen alternative arrangements: bilateral currency swaps, multi-currency payment systems, and expanded reliance on IMF Special Drawing Rights (SDRs).

Meanwhile, non-aligned states—particularly in the Global South—are expected to bypass formal cooperation altogether, building settlement networks in their own currencies and diversifying reserves across yuan, rubles, and dirhams. Notably, China’s Belt and Road Initiative serves not merely as an infrastructure program but also as groundwork for a yuan-based financial sphere. Unlike the U.S., China has not articulated a mission to export its political system. It appears to recognize that peaceful regional relations are the foundation of its domestic stability.

For decades, the United States has advanced liberal democracy and capitalism as “universal values”—first under anti-communist rhetoric during the Cold War, and more recently under the mantra of a “rules-based international order.” Yet if America positions itself as the custodian of that order while asserting unilateral economic preferences and demanding compliance from others, it risks moving from contradiction to outright hubris.

Maintaining the fragile trust underpinning the dollar does not require coercion or command. What is needed is sustained effort by the United States to remain a nation worthy of trust. Nothing less will suffice.

Glossary

  • Belt and Road Initiative: A global infrastructure and economic development strategy launched by China.
  • Bilateral currency swaps: Agreements between two countries to exchange currencies to facilitate trade or stabilize markets.
  • Council of Economic Advisers: A group of economists who advise the U.S. president on economic policy.
  • Debt ceiling standoffs: Political deadlocks over the legal limit on the total amount of federal debt the U.S. government can incur.
  • Dollar hegemony: The dominant role of the U.S. dollar in the global financial system.
  • Fitch Ratings: A global credit rating agency that assesses the creditworthiness of borrowers, including governments.
  • Final means of settlement: The currency ultimately used to complete international transactions.
  • Heightened tariffs: Increased taxes on imported goods to protect domestic industries.
  • Hollowing out domestic manufacturing: The decline of a country’s manufacturing sector, often due to outsourcing and foreign competition.
  • Hubris: Excessive pride or self-confidence, especially when it leads to downfall.
  • Independent judiciary: A court system not influenced by political pressure, essential for rule of law.
  • Interest differentials: Differences in interest rates between countries, which affect capital flows.
  • Miran, Stephen: Chairman of the U.S. President’s Council of Economic Advisers under the Trump administration (2025), and author of a 2025 policy paper proposing trade protectionism and multilateral monetary reform. He has been influential in shaping the administration’s economic agenda.
  • Multilateral currency agreements: Financial agreements among multiple countries to manage exchange rates or trade settlements.
  • Non-quantifiable credibility: Trust or reliability that cannot be measured numerically but is essential for systemic confidence.
  • Overvaluation: A condition in which the exchange rate of a currency is higher than its market fundamentals would suggest.
  • Plaza Accord: A 1985 agreement among major economies to depreciate the U.S. dollar relative to the Japanese yen and German Deutsche Mark.
  • Polity: A form or process of civil government or constitution.
  • Predictable governance: A stable and consistent system of government decision-making and policy implementation.
  • Reserve currency system: A monetary system where a particular currency (like the U.S. dollar) is widely used in global trade and finance.
  • Scale: The size or extent of financial markets.
  • Settlement networks: Systems through which payments and financial transactions are finalized.
  • Special Drawing Rights (SDRs): An international reserve asset created by the IMF to supplement member countries’ official reserves.
  • Stable institutions: Organizations and systems that function reliably and are resistant to sudden change.
  • Transparency: The extent to which financial and economic information is openly available and clearly communicated.
  • Unilateral economic preferences: Economic policies pursued by a single country without regard for mutual agreement or international norms.
  • Universal values: Principles such as freedom, democracy, and human rights, believed to apply to all people regardless of nationality.
  • Yuan-based financial sphere: A regional or global financial network centered around the use of China’s currency, the yuan.

Footnotes

  1. Stephen Miran, A User’s Guide to Restructuring the Global Trading System, Hudson Bay Capital, June 2025. Link ↩
  2. Fitch Ratings, “Fitch Downgrades United States’ Long-Term Ratings to ‘AA+’; Outlook Stable,” August 1, 2023. Archived at Wayback Machine. ↩