{"text":[[{"start":8.15,"text":"The writer is a professor at the University of California, Berkeley and the author of the forthcoming book ‘Money Beyond Borders: Global Currencies from Croesus to Crypto’"}],[{"start":20.64,"text":"Is the Trump administration’s latest attack on Jay Powell and the Federal Reserve a serious threat to the dollar’s position as the leading international and reserve currency, and therefore to global economic and financial stability? The answer, in a word, is yes."}],[{"start":38.64,"text":"President Donald Trump has his own personal view of the appropriate level of interest rates, namely that these should be at most 1 per cent or less. Last Friday’s justice department missive threatening a criminal investigation of Powell over renovations at the central bank’s headquarters is a signal that his administration is prepared to go to any length to obtain the desired result."}],[{"start":63.82,"text":"Anyone with a modicum of financial literacy knows that Trump’s position on interest rates is, to use the technical economic term, crazy. Sharp interest rate cuts when inflation is already running significantly above its 2 per cent target would fuel inflation, demoralise investors and ignite a rush out of dollar assets. Trump would presumably welcome a modestly weaker dollar, on the grounds that this would boost US exports. But the exchange-rate effect of this justice department initiative, if it succeeds, would be anything but modest. It would be a dollar crash."}],[{"start":100,"text":"The attack on Powell appears designed to prevent him from remaining on the Fed board for two additional years after his chairmanship ends in May. I suspect the administration’s immediate fear is that Powell could head up a group of members on the policy-setting Federal Open Market Committee that would seek to block rate cuts."}],[{"start":120.03999999999999,"text":"More generally, going after Powell follows on the administration’s efforts to stir up misconduct accusations against Fed governor Lisa Cook. The combination signals that any FOMC member who dares to dissent from the president’s monetary line could become the target of lawfare."}],[{"start":139.63,"text":"International investors would react negatively, even violently, to Trump packing the Fed board and directing monetary policy from the Oval Office. Central bank reserve managers, and indeed investors in general, require assurance that the central bank of the reserve-currency country will not come under irresistible political pressure to pursue a misguided monetary strategy that inflates away the value of their claims. "}],[{"start":168.18,"text":"It is not a coincidence that every leading international and reserve currency of the past 800 years or so has been the currency of a political democracy or republic, where investors had a voice and where currency issuance was at least partially insulated from the whims of the executive. What has been true of the dollar was true of Britain and sterling in the 19th century, the Dutch Republic and the guilder in the 17th and 18th centuries, Venice and the ducat in the 16th century, and Florence and the florin in the 14th and 15th centuries."}],[{"start":204.52,"text":"What about “Tina”, the defence that “there is no alternative” to the global dollar, rendering it impervious to the Trump administration’s meddling? That there is no alternative is correct, but the implication of immunity is not. Central bank reserve managers have already been rebalancing their portfolios towards gold and non-traditional reserve currencies."}],[{"start":229.26000000000002,"text":"Obviously, these non-traditional reserve currencies, even collectively, lack the scale to fill the dollar’s global shoes. And gold prices are already at nosebleed levels, making it expensive and risky for central banks to add further to their gold reserves."}],[{"start":248.09000000000003,"text":"But nothing prevents central banks from replacing dollars with domestic investments, not just bonds but also less liquid domestic investments, following the example of sovereign wealth funds."}],[{"start":261.28000000000003,"text":"The consequences for the global economy would not be pretty. Fewer foreign reserves would mean less capacity for central banks to intervene in foreign exchange markets, making for greater volatility. More generally, there would be a shortage of international liquidity — of liquid assets that are universally accepted in payment for cross-border commercial and financial transactions. Those transactions would become much more costly to finance. In the worst case, this would spell the end of globalisation as we know it."}],[{"start":295.71000000000004,"text":"We have seen this scenario once before, where governments compromised the autonomy of their central banks, spawning financial instability and causing global liquidity to implode. We saw it in the 1930s. This is not a period on which most people, in financial markets or elsewhere, look back fondly."}],[{"start":324.29,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1768366006_5820.mp3"}