Freya Beamish, Chief Economist at TS Lombard, discusses the shifting landscape of the international monetary system. She argues that U.S. tariff policies are pushing towards a multi-polar currency order. Freya predicts a potential reduction in U.S.-China tariffs to around 30%. The conversation dives into the dynamics between the dollar and the yuan, along with the influence of global selling on U.S. financial markets. Lastly, she highlights investment strategies amid these currency shifts and the need for effective policies to maintain dollar dominance.
American tariff policies are catalyzing a potential shift toward a multipolar international monetary system, challenging the dollar's longstanding dominance.
The waning foreign investments in U.S. government debt indicate a growing lack of confidence in U.S. assets amid changing global economic conditions.
Geopolitical tensions and the rise of central bank digital currencies may accelerate the transition away from reliance on the U.S. dollar.
Deep dives
Implications of Tariffs on Currency Dynamics
The ongoing tariff announcements from the United States are viewed as catalysts for a potential shift toward a multipolar currency system, indicating a transition away from the long-standing dollar standard. This shift could trigger a disorderly transition as concerns grow about the U.S. administration's influence on capital flows and monetary policy. Traders are reassessing the desirability of U.S. assets due to lower expected returns, which may weaken the dollar in the short term. The re-evaluation of the dollar's role is influenced by the changing landscape of international trade and geopolitical tensions.
Reevaluating the Dollar's Role as Reserve Currency
The U.S. dollar's status as the world's reserve currency is under scrutiny due to shifting investor sentiments regarding risk-adjusted returns. A decline in foreign investments in U.S. government debt signals a waning confidence in U.S. assets and potential shifts toward a more diversified currency basket. The complexities of the current economic environment suggest that while temporary fluctuations in the dollar may occur, a structural shift away from the dollar system may become more pronounced. Investors are actively reassessing the long-term viability of holding U.S. assets amidst these changes.
China's Position and U.S. Treasury Holdings
There is a misconception that China's significant holdings of U.S. Treasuries grant it leverage over the U.S., but this view overlooks China's vulnerability in the dollar-based financial system. Selling off U.S. Treasuries could harm China more than the U.S., as it risks destabilizing its financial institutions and wider economy. Current adjustments in Chinese financial policies reflect the struggle to maintain currency stability while addressing the pressures of U.S. tariffs and trade dynamics. The balance of power in negotiations between the U.S. and China is more nuanced, with each side facing substantial economic risks.
Impact of Negative Economic Supply Shocks
The U.S. is experiencing a transition from positive supply shocks that historically benefited the economy to negative supply shocks due to tariffs and restrictive policies. These negative shocks can lead to inflationary pressures that hinder growth prospects, making it difficult for the U.S. economy to sustain positive momentum. As financial market conditions tighten, there is an increasing recognition that such shocks will alter how the economy interacts with inflation and interest rates. This change could jeopardize profits for many sectors while simultaneously destabilizing capital markets.
The Future of Global Currency Cooperation
The shift towards a multipolar currency system may be accelerated by geopolitical factors and a reevaluation of existing economic policies. As countries explore alternatives to the U.S. dollar, the potential for increased use of currencies like the euro and the Chinese renminbi is gaining traction. Central bank digital currencies could play a critical role in establishing a parallel financial system that might offer competitive advantages over the dollar system. This evolution suggests a need for international cooperation and adaptability in response to changing economic realities.
Freya Beamish, Chief Economist at TS Lombard, joins Jack to argue why American tariff policy is accelerating a transition to a multi-polar international monetary order. She estimates that U.S. and China will reach a deal lowering tariffs to ~30% levels and shares her views on bonds and gold. Recorded on April 14, 2025.
