The second term of US President Donald Trump is a serious threat to the established economic beliefs for decades, and a coup against the principles of basic capitalism, especially the freedom of trade. Among the potential goals that sparked the interest of economic circles is to reduce the value of the US dollar, which is the first global reserve currency.
Media reports have indicated that the Trump team is studying a plan to reshape the global financial system, by intentionally reducing the value of the dollar.
The strong dollar has always been a symbol of US financial power, as it contributes to keeping inflation rates low and encourages foreign investment. However, Trump’s advisers are looking into ways to weaken the dollar, in support of his protective commercial policy, according to the newspaper “The Telegraph”.
Trump’s direction towards reducing the value of the dollar raises several questions about its economic motives, and the repercussions of this path to the global economy, especially on the countries that link their currencies to dollars, including many Arab countries. It also restores to mind previous historical experiences, and the impact of this on the global economy, the economies of Arab countries that link their currencies to dollars, and about the role of the Plaza Convention in this context.
The reasons for the trend towards lowering the dollar
The customs duties imposed by Trump reflects his vision that the American trade deficit -which reached a record of $ 1.2 trillion in 2024, is harmful to American workers, especially industrial jobs, according to the Wall Street Journal.
Besides his endeavor to impose a more balanced trade, Trump expressed his belief that the US dollar was more strong, according to the “Fortune” platform. Its advisers believe that the weakness of the dollar may address the imbalances of the trade deficit, and some even consider that the location of the dollar as a global backup currency has become a burden, not an advantage, according to the “telegraph”.
The historical power of the dollar is undermined the American competitiveness by making imports relatively cheaper. Economic models, taking into account the purchasing power, indicates that the value of the current dollar may be exaggerated. Accordingly, Washington may seek to conclude agreements with other countries to correct this equation, according to the “Bloomberg” agency.
Plaza Agreement … a historical precedent
These endeavors are not precedents. In 1985, the US Treasury Secretary at the time, James Baker, initiated the gathering of financial leaders from the 5 largest economies in the world (Japan, West Germany, France, the United Kingdom, and the United States) at the Plaza Hotel in New York, where a historic agreement was reached to reduce the value of the US dollar in a coordinated manner. This initiative was known as the “Plaza Agreement”, according to the “Baker Instemriot” platform.
The agreement aimed to reduce the value of the dollar through clear obligations: the United States has pledged to reduce its federal deficit, while Japan and Germany committed to stimulating the local demand. The participating parties also agreed to interfere in the currency markets when necessary to correct the current account imbalances, according to “Investopia”.
This agreement came in conditions similar to today’s circumstances, in terms of high inflation rates, high interest rates, and a major trade deficit. The strict monetary policy pursued by the then -Federal Reserve, Paul Volker, in conjunction with the expansionist financial policy of President Reagan, contributed to a significant increase in the value of the dollar, according to the Bloomberg agency.
Japan was then dominating the global markets by exporting, and this led to feedback reactions in the US Congress, just as today with China. Despite the success of the agreement to reduce the value of the dollar, it also led to an increase in the value of the Japanese yen, and this contributed to the entry of the Japanese economy the recession known as the “lost decade” during the 1990s.
The Plaza Agreement followed the signing of the “Louvre” agreement in 1987, which aimed to stop the decline in the dollar and restore its balance. Economic reports show that the Trump administration may be inspired by the Plaza experience within its efforts to weaken the dollar and improve the American trade balance, according to the Harvard University platform.
New agreement
In light of Trump’s protective policies, media speculation has emerged indicating the possibility of a new, unofficial international agreement so far, may be similar to the Plaza Agreement. Some analysts called these speculations the “Mar-A-Logo Agreement”, in a symbolic reference to the Trump club in Florida, without any official announcement in this regard.
The Washington Post indicates that such an agreement – if an event – may hold a similar effect of the “Bretton Woods” agreement that established the global financial system after the Second World War.
In this context, a controversial research paper entitled “The user’s guide to restructuring the global trade system” prepared by Stephen Miran, a Trump adviser.
In the research paper, Miran believes that imposing unilateral customs duties may force the United States trading partners to reconsider their economic policies. And it confirms that the strength of the dollar led to the expensive American exports and the lowest imports, which affected the American industrial sector, according to the “Washington Post”.
Bond
As part of the exciting proposals, the idea of issuing US government bonds without interest that deserved after 100 years.
This idea, which Miran cited in his research published in November 2024, is due to its roots to a previous proposal by the analyst Zultan Bouzar. It requires that allied countries be obligated to buy these bonds in exchange for American security guarantees, while the Shiites faces the imposition of high customs duties or the suspension of military protection.
Miran believes that this plan may help reduce interest rates and reduce the financial deficit, and this contributes to weakening the dollar. On the other hand, Bloomberg warns that this approach may undermine confidence in the US Treasury Market, which is worth about $ 29 trillion, and threatens serious preachers with the credibility of the American market, which has long been characterized by transparency and prediction, according to the agency.
Reflexes on Arab countries
Many economies of the world, including the Arab countries, are linked to the American dollar, whether directly or through a basket of currencies in which the dollar occupies great weight. This link is often adopted by central banks to control the national currency exchange rate.
Any decrease in the value of the dollar is reflected directly on these economies, and one of the most prominent effects, according to a previous report by “Al -Jazeera Net”:
- The high prices and the high cost of importsThe decline in the dollar leads to the high prices of non -American imported goods, and this increases inflation rates.
- Low the competitiveness of exportsThe decline of the dollar may negatively affect the revenues of the exports of developing countries, including the Arab countries.
- Economic dependencyLinking the currency to dollars makes local economies vulnerable to the effects of American policies, including interest and inflation rate fluctuations.
- The high burden of debt: In the event that the debts are strengthened by other currencies, then the weakness of the dollar increases the cost of paying them.
Moreover, the weakness of the dollar may lead to high prices of basic commodities such as oil, and this is an additional burden on the imported countries related to dollars.
In light of these data, any move to reduce the dollar may cause deep transformations in the global economy, which is directly reflected in countries with a close financial link to the American currency.
