Bank of Canada Says Trump Trade Policy May Hurt Greenback’s Safe-Haven Status
It’s not often that a central bank governor weighs in so pointedly on the geopolitical implications of another nation’s domestic policy, but when it comes to the US dollar’s global standing, the stakes are undeniably high. That’s precisely what Bank of Canada Governor Tiff Macklem did, suggesting that former President Donald Trump’s trade policies could, in the long run, erode the greenback's cherished status as a "global safe asset." It’s a statement that cuts right to the heart of the international financial system and offers a stark glimpse into the anxieties currently simmering among global economic leaders.
The US dollar has long been the undisputed heavyweight champion of global finance, revered for its unparalleled liquidity, stability, and the deep trust it commands, especially during times of crisis. When geopolitical tensions flare, or markets experience a sudden shock, investors and nations alike flock to the dollar, viewing it as the ultimate safe-haven. This isn't just about convenience; it underpins everything from international trade invoicing to central bank reserve holdings, giving the United States immense geopolitical leverage and economic resilience.
What Macklem is hinting at, however, is a potential Achilles' heel introduced by the "America First" approach to trade. During his previous administration, Trump frequently wielded tariffs as a blunt instrument, initiating trade disputes with key allies and rivals alike, and often appearing to prioritize unilateral action over multilateral cooperation. For many, this wasn't just about trade balances; it was about the weaponization of economic policy and the perceived unpredictability of the world's largest economy.
The argument is straightforward: if the US is seen as willing to disrupt established trade relationships and international norms for perceived short-term gains, it inevitably sows seeds of doubt. Businesses and governments that rely on the US dollar for their daily operations and long-term stability might start questioning the reliability of the underlying system. If the world’s reserve currency issuer is perceived as an unpredictable actor, it introduces a level of systemic risk that can’t be easily ignored. This isn't about the dollar's inherent financial strength, but rather the trust in the institution and the political will behind it.
Indeed, we’ve already seen subtle shifts. Central banks globally have been quietly diversifying their reserve portfolios, moving incrementally into assets like gold, the Japanese yen, or even the Chinese yuan, albeit on a much smaller scale. While the US dollar's dominance isn't under immediate threat—its network effects and sheer market depth are immense—a gradual erosion of its safe-haven status could have profound long-term implications. It could mean higher borrowing costs for the US, reduced influence on the global stage, and a more fragmented international financial landscape. Macklem's comments serve as a potent reminder that the perceived stability of a currency is as much about policy predictability and international cooperation as it is about economic fundamentals. It’s a complex balancing act, and one that central bankers are watching with growing concern.
