What is the American privilege

Since the values ​​have been revaluated from tweet to tweet in Washington, many questions have suddenly arisen from scratch. For example, the one about the dollar and its role in the world. The currency has always been an expression of American power (The Mighty Buck says the vernacular), conversely, the power of the US economy and military acted like a guarantee for the dollar. And should there be no consequences if the new president simply reverses the United States from free trade to protectionism?

Martin Hüfner, analyst at the financial firm Assenagon and formerly chief economist at Hypo-Vereinsbank, has observed interesting things: After the election of Donald Trump, share prices shot up, bond rates rose, but the dollar remained comparatively sluggish. The last euro you had to pay was $ 1.08, roughly the same as just before the November election. However, the lack of exchange rate fluctuations is not a sign of stability, says Hüfner, but rather that two opposing forces are pulling the exchange rate, one up and the other down. Both forces - and this is the point - are also in the president's head: "He's doing everything to make the dollar strong, but doesn't want it strong at all."

The consequences of this contradiction in the head could be seen this week. Peter Navarro, Trump's chief trade advisor, accused the Germans of using the cheap euro to exploit other countries, including the USA. The euro is "grossly undervalued", which in turn means that the dollar is grossly overvalued. But a government that "America great"wants to do and at the same time talks down the dollar, does not necessarily promise stability.

But maybe the thing about the dollar is much more fundamental. At this point, one should look back to 1960 and deal with a man named Valéry Giscard d'Estaing, who was then French finance minister (he later became famous as President and friend of Helmut Schmidt). Giscard complained that because the dollar was the reserve currency, Americans could borrow much cheaper abroad than others. This is an "exorbitant privilege". Giscard's discarded term has developed into a technical term over the years. Anyone who wants to describe why America's creditworthiness has so far been able to withstand miserable policies in Washington without recognizable damage speaks of the "exorbitant privilege": Ultimately, the USA can always pay with its own money.

This exorbitant advantage can also be measured. Benn Steil, economist at the Council on Foreign Relations in New York, does the math: The US - private sector and state combined - have a net debt of 7.5 trillion dollars vis-à-vis other countries; at the same time, they make a net $ 167 billion in investments abroad. America lives on credit and earns money from it, an unusual privilege indeed.

So far, the US has benefited from foreigners foregoing high returns

But where does this extraordinary power of the dollar come from? In Giscard's day, the answer was simple. At that time, the Bretton Woods system of currency was still in force, the key currency of which was the dollar; whoever wanted to trade needed the Mighty Buck. This order has not existed for a long time. The major currencies are freely traded, countries with solid finances such as Germany can easily borrow internationally in their own currency. Oil is still mostly billed in dollars, but that is a convention, not a compulsion.

The exorbitant privilege today comes from the fact that foreigners voluntarily lend money to the US, buy US government bonds and US stocks, and accept very low or no returns if need be. The USA is still the largest economy in the world and it is considered a safe haven for money, the financial market is deep and liquid (you can get rid of your papers if you want), the legal system protects creditors and the country is open .

But what about this safe haven when, for the first time since World War II, Washington is ruled by a president who has made protectionism a program, an attempt to reduce the US current account deficit by promoting its most important trading partner, China. Mexico, Germany, insulted? When you no longer know whether you can get through US immigration control because you may have the wrong passport. And if the president doesn't answer journalists' questions because he doesn't like their reporting. The latter may not bother the National Bank of China, which is still one of the largest creditors to the Washington government. The people in Beijing get all the more nervous when there is talk of sanctions and punitive tariffs.

Again and again there were occasions when the exorbitant privilege of the United States seemed in jeopardy. For example, in 2011 and 2013, when the Republicans in Congress were on the verge of risking national bankruptcy in the budget dispute with President Barack Obama. At the time, Barry Eichengreen, an economist and currency specialist at the University of California at Berkeley, wondered why the dollar was so unresponsive to the Washington drama. In an interview with Deutsche Welle, he himself gave the explanation for this. It consists "of one word: disbelief. Nobody in Europe, nobody in Asia believes that US politicians are crazy."

But what if Europeans and Asians suddenly change their minds about American politicians?