Current Accounts: The Hinrich Foundation Trade Podcast
Unpacking the dollar's global dominance
Published 03 June 2025
In this special edition of Current Accounts, the Hinrich Foundation’s podcast on global trade, the Association of Foreign Press Correspondents-USA sits down with Senior Research Fellow Stewart Paterson to unpack the US dollar’s global dominance and what we are still getting wrong.
Tune in to this special episode hosted by the US Association of Foreign Press Correspondents:
As the linchpin of the international monetary system, the US dollar’s role extends far beyond America's borders, influencing trade flows, shaping investment decisions, and anchoring global financial stability. Beneath the surface of this dominance lies a host of unresolved tensions, from sustained trade imbalances and currency misalignments to the political and economic strains these dynamics impose on both emerging and advanced economies alike.
While the Trump administration has imposed protectionist measures, such as tariffs, to address concerns about domestic industry and employment, the prolonged weakening of the dollar since January has resulted not from these policies but from a deeper set of worries among investors across asset classes over the intense and ongoing fiscal and business uncertainty created by the administration’s policies. Though Paterson found much to dislike about the way Trump’s tariffs were derived, he notes that an inadvertent outcome may be the real effective depreciation of the US dollar. Such weakening is needed if the policy goal is to return the American economy to external balance, given the dollar’s overvaluation and persistent US deficit spending.
Tune in to this podcast as Senior Research Fellow Stewart Paterson joins the Association of Foreign Press Correspondents-USA to break down the driving factors behind the dollar’s global dominance, which follows up on Paterson’s research paper for the Hinrich Foundation, "Trump, the US dollar, and American trade policy."
Here is an excerpt from their conversation:
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Stephanie Ochoa: |
To what extent has a strong dollar contributed to America's persistent trade deficit? |
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Stewart Paterson: |
Significantly, because there are two ways to look at the trade deficit, or I would rather use the expression "current account deficit" because all trade in goods and services, because one of the things I highlight in this report is that the Trump administration seems very focused on trade in goods, but actually what America excels at is trade in services, and America is very successful at selling its services overseas. … There are two ways to look at it. As I've just highlighted, American goods are expensive, foreign goods are cheap, so that's a massive contributor. But also when you have an overvalued currency, your household sector is incentivized to consume. And the other way to look at the current account deficit is a gap between savings and investment. And because the American consumer is encouraged to consume with the mighty dollar, they are discouraged from saving, which is the antithesis of consumption as it were. So yes, it's a key variable, and theoretically it is impossible to restore balance without a change in the relative prices. And the change in those relative prices could come about through a period of deflation in the United States and inflation elsewhere, which would be extremely painful probably for everyone involved, or we're blessed with the nominal exchange rate, which can move all prices very quickly and very easily. And therefore a dollar devaluation is the easiest way to restore equilibrium. |
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Stewart Paterson is a Senior Research Fellow at the Hinrich Foundation who spent 25 years in capital markets as an equity researcher, strategist and fund manager, working for Credit Suisse, CLSA and most recently, as a Partner and Portfolio Manager of Tiburon Partners LLP.
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