US President Donald Trump’s tweet attacking bitcoin (BTC-USD) highlights his increasing interest in controlling global currency markets — an interest that could create a “new world order” in foreign exchange.
Trump last Thursday attacked cryptocurrencies such as bitcoin and Facebook’s (FB) Libra, saying in a tweet that they are “highly volatile and based on thin air.”
While the global press immediately jumped on Trump’s first public mention of cryptocurrencies, what went largely unnoticed was a follow-up tweet.
“We have only one real currency in the USA, and it is stronger than ever, both dependable and reliable,” the President tweeted. “It is by far the most dominant currency anywhere in the World, and it will always stay that way. It is called the United States Dollar!”
Trump’s interest in bitcoin and reassertion of the dollar’s dominance highlights the President’s increasing interest in currency markets. HSBC and ING both told clients last week that the US could be gearing up for broader intervention in global currency markets.
The reason? Foreign exchange risks derailing Trump’s efforts to correct US trade imbalances and boost the domestic economy.
‘New world order’
The most striking thing about Trump’s economic policy is his willingness to slap tariffs on major trading partners. China has been his biggest target as the President seeks to rebalance trade between the two superpowers.
However, US tariffs can be undermined by moves in currency markets.
“When President Trump, on 30 May this year, announced he could impose incrementally higher tariffs on Mexico’s exports to the US, beginning with a 5% tariff on 10 June, the MXN weakened close to 5% in the following two days,” HSBC wrote in a note to clients last week.
Market dynamics dictate that the currencies of export-driven economies will tend to devalue against the dollar in response to tariffs. Often the devaluation is big enough to essentially wipe out the impact of the new taxes.
“President Trump’s preferred medicine for addressing the US trade imbalance has created a naturally occurring side-effect of a stronger USD that the administration believes is preventing his medicine from working,” HSBC said.