Gao Zhanjun: The U.S. Dollar Is Still Special, but No Longer Exceptional (AI Translation)

【周刊提前读】高占军专栏：美元特殊但不再例外

The intensifying debate about the potential end of “dollar exceptionalism” has amplified global financial volatility and has become a focal point of international economic discussion, especially following a significant speech by European Central Bank (ECB) President Christine Lagarde on May 26 at the Hertie School of Governance in Berlin. During this event, titled “Europe’s Role in a Fragmented World,” Lagarde argued that the unpredictable policies of U.S. President Donald Trump offer an excellent opportunity for the euro to enhance its global role. She suggested that if longstanding structural issues within the European Union (EU) can be resolved, eurozone countries could benefit from lower borrowing costs, greater insulation from currency fluctuations, and reduced vulnerability to external sanctions. Lagarde described this moment as potentially a “global euro moment,” emphasizing that Europe has a unique chance to chart its economic destiny amidst current changes [para. 1].

Lagarde’s remarks gained additional weight as she reflected on key moments when the U.S. dollar’s supremacy as the world’s reserve currency appeared threatened, notably referencing the “Nixon Shock” of 1971, when President Richard Nixon suspended the dollar’s convertibility to gold, precipitating the collapse of the Bretton Woods system in 1973. At that historical juncture, Lagarde noted, there was no viable alternative to the dollar—whereas today, the euro stands as a credible candidate for increased global influence [para. 2].

As a highly respected figure and former head of the International Monetary Fund, Lagarde’s public suggestion that the U.S. dollar’s dominance might now be in jeopardy is uncommon and highlights both global waning confidence stemming from U.S. policy unpredictability and persistent frustration within the eurozone. This signals a significant shift in sentiment among European policymakers, reflecting both a sense of new opportunity and past disappointments [para. 3][para. 4].

The launch of the euro in 1999 was originally intended to challenge the dominance of the U.S. dollar. Yet by nearly every metric—reserve currency status, investment vehicle, unit of account, or means of payment—the euro has mostly failed to advance its standing, remaining at best a regional currency and not surpassing or even matching the global influence of the Deutsche mark or French franc, which it replaced. According to Lagarde, achieving primary reserve currency benefits remains possible for the euro but will require continuous, determined effort [para. 5][para. 6].

Interestingly, while Europe seeks to elevate the euro’s status, the U.S. increasingly sees the dollar’s reserve currency position as burdensome due to resultant export slumps, trade imbalances, and hollowing of domestic manufacturing. Stephen Miller, a top Trump advisor, authored the “Miller Report” advocating for tariffs and dollar devaluation—policies intended to address these issues but fraught with contradictions and overly optimistic assumptions, such as maintaining global demand for dollars while imposing penalties on holders of dollar assets. In practice, the dollar depreciated, and proposed measures created confusion domestically and abroad, leading U.S. officials to distance themselves from such ideas in global negotiations [para. 7][para. 8].

Looking ahead, while the U.S. dollar will likely retain its primary reserve currency status for years, its dominance is set to wane, offering a historic opening for other currencies. Currently, the euro trails only the dollar, but weaknesses such as lacking unified financial and resource markets persist. Other contenders, such as the Japanese yen and Chinese renminbi, each have advantages—including policy support and growing global openness in China’s case—but also face constraints. Over time, Lagarde argues, these dynamics may allow the euro, and potentially other currencies, to play a more prominent global monetary role [para. 9].