President Trump’s Legal Tender

The latest news on the monetary front is that President-elect Trump is warning that he will start twisting arms to keep Brazil, Russia, India, Communist China, and other Brics countries from fleeing the dollar. The leader of the free world, Bloomberg reports, says that he wants the greenback to remain the globe’s reserve currency. He’s threatening to slap wayward countries with tariffs of — wait for it —100 percent if they abandon the “mighty” dollar.That’s mighty ironical. If the dollar were so all-fired mighty, after all, why would America need to go around threatening countries for trying a different currency? When we were last members of a proper monetary system — Bretton Woods — the dollar was valued at a 35th of an ounce of gold. Today it can’t fetch a 2,600th of an ounce of the monetary metal. That means that in open trading the greenback has shed more than 99 percent of its value in specie.A portion of that debasement, just for the record, occurred on Trump’s own watch. When he was sworn to the Constitution on January 20, 2017, the dollar was valued on the open market at a 1,200th of an ounce of gold. Over the course of his first term, the value of the one-dollar Federal Reserve Note plunged a staggering 35.7 percent to an 1,866th of an ounce — worse than even the 30.9 percent that the value of dollar plunged on President Biden’s watch.So on what basis is the incoming president demanding fealty to the greenback? The greenback may be, here at home, legal tender, meaning that it must, no matter how bedraggled, be accepted in payment of taxes and other debts. Yet President Trump seems to think that the dollar is somehow — or should be — a kind of legal tender on the international scene. One has to wonder whether he’s trying to win customers of the dollar or to frighten them off.Let us confess that we have a degree of sympathy for President Trump. He didn’t create the crisis of fiat money. It’s been more than 50 years now, since the collapse of Bretton Woods. That was in the early 1970s, when we abandoned the obligation to redeem dollars presented to us by foreign governments at a 35th of an ounce of gold — and when we entered a system in which the value of the dollar was not defined in any law.Plus, too, we get that the Brics countries themselves are no angels of virtue. At least some of them are seeking an alternative monetary system so as to evade international sanctions designed, in respect of Russia, to curb its war against Ukraine and, in respect of Iran, its terrorism and nuclear program. The direction the Brics are moving in, though, involves a role for gold. Brics countries have been packing in gold reserves like there’s no tomorrow.The Brics countries, monetary maven Nathan Lewis writes in Forbes, “have settled on using gold as the basis for international exchange, a role previously taken by dollars and euros. This does not mean today’s floating fiat ruble, real, or rand is going anywhere soon. Rather, just as the US dollar was used alongside those domestic currencies in the past, today and in the future gold will be more commonly used.”Hence the president-elect’s vow to “require a commitment” from Brics countries “that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar.” The logic is for the Brics countries to demand a counter commitment that America will maintain the value of its dollar against gold and end its target of 2 percent inflation. That would be a step toward a global legal tender on which everyone could depend.

President Trump’s Legal Tender

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