Wolfgang Münchau is a columnist for DL News. He is co-founder and director of Eurointelligence, and writes a column on European affairs for the New Statesman. Opinions are his own.
- The Mar-a-Lago Accord is an ambitious plan to de-dollarise the global monetary system.
- Will it work? It's a risky bet.
- Crypto has a role to play, especially in Europe.
The most ambitious part of the Trump agenda is the wish to upend the global financial and monetary order. Do not listen to the economists on this. They hate it — which is ok — but they also predict that it won’t happen.
They made similar misjudgements about crypto. I think the two cognitive errors of wishful thinking are part of the same misjudgement.
After 80 years of a dollar-centric global monetary system, big change is on the way. Crypto will play a role.
Macroeconomics less so.
We should not make the mistake of confusing Trump’s often incoherent outburst on tariffs with a lack of a strategy. There was a strategy behind Ronald Reagan’s outwardly folksy economics.
The strategy now is different. I am not 100% sure it will work, but it is formidable.
One of the brains behind the operation is Stephen Miran, the chair of the Council of Economic Advisers. He is not the most powerful member of Trump’s economic team, but one of the most influential.
After the November election, he penned a manifesto, known as the Mar-a-Lago Accord, that lays down the intellectual basis for the age of de-dollarisation.
Mar-a-Lago Accord
The argument goes as follows: the US provides the services of a reserve currency to the global economy, but this is getting progressively harder as the share of the US in world GDP falls.
One of the main toxic side effects is that the US has lost its manufacturing sector.
Miran advocates tariffs and dollar devaluation to reverse the damage and wants to limit US security guarantees only to allies that agree to enter into a deal with the US.
Crypto does not play a role in his scheme, though in the very last paragraph of his paper he writes that he expects crypto and gold to appreciate as foreigners diversify out of the US dollar.
I think this is a reasonable assumption to make. But I think he misses a trick here. He overestimates the world’s enthusiasm to comply with US wishes.
The EU, for example, wants to become independent of the US, rather than accept a bad economic deal that would keep on the US for its security.
Miran is right to say that the euro cannot act as a global reserve currency because of the fragmentation of the EU’s sovereign debt market, and because its share of global GDP is shrinking even faster than that of the US.
The only way
The only way for Europeans to de-dollarise on a sufficient scale is through crypto.
The Miran paper has been circulated widely amongst finance officials, economists, and investors. It seeks to answer a contradiction that popped during the election campaign.
Trump gave a number of incoherent, and partly contradictory statements:
He wanted to devalue the dollar to boost exports and reduce imports. Yet, he wanted foreigners to keep using it. He even threatened sanctions if they switched from dollars to other currencies.
He wanted to own the crypto industry, which, taken at face value, does not make any sense. It’s like owning the internet.
Miran thinks the way to make this work is through security blackmail.
Hybrid money
But what if this fails, as I believe it will?
This is where crypto comes in. It could act as a diversification asset as investors divest out of the dollar. For this to work, crypto’s original purpose of hybrid money is key.
Think about the role of gold after the collapse of the gold standard. Historically, gold fulfilled various functions of money.
In the Middle Ages, gold was money. Gold coins were literally worth their weight in gold. The characteristic of the gold standard was a fixed exchange rate between gold and national currencies.
After World War II, gold remained the anchor during the Bretton-Woods system of semi-fixed exchange rates. It was only after Bretton-Woods broke down in the early 1970s, that gold ceased to be a monetary anchor.
But it remained an important reserve asset. Besides, it is also a speculative asset in its own right. Today, gold no longer counts as money.
I think of it as a hybrid that fulfils some limited functions of money – a store of value for example – but not the other ones.
How will it happen?
What would it take for crypto to become the diversification currency in a post-dollar-centric world?
The US would need to establish some formal links between the dollar and crypto, somewhere in between the free-floating exchange rate of Bitcoin and the fixed-exchange rate nature of stablecoins.
The currency markets provide plenty of examples of how this can be done through intermittent regimes: semi-fixed like the old Bretton Woods, or like the European exchange-rate mechanism where currencies can move within pre-defined fluctuation margins.
In this context, Trump’s strategic crypto reserve suddenly makes sense.
If crypto were to become a diversification currency, the US government needs to have a way to stabilise the value of crypto currencies during crises.
It would also make sense for the Federal Reserve to adopt crypto as a formal reserve asset, and diversify away from some of the gold reserves.
Stablecoins
But beware of financial stability risks. In a largely deregulated crypto environment, crises will happen.
I am particularly suspicious of stablecoins. The word “stable” might suggest an absence of risk, but the opposite is the case.
The collapse of a large stablecoin could sink parts of the crypto industry. The biggest currency crises of the past were those of fixed or semi-fixed exchange-rate systems.
The sterling crisis of 1992 is an example of a blowup that arises when you pre-commit to a quasi-fixed exchange rate when your economy cannot sustain it. The old ERM was like a stablecoin.
The 1992 crisis, by the way, was a defining moment in the career of Scott Bessent, the US secretary of the treasury, who is also one of the intellectual godfathers of the Mar-a-Lago Accord.
I don’t think Trump himself has a deep understanding of the global monetary system. This is not his job. But if Bessent and Miran manage to turn Tariff Man into a Global Balancer, this would mark a momentous shift, risky if mismanaged, but also with potentially big upsides.
Here is my daring prediction: the Trump presidency will be defined by the success or failure of this scheme.
