Invoking Alexander Hamilton's principle that good government credit is essential to national strength ('states like individuals who observe their engagements are respected and trusted'), Obstfeld argues that if the US does not change course, dollar supremacy will erode — slowly and then quickly — moving the world toward a multipolar currency system.

The attack on Fed independence, usually framed around monetary policy and inflation, also extends to financial regulatory matters and international financial cooperation; reduced coordination through the Basel process and FSB will end up fragmenting financial markets.

US policy is being driven by a 'grievance narrative' — that trade has been unfair and caused deficits and manufacturing decline, that global capital markets and even dollar primacy work against US interest, and that foreign security commitments are unfair burdens — and the resulting zero-sum approach plus routine use of tariffs for geopolitical coercion is genuinely new in the post-war period.

US-based stablecoin companies would be a tempting mechanism for sanctions on other countries, and stablecoins raise concerns abroad about financial stability, dollarization, and AML/CFT, likely provoking pushback — while a trillion-plus dollars of physical cash abroad may migrate into stablecoins as a more efficient way to do undetected transactions, with unclear net effect on dollar strength.

Foreign willingness to buy US treasuries has fallen in relative terms — from about 50% of treasuries sold to the global market around 2010 to roughly a third now — and combined with an investment boom and low US saving, this makes financing the deficit expensive, with average treasury yields having risen sharply.

The Treasury has been lowering the duration of its debt issuance, which raises the risk of a rollover crisis as more debt must be refinanced frequently at potentially adverse rates.

National defense is the natural way into European joint debt issuance, because it provides a shared rationale that overcomes the usual reluctance toward mutualized debt.

Manufacturing employment showed a recovery starting at the end of 2024 but has since reversed and is now falling, so if the policy goal was to restore manufacturing employment, it is not yet being achieved.

Concerns over the US balance of payments are not new and go back to the 1960s.

Administration policies threaten to undermine US global hard and soft power as much as they might be designed to do the opposite, fragmenting not only trade markets but potentially financial markets too, via coercive tariffs, retreat from regulatory cooperation, risk of capital controls, lightly regulated dollar stablecoins, and withdrawal from providing global public goods.

The US faces a difficult fiscal trajectory: roughly $4 trillion more borrowing over a 10-year horizon than the start-of-year baseline due to the One Big Beautiful Bill Act, with tariff revenues likely covering less than half of that, leaving a large financing hole.

The institutional pillars underpinning the dollar's global role — deep and open financial/product markets, commitment to multilateralism and security credibility, strong monetary and fiscal frameworks, limited government intervention, and the rule of law — are all under threat in the current US political environment.

When the US president argues interest rates need to be lower, the recurring theme is financing the deficit at lower cost, signaling a real risk that the US moves toward fiscal dominance — where monetary policy is subordinated to fiscal financing needs.

The Genius Act sets the stage for a proliferation of lightly regulated dollar-pegged stablecoins from the US, which could spark defensive reactions in countries fearing for their financial stability or monetary sovereignty, ultimately acting as a mechanism for fragmentation rather than integration of the world payment system.

Europe's joint debt faces a Hamiltonian obstacle: whereas Hamilton justified federal assumption of state debts by creating a federal taxation power to service them, issuing large joint European debt lacks a clear corresponding taxation power, creating reluctance because the institutional framework for paying the debt is not clear.

The house version of the One Big Beautiful Bill included a 'revenge tax' on foreign investors' US profits which, though dropped after outcry, signals greater US openness to using financial instruments to tax cross-border financial flows.