Why Europe should worry about the dollarization of the world economy

Dear Readers,


A few days ago, the British magazine “The Economist” ran the
headline: “America’s economy defies gloomy expectations.” This
headline sums up well the fact that some of the key data (e.g.,
the latest labor market figures) are not all that positive for
the US economy, but that it also continues to prove itself to be
fairly robust.


Why is this the case? Why were even experienced
economists wrong with some of their predictions (at least so
far)?


These are the questions I want to ask and answer in today’s
special edition of my newsletter. That’s why I spoke to Dr. Pippa
Malmgren, who is an economist, author, and former advisor to
President George W. Bush. Today, Dr. Malmgren continues to advise
presidents and prime ministers, as well as CEOs and start-up
founders.


I always appreciate her “big picture” takes and her different
perspective on certain issues. I had the opportunity to interview
her back in 2017 (Donald Trump had just begun his first term in
office). At the time, she made some forward-thinking remarks:


* “I think that Germany is definitely going to continue to have a
problem. In part, because Trump has the view of ‘you are either
with me or against me.’”


* “Donald Trump detests supranational organizations of any kind.
He prefers bilateral relationships. He also feels that a big
state is hostile to the interest of its citizens, therefore he
views the EU as something to oppose.”


* “Trump is confident he can manage Putin. George W. Bush was
also, but it didn’t work out that way.”


“This is a strategy for dollarizing the entire world economy”


Eight years later, Malmgren describes Donald Trump’s economic and
financial policy as “radical,” but the economist also believes
that the US economy is undergoing a fundamental transformation
that could lead to great success.


One of her statements stands out in particular and Europe
should probably listen closely:


“The President and Scott Bessent in particular, the Secretary of
the Treasury, are coming up with innovative new ways to generate
inflow into the US bond market. One of those is the introduction
of Stablecoins and a Bitcoin reserve, which are convertible to US
dollars and collateralized by US treasuries. They, I think, are
not well understood in Europe. (…)


That is going to pull money out of Europe, as investors look for
higher performance. And that’s one reason the European Central
Bank opposed the introduction of Stablecoins and their
convertibility to US dollars.


Put really simply, this is a strategy for dollarizing the entire
world economy. And most investors, when they’ve made a lot of
money (if we think of Asia, for example, where they all have some
form of capital controls), they would rather have their money in
dollars.”


Listen to the entire interview here on Substack, or also
on Spotify and
iTunes.


To all of my readers and listeners in Germany and all over the
world: Have a great start to your day or a nice evening.


Philipp Sandmann


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