Paul Warburg arrived in the United States by boat (obviously) in 1902, but he wasn’t the sort of immigrant minded to gape open-mouthed at the Statue of Liberty as he glided up the Hudson: no, this fellow was a leading light in the Warburg Banking family, added to which he’d now married into the American Kuhn Loeb dynasty, so he wasn’t short of a bob or two and wouldn’t instinctively see himself as one of the huddled masses yearning to be free. Even so, like most immigrants, Paul Warburg was also passionately committed to his new homeland, and unlike virtually every other immigrant on that or any other ship, he knew enough about global finance to spot a peculiar vulnerability in the currency of his adopted land...specifically, unlike Sterling, the Dollar wasn’t backed by a Central Bank, so it lacked the necessary mechanisms needed to regulate its liquidity and, more importantly, the inherent stability of the currency itself.
Warburg understood that without these key stabilising controls, the Dollar would be fatally hamstrung in its ambition to become a dominant global currency, so he set off to do something about it…
Within eight short years, he had successfully spearheaded the creation of the US Federal Reserve, and four years after that, he’d been appointed a founding member of the Federal Reserve Board, going on to draft and pilot through a number of new powers that would enable the Fed to foster and dramatically grow an international Dollar market. By the time the 1920s started to roar, the greenback had overtaken Sterling as the global currency of choice: a safe haven in a turbulent world. This dominance was entrenched by the Bretton Woods Agreement in 1944, which elevated the Dollar (and gold) to a benchmark around which the international monetary system would revolve in the post-war period. And then, once the US had finally ditched the gold standard in 1972 (as everyone else had done years earlier), only the Dollar was left.
This remorseless evolution of the power of the Dollar made perfect sense in a World where the US actively fostered international reciprocity and delivered (by far) the lion’s share of global financial transactions, not to mention core GDP growth and supportive market innovation (the US, for example, aggressively set out to stabilise post-war European markets through the Marshall Plan, and tirelessly advocated the creation of what we now know as the European Union (JD Vance take note)). International comity and increasing market certainty had become the order of the day, and Paul Warburg would have been happy with that.
But the old economic certainties have suddenly been thrown into doubt, and we can date this disruptive change with absolute precision: it was the moment Donald Trump lumbered into the Rose Garden on the afternoon of 2 April 2025 and announced a swingeing range of new trade tariffs affecting more than ninety countries across the world, ranging from a 10% across the board tariff on, well, just about everyone and everything, to 84% on Chinese US imports (subsequently raised to a nose bleeding 125%).
Within two weeks, the Dollar had rapidly devolved from a safe haven, currency of choice, into the international equivalent of a yo-yo without a string. As offshore funds took flight, domestic Treasury Markets witnessed the largest rise in Federal borrowing costs since 1982; equity markets around the world slumped to their lowest level this year (only to increase marginally when the White House went into reverse gear on Saturday and suspended most of the new tariffs for 90 days); and then, of course, the poor old beleaguered Dollar has taken a nosedive: falling by a further 3.6% against Sterling over just three days from last Thursday.
This is the very antithesis of the market certainty and assurance Paul Warburg and his successors had been striving for over the last 120 years.
No doubt some species of common sense will ultimately prevail, but (to state the obvious), none of this is good for international markets, not to mention the short-term future of global trade. And until a modicum of common sense is finally re-acquired, the likelihood is that those countries which don’t actively participate in US-led sanctions efforts and non-comital trade policies, countries with a strong economic cohesion of their own – countries like India –will increasingly benefit from market diversification away from the Dollar.
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