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.

Tariffs, like other forms of taxation, are legitimate policy choices, and we should not hyperventilate about them as much as we do.

Europe has a 10% car tariff and has been much more protectionist than the US for most of the time. But protectionism comes at a cost.

Donald Trump cannot simultaneously impose tariffs on everybody while expecting everybody to use the dollar as their favourite global currency. If these policies persist, the dollar’s status will, over time, erode.

This is a scenario that’s already playing out in markets. Unusually, the dollar has fallen along with Treasury prices, leaving gold among the sole haven assets. Indeed, gold has surged to records. Soon, these dynamics could also give rise to a golden age of crypto.

There are many reasons why the dollar has the role of the world’s leading currency: the US has been a country happy to absorb the savings surpluses of the rest of the world by placing few restrictions on imports; the US has the world’s most deeply integrated capital markets; it has the most liquid government bonds; during crises, the Federal Reserve would support other central banks through swap lines; until recently, the US would never freeze your assets if it disagreed with your politics.

Reserve asset status brought great power. But it came at a cost. In a world of mercantilists, you have to do the exact opposite. In other words, you can’t be Trump.

Not a popularity contest

The question then arises: if the dollar’s global role were to decline, what would take its place? The dollar accounts for approximately 60% of global reserves. The number two global currency is the euro, which has a share of 20%.

People are now discussing the euro as a potential safe haven, but this is not how it works. It is not a popularity contest.

Foreign central banks have their money invested in US Treasuries because their countries have been running large export surpluses against the US.

They get paid in dollars for the goods they sell, and they need to invest in dollars. If Trump raises the costs of imports, the trading partners have fewer dollars to invest.

While most things in life are not binary, global reserve currencies are. The British pound was the global reserve currency until World War II. Then came the dollar.

When the euro was introduced in 1999, people thought it might replace the dollar — and there were good reasons to think that. But it did not happen.

One reason is that since the euro crisis, the EU has been running persistent trade surpluses against the rest of the world. Instead of absorbing other people’s savings as the US has done, it relies on third countries to absorb its own savings.

Other reasons are the lack of a political and a fiscal union, a sovereign European bond and unified capital market. Europe missed the big moment to create a political union during the crisis. Even if they started to move in that direction now — unlikely in my view — such a project would take at least a decade to complete.

The Chinese renminbi is even further removed from taking on that role. China does not have a freely convertible currency. It has capital controls. And it is a mercantilist on steroids.

There are other safe haven fiat currencies like the Swiss franc. But the Swiss franc is the currency of a tiny country, and doesn’t play in the league of the dollar.

The case for gold

Could it be gold?

I have heard a story that one large country, hoping to cut a trade deal with Trump, might offer to pay him dollars in exchange for gold. Such a transaction, if it happened at scale, could devalue the dollar, making US goods cheaper abroad and raising the price of imports.

I’m not talking about the return to the gold standard, or a hybrid gold-based monetary system like Bretton Woods. Those days are over. We’re talking about reserve assets, not currency regimes.

Cryptocurrencies are in a similar category to gold. They both share some of the characteristics of money.

Gold has one big advantage. It already is an important reserve asset. One fifth of all gold that has been mined in history, is owned by central banks. The scope to increase gold reserves is limited.

Crypto does not yet have reserve currency status, but Trump’s decision to build a strategic crypto reserve could be a step in that direction.

The strategic currency reserve is under the control of the US Treasury. It is not a monetary instrument, but a crisis tool.

Official reserves are much larger and serve a different purpose — to deal with balance of payments problems. They are under the control of the central bank.

I don’t think that Fed Chair Jerome Powell would agree to elevate cryptocurrencies to reserve status, but Trump might succeed in ousting him before his term expires next year.

Even if not, he will be able to install a crypto-friendly chair then. From the US perspective, it would be better if the rest of the world adopted a non-fiat currency, rather than a rivalling fiat currency.

Crypto has similar characteristics as gold, for example that it is quantity-constraints, and not subject to US jurisdiction.

The Trump administration is probably deluding itself in its confidence that it can control the market for Bitcoin. To me this sounds like trying to own the internet.

Crypto is more mobile than gold. A lot of physical gold is held in the US, and that alone gives the US some leverage. No such issues arise with Bitcoin.

The job of a reserve manager at a central bank or a sovereign wealth fund is not to maximise profit, but to keep the money safe and transactional. If you are on the other side of a US imposed tariff border, you may find a US treasury is a riskier security than a Bitcoin.

I expect to see a lot of resistance to this idea. I know central bankers who would rather face the firing squad than agree to include Bitcoin into their reserve assets. But many of them have never fathomed the possibility of a world in which the dollar is only one of many fiat currencies.

In a world of rivalling superpowers, it would make sense to have an asset not controlled by any one of them. Crypto is ideally placed, to fill that role.

And so is gold.