Techno Monetarism not Madman Economics – President Trump attempts a Global Institutional Reset

History is said not to repeat, but rhyme. In the era of President Trump, the history does not rhyme either. It is simply undone. Or at least sincere – and substantive – attempts are made to that effect.

There is a school of thought that President Trump is replicating the “Madman Theory”, which President Nixon applied to foreign policy. When it comes to the global monetary and trade policy, it may not be possible to attempt a lazier analysis than this. President Trump is not acting like a madman. He is in fact questioning if today’s global monetary, trade and financial system is relevant to sustain and further the American imperialism in the future.

The Historical Context

Alongside the United Nations, which aimed to further global security and peace, a large part of the institution building effort was spent on the economic institutions. Today’s world of international finance, monetarism and trade is underpinned by the post war Bretton Woods institutions of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (World Bank), supported by the World Trade Organization (WTO). The WTO was preceded by the General Agreement on Tariffs and Trade (GATT), a stand-in for the International Trade Organization, which itself never came to fruition.

These institutions were squarely the product of the times in which they were formed. This was the fag end of colonialism, a multi-century phenomenon, which collapsed under the financial weight of the war. The Allied powers, which won the second world war, proceeded to rebuild the world on their terms, yet trying to draw in participation from a large part of the world.

As colonialism was ending, the imperialistic and hegemonic ambitions required new ways to run the world – ways, which neither approved of nor required physical force or occupation. A ‘global world order’ was hence a pressing need at a time. The war had drained economic, social and political capital across continents. The invention of the global institutional framework was mothered by this twin necessity of maintaining order in a world, while allowing it to physically fragment on the maps.

The winners of the war – chiefly the United States as the rising power and the guarantor of the global peace and the United Kingdom as the preeminent colonial power which was exiting the world stage – made the rules. The rest of the world followed the order thus created. There was greater participation for some – the Soviet Union, France and eventually the Communist China were privileged in the global policeman roles.

But on the economic side, the heavy-lifting was done almost entirely by the US and UK, with some contributions from Australia, Canada, France and India. The Bretton Woods institutions and the trading system thus formulated sought to further the ambitions of the flow – the American hegemony, with the compulsions of the stock – the British imperialism.

The Birth of the Bretton Woods Institutions

The United States took the lead in convening a global United Nations Monetary and Financial Conference between 1 and 22 July 1944. The representatives of forty-three other nations were invited to the Mount Washington Hotel at Bretton Woods, New Hampshire, to decide the economic fate of the world (Daunton, 2023).

Those twenty-three days and then some produced the institutions, rules, customs, rituals and the procedures of how the global economy, financial markets and trade takes place even today.

Before the actual conference, a pre-session was held from 15 to 29 June at Atlantic City, New Jersey, to kickstart a text-based negotiation, which would eventually foster and further the Anglo-American view of the global economy. After taking this initial stab at the texts for the global rules-based order, the participants moved to the Mount Washington Hotel, a venue 500 miles away and which was in disrepair and had minimal facilities.

“Discussions at Bretton Woods were carefully controlled to show sufficient involvement without too much dissension that might prevent settlement”, Raymond F. Mikesell, one of the American delegates to the conference, were to candidly write in his memoirs (Mikesell, 1994). Harry Dexter White of the US and John Maynard Keynes of the UK – two celebrated economists – were the chief architects of this ‘negotiation’ and the resultant global system. The Soviet Union had a delegation led by Mikhail Stepanovich Stepanov, but without much powers to decide on the course of the action. The Soviets did not eventually join the IMF.

The Atlassian US

The most important debate of the Bretton Woods institutions centred on currencies, their relative valuations and the method of global economic reconstruction. The issue of currencies and their valuation took centre-stage because the world was fresh from the American recession. In those times, it was believed that competitive currency devaluations will lead to further chaos, of the type witnessed during the Great Depression.

Dollars and pound sterling had to flow to the European countries under reconstruction, so that they could buy food, fuel and infrastructure inputs. But to earn these foreign currencies, the economies under reconstruction would have to sell something to the world. The priority was facilitating this movement of goods, but without using currency conversion rates as an artificial crutch. The IMF would help maintain the macro-stability while the World Bank would undertake specific reconstruction projects. And this would be done without the countries indulging in currency wars. Hence, at Bretton Woods, it was decided that the dollar would be pegged to gold and all other currencies would be pegged to the dollar.

At that time, it was inconceivable that the dollar would need to devalue for maintaining American economic hegemony. It was also inconceivable that any other currency would become strong emanating from trade surpluses. So this arrangement worked well. Floating rates were seen neither as a necessity nor as a priority. Floating rates were seen as an incentive for destabilizing capital flight and hence violent fluctuations to the global economy (Haberler, 1937).

The US then carried the weight of the global monetary stabilization on its shoulders, with dollar becoming the default intermediary, not jus for quoting prices for tradeable goods, but eventually also, as the means of exchange for the global trade.

The Monetary Trilemma

The British economist John Fleming and the Canadian economist Robert Mundell are credited for building the “Impossible Trinity”. The concept postulates that it is impossible to have all three of the following at the same time:

a fixed foreign exchange rate
free capital movement (absence of capital controls)
an independent monetary policy

This monetary trilemma has played out differently in different periods of human history.

Before the first world war, foreign exchange rates were fixed and largely stable. There was relative free movement of capital, also because the capital movements were made mostly for serving the colonial power grab – sucking the profits from colonies to the colonizer or investing in colonies to eventually enable profit repatriation.

Today, we live in the world of floating exchange rates, enabled by deeply developed central banking institutions which run not just an independent monetary policy but sometimes also challenge the government of the day. And of course, the movement of capital is largely free. The capital controls exist only to ensure broad economic stability, but otherwise money moves around the world, especially as direct and portfolio investments, relatively freely.

At the Bretton Woods however, the Anglo-American system fixed the exchange rates to enable a world limping to normalcy to pursue independent, national monetary policies. This was also the period of strict capital controls, as the erstwhile colonial powers sought a stocktake of their financial powers, while the US was not yet a financialized economy. The Bretton Woods era was predicated on the belief “that the movement of goods ‘is a prerequisite of prosperity and economic growth’ whereas the movement of capital was not (Ohlin, 1937)."

This system came to be defined by the economist Dani Rodrik as one of “shallow multilateralism”, which avoided beggar-thy-neighbour economic policies but at the same time, sought to make the global economic system more participatory, raising stakes for all participants for its success and common benefit.

The Trilemma Readjusted

The Bretton Woods arrangement put global goods trade on a pedestal, privileging it as the instrument for returning to global, or at least European, prosperity. While the developing countries sought to subordinate trade to their development goals, trade evolved from an instrument of choice to an end in itself in the West.

When the GATT was agreed upon in 1948, the bilateral trade agreements gave way to the multilateral agreement, with the principles of Most Favored Nation (MFN) and National Treatment (NT) at the heart of the new global trading system. Both the principles suited the US of that period well, allowing them to break the British imperial preference system as well as allowing their rapidly growing firms non-discriminatory market access. As the global trade proliferated under GATT, and later aided by further negotiating rounds like the Kennedy Round and the Tokyo Round, countries such as Germany and Japan became so wildly successful in their reconstruction process, they became trade powerhouses by themselves. By 1960s, they started to accumulate huge trade surpluses, with their currencies remaining undervalued relative to the dollar.

The US also saw a post-war economic boom, with the hugely successful and the world beating military-industrial complex of the war now repurposed for industrial research, development and leadership. However, increasingly, the scientific and the industrial advancements now just in Germany and Japan, but also in emerging economies like South Korea started to pinch the American hegemony. However, by the late 1960s, the system of fixed currency exchange rates was beginning to bite. Celebrated American economist Milton Friedman became the leading critic of fixed rates. He believed that case for floating rates was ignored at Bretton Woods both by ‘traditionalists’, who wanted to return to the gold standard, and by ‘reformers’ who distrusted the price mechanism (Daunton, 2023).

Eventually, as the Cold War peaked in the 1960s and 1970s, and the US sought to add allies like China against the Soviet Union, there was a need to free up capital controls and movements. The US saw merit in investing in industrial capacities the world over, allowing a lead over the inward-looking Soviet system of scientific method and innovation. The Bretton Woods collapsed, the world got financialized with capital controls removed. This is the trilemma we today live in.

Dollar Dominance

The 1970s were again a decade of global economic chaos. The national economic systems in the US as well as the UK underwent significant transitions and adjustments. However, for the US, it was important to continue the trade-led global dominance it had built up. The next stage of this global dominance came through the dollarization of the global economy. Soon after the currency pegs broke and the dollar value itself got delinked from the value of gold in 1971, the world faced an oil shock. The Organization of the Petroleum Exporting Countries (OPEC) sought to embargo the availability of oil, with the protest emerging out of the geopolitical events like the wars in the middle east and northern Africa.

Around this time, the US negotiated agreements with most major oil-producing nations, starting with Saudi Arabia, to price oil exclusively in dollars. In exchange, the US offered military and economic support. This deal, which came to be known as the "petrodollar system," solidified the global oil market dollarization. Soon after the deal with the Saudis, the US entered such deals with all OPEC countries. They agreed to price and sell oil in dollars and invest their dollar surplus in US treasuries. Oil and petrochemicals were the main tradeable commodity through the global industrial boom of the 1970s. They were being traded in dollars, so eventually the dollar dominance extended to all goods trade.

With the US remaining the global engine of economic growth, supported by its allies in Europe and countries like Japan and Korea, there was only one way forward for the dollar dominance. Eventually export powerhouses of South East Asia all started to build dollar reserves.

In fact, the US could even force a deal like the Plaza Accord on Japan, where the yen was forced to sharply appreciate against the dollar, such that Japan’s currency-pegged export competitiveness was curtailed. The US was then and remains till day, the pre-eminent consumption market of the world. The arrangement suited the US. It could issue more dollar denominated debt, which was lapped up by all its trading partners. They would subscribe to such large quantities of US securities, the dollar also became the reserve currency of the world.

The US could issue all its debt in its own currency. This convenient borrowing strategy backed by near insatiable demand of dollars, made dollars its foremost export.

In parallel, the Wall Street committed itself to increasing complexity spirals of financial engineering, inventing new investment and speculatory products. This fanned increased financialization around the world. All in all the dollar demand continued to grow.

An ever-increasing supply of dollars allowed the US banks to create money for the domestic economy through the cycle of deposits and lending. This in turn fuelled a consumption boom in the US, but weakened the currency. There were periods of high inflation, which had to be stamped out at times with drastic measures like forced recessions. And to make matters worse, as it became easier to buy global goods, the American manufacturing hollowed out.

Exporting dollars allowed the US to dominate the world economy. But when it was faced with the challenges and pitfalls of of armed conflicts, pandemic and over-securitization, the US realized that money supply alone cannot buy comprehensive national power.

The Trump Trilemma

It is in this long historic backdrop of the evolution of the global monetary and trade system, that President Trump is attempting to revisit the Bretton Woods agreements. President Trump indeed seeks to maintain the American pre-eminence but now, the instrument of such hegemony is not trade but resuscitating the American industrial power, couple with a new form of monetarism.

His recent actions on tariffs and unconventional ideas like a push for cryptocurrencies (See) are a concerted effort in that direction. However, he has been dealt a hand, which bakes a certain path dependence of a system, which has evolved over 80 years since the Bretton Woods conference. This evolution means that President Trump is now faced with a new trilemma.

President Trump would want to:

maintain the status of dollar as the world’s reserve currency
maintain the status of dollar as the world’s trade and transaction currency
devalue the dollar on a relative basis such that the US regains its manufacturing and export competitiveness

Today, the dollar is the store of value, which generally appreciates against other global currencies. When the world is faced with any kind of geopolitical or economic uncertainty, the capital flows rush to the safety net of the dollar. Hence, this situation is a circumstantial “impossible trinity”. If the dollar devalues, its attractiveness as reserve currency will diminish. High fluctuations to the dollar value will limit its utility as the global transaction currency.

If the US stops issuing new supplies of dollars, eventually the supply – demand mismatch would make it difficult for some countries to use it as a transaction currency, even if the US take no other valuation-related measures. If the US allows global trade in other currencies, eventually its attractiveness as a reserve currency will also decline, with the countries around the world needing to stockpile other assets to make good their payments for essential imports.

President Trump’s answer to control these seemingly conflicting priorities – a new form of monetarism, which TerraCogent Insights calls Techno-Monetarism.

US Technology Dominance

The US became a foremost global power at the beginning of the 20th century. But the intentions and the confidence to dominate global geopolitics were older. In 1823, President Monroe’s administration forewarned the imperial European powers against interfering in the affairs of the newly independent Latin American states or potential United States territories (US Department of State, n.d.). This “Monroe Doctrine” has been a cornerstone of the American foreign policy since.

The 19th century witnessed American domestic turmoil, but a vast industrial empire sprung from the ruins of the civil war. This industrial empire laid the foundation of global American dominance. The government worked symbiotically with the industrial interests to spread Americanism – not just business interests, but the cultural motifs and way of life – through the world. Post the second world war, the global institutional architecture allowed US to retain its global influence. The technocracy of the post war institutions favored a supranational government, seeking to direct and guide national governments into globally optimized, normative, one-size-fits-all policies. The “Washington Consensus” furthered these template ideas without factoring in national contexts, power structures and feasibility of implementation of boilerplate ideas. Beyond macroeconomics, these ideas spread in many walks of life – public health, regulatory cooperation, industrial and labour relations, human rights – and so on.

But the 21st century has been the undoing of the Global American Empire. While the US briefly looked emerging as the “end of history” winner from the Cold War, it was soon rocked by events like 9/11, rise of China, global financial crisis and the pandemic. Each of these events exposed the frailties of the American system and underscored the argument that the post war global institutional architecture was not amenable to treat these points of extreme stress.

President Trump is now settling on the next phase of the global US hegemony – it will come through the booming consumer technology industry alongside the control of critical parts of this technology industry value chain. In some ways, it is not a new idea. We already know that ever since Big Tech became a tour de force, the American state has maintained its sight on the industry as its instrument of perpetuating global influence. But President Trump now plans to take it to the next level – a plan for the US to dominate the world for the coming several decades using technology industry controlled by the US.

Techno-Monetarism

And this brings us to the concept of Techno-Monetarism. The idea is rather straightforward – extend control of digital technologies so pervasive in endpoint banking to the global monetary structure itself.

President Trump will also push the concept of Techno-Monetarism to solve the Trump Trilemma described earlier. Techno-Monetarism is a concept, not a guidebook. So the arrows in the quiver will evolve, be invented and be sharpened. But what we are witnessing is a potential overhaul of the monetary system, with the US getting to not just house and support it, but also erect multiple layers of concentric security cordons, all staffed and controlled by the US.

Bretton Woods III?

First, President Trump is signalling that Bitcoin can be an alternative way to denominate national reserves. TerraCogent Insights wrote about this phenomenon earlier. Is the US breaking away from the 1971 Bretton Woods II and moving to a 2025 Bretton Woods III? Well, President Trump has opened the door ajar. Over time, dollar can redenominate to Bitcoin as the digital gold but that is of course the maximalist outcome. It will only happen if the US can control more of Bitcoin, changing its character from a completely decentralized asset to ‘completely decentralized asset as long as the US wants it that way’. But this option has been put in the mix by the Trump administration.

Stablecoins for Transactions?

Second, President Trump will look to further stablecoins as mode of international transactions. Tether (USDT), BNB and USDC have been the three main stablecoins with highest acceptance in the digital assets markets. Today, these stablecoins are backed (mostly 1:1) by US short term treasuries. The average maturity of treasuries held by these stablecoins is 270 days. This is not surprising given that stablecoins are meant to be used for cross-border transactions and hence need to retain liquidity.

If the US government can make Bitcoin more popular as a store of value, popularize new stablecoins including regulating them, which would require the issuers to hold more US Treasury assets and other liquid assets, it can popularize stablecoins for global transactions instead of the dollar itself. If this self-reinforcing network of stablecoins becomes more popular, the US could even let stablecoins leverage 10-20x their asset base. Additionally, part of the asset base can be denominated in long maturity US treasuries (3, 5, 10 years). Today’s liquidity and credit risk of the stablecoins can be converted to tomorrow’s credit and duration risk, bringing in more institutional participation in their holding.

Randal K. Quarles, Vice Chair for Supervision at US Federal Reserve had in June 2021 remarked – “a global U.S. dollar stablecoin network could encourage use of the dollar by making cross-border payments faster and cheaper, and it potentially could be deployed much faster and with fewer downsides than a CBDC. And the concern that stablecoins represent the unprecedented creation of private money and thus challenge our monetary sovereignty is puzzling, given that our existing system involves—indeed depends on—private firms creating money every day.”

US Debt Adjustment

The US federal debt has been in an ever increasing spiral. Especially after the pandemic, the Biden government took the view that the government could print money on the roadmap to recovery, even if it came at the cost of inflation. The US federal debt has crossed $35-trillion now, with the Debt / GDP ratio at 123%. The US may consider a redux of the Plaza Accord but this time to adjust debt and not currency. One option that the US may force on its bondholders could be to convert their mid-term maturity treasuries (3/5/10 years) to long-term issues (30 years or even a new 100 year bond).

This kind of an arrangement may expose the investors to interest rate risks but may produce better yields if these bonds are held to maturity. In the short-term, this may also lead to a capital exodus into the US, generating new investments and strengthening the local markets. The US may impose this as a “cost of security protection” or any other “service” that the US has been offering to its allies after the second world war.

On its part, the US will not be under pressure to issue new debt to repay the older one with longer maturities in play. With the demand of the shorter term securities declining, their prices may fall. In parallel, the Trump government will continue to slash jobs, cut regulations and generally make the government more efficient, so that its borrowing costs maybe reduced.

Over time, if all plans go well, the US can find more domestic subscribers to its bonds (stablecoins) rather than overseas buyers, thus reducing the need to export its currency.

Maybe we will have a Mar-a-Lago Accord!

Supportive Industrial Policy for Technology Firms

The technology industry was instrumental in President Trump’s re-election. Many technology czars came to his open support, with Elon Musk the biggest poster boy of Silicon Valley’s change of heart from the times of the contentious 2020 election. President Trump is already rewarding these firms with a supportive industrial policy.

President Trump signed a Memorandum titled “Defending American Companies and Innovators From Overseas Extortion and Unfair Fines and Penalties” on 21 February creating a regulatory reprisal moat for the US technology businesses. Unsurprisingly, while President Trump is in love with tariffs, he sought to close the potential tariffication of his technology giants, asking the United States Trade Representative to seek a permanent moratorium on customs duties on electronic transmissions (referring to an ongoing battle at the WTO).

The more influence US technology firms amass overseas, the more their products will be seen as acceptable. Their innovation could be used around the world and some of them could related to use of digital assets.

Conclusion

TerraCogent Insights believes that we are now in the era of President Trump’s Techno Monetarism. Ideas change over time and there is nothing natural or inevitable about the way global systems are configured. Any generation which has lived in a dominant architecture of beliefs and institutions will naturally believe that these systems represent the most evolved form of human ability to organize. And then these beliefs are shattered from time to time.

How far we go from here will depend on several factors, both endogenous and exogenous to US policy. This is a long battle for President Trump of course. As Confucius told his disciple Zixia – “Do not crave speed, and do not be enticed by the prospect of minor gains. If you crave speed, then you will never arrive, and if you are distracted by the prospect of minor gains you will never complete your major tasks."

References

Daunton, M. J. (2023). The economic government of the world: 1933–2023. Farrar, Straus and Giroux.

Miksell, R. F. (1994). The Bretton Woods debates: A memoir. International Finance Section, Princeton University.

Haberler, G. (1937). Prosperity and depression: A theoretical analysis of cyclical movements. Geneva.

Ohlin, B. (1936). International economic reconstruction.

U.S. Department of State, Office of the Historian. (n.d.). Monroe Doctrine,1823. https://history.state.gov/milestones/1801-1829/monroe

Quarles, R. K. (2021, June 28). Parachute Pants and Central Bank Money. Board of Governors of the Federal Reserve System. https://www.federalreserve.gov/newsevents/speech/quarles20210628a.htm

The White House. (2025, February). Defending American companies and innovators from overseas extortion and unfair fines and penalties [Presidential action].

The White House. (n.d.). America First Trade Policy Memorandum