Macroeconomics

Greenland, Gaza, greenbacks and gold

06 February 2025 • 3 mins read

Israel's Prime Minister Benjamin Netanyahu (Left) and US President Donald Trump (Right) and hold a press conference in the East Room of the White House in Washington, DC, on 4 February 2025. AFP.

President Trump is challenging the ruled-based world order the US has built since 1945 with his plans to buy Greenland, empty Gaza, control the Panama Canal and impose sweeping tariffs.
The new US government’s stance may accelerate the fragmentation of the global economy, divide America’s allies and alienate emerging nations.
We don’t think The Changing World Order - one of our five Supertrends - will cause the USD to lose its status as the world’s reserve currency. There is no alternative to America’s deep, liquid markets.
But demand for gold will keep rising as a hedge against sudden geopolitical moves, uncertainty over the US government’s policies and tensions between America, Europe, China and Russia.

President Trump is challenging the ruled-based world order the US has favoured since the end of the Second World War in 1945 with his plans to buy Greenland from Denmark, force Gazans to leave their homeland, take control of the Panama Canal and impose sweeping tariffs on US allies and competitors alike.

Source: Bank of Singapore, Bloomberg

The new US government’s ‘America First’ stance may cause major economic and political changes, accelerating the fragmentation of the global economy, dividing the US from its allies and alienating emerging nations across the world. Moreover, the shift from a superpower that has built and defended the ruled-based order globally for eight decades to a revisionist state that challenges it may last throughout Trump’s four-year term.

Source: Bank of Singapore, Bloomberg

We don’t think The Changing World Order, one of our five Supertrends, however, will cause the USD to lose its status as the world’s reserve currency.

The first chart shows central bank reserve managers have been slowly diversifying away from the USD this century. From 2000, the share of foreign exchange reserves held in the greenback has fallen from 72% to 57% now despite the value of the USD appreciating since the 2008 global financial crisis.

But the EUR, JPY, CNY, GBP and CHF do not provide viable alternatives to dislodge the USD as neither Europe nor Asia have the deep financial markets for central banks globally to invest all their foreign reserves. In contrast, the US Treasury market provides unrivalled liquidity and immediate access in a crisis.

Thus, despite unease across the globe at the new US administration’s stance, the USD is set to remain the world’s reserve currency. Only an unexpected US government default - for example, if Congress in future does not raise the US debt ceiling in time - is likely to derail the greenback’s premier status.

Safe-haven demand for gold, however, is set to keep rising as a hedge against sudden geopolitical moves, uncertainty over the US government’s policies and tensions between America, Europe, China and Russia. The second chart shows gold’s value has gone up almost ten times since 2000. The precious metal is likely to stay strong while world order keeps changing over the next few years.

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Author:

Mansoor Mohi-uddin

Bank of Singapore