Can Trump Change the World

In this article, David Punabantu argues that President Trump’s economic policies, particularly his push to rebalance trade through tariffs and spending cuts, highlight a deeper flaw in the global financial system—the IMF’s fixed cross-rate regime. He contends that this system distorts currency values, acts as a hidden tariff, and undermines fair trade. Drawing parallels with Nixon’s failed reforms in the 1970s, the author asserts that Trump’s real opportunity lies in advocating for a shift to free-floating cross-rates based on supply and demand, which could revitalise global trade and correct longstanding imbalances.

Since U.S. President Trump has taken his second term of office, his administration has released a reciprocal tariff based global economic cataclysm to offset the U.S. trade deficit. Behind all this on the domestic front, through his newly formed Elon Musk led Department of Government Efficiency (DOGE), he has set in motion decisions to cut U.S. Federal spending all in an attempt to make the American economy great again.

His intentions are similar to former U.S. President Nixon who on August 15, 1971, instituted a series of economic reforms that can be understood as a Structural Adjustment Programme (SAP). Like so many African countries that have done SAP, Nixon was dealing with rising inflation and implemented a wage and price freeze, placed a surcharge on imports, and unilaterally negated the convertibility of the US dollar to gold. Basically, he suspended the Bretton Wood international finance exchange system, until as President Nixon hoped the reforms worked. Unfortunately, the reforms did not work. The end game for President Nixon was the U.S. imposing a floating exchange rate regime on the US dollar.

For President Trump, the commodity tariff card are all expressions of a serious flaw in the global financial system, involving the concept of ‘tariffs’ that come in many different forms and shapes. Yet the real ‘tariff’ that the US dollar faces is articulated through the International Monetary Fund (IMF) fixed cross rate system.

This surcharge is observed for example in the value of the Euro on April 05, 2025. Here the Euro in value terms was equal to £1.17649 and US$0.9123. The cross rate of the Euro for both currencies values on the same day was 1.2895 (the cross rate is dividing the value of the Sterling pound against the US dollar expressed in a local currency), while the US dollar to Sterling pound exchange rate on the 5th of April 2025 was around £1 per US$1.2895.

The same value configuration was also noted on the same day in the Chinese Yuan Renminbi (CNY). At the time the Renminbi was worth ¥9.39193 per £1 and ¥7.28335 per US$1 which gave a cross rate similar to the exchange rate of the two transatlantic nations.

The same picture emerges for the South African Rand at R19.0819 per US$1 and R24.6051 per £1, giving a cross rate for the same time period of £1 being worth US$1.2895. Canada similarly faced the same currency tariff as C$1 per £1.8349 and C$1 per US$1.4229 gave a similar cross rate between the two transatlantic nations.

In value terms these IMF fixed cross-rates appear day in and day out, in many national currencies globally.

However, the reality on the ground in many national money markets is that the existing Sterling pound and US dollar liquidities within these national money markets do not reflect the dictated IMF fixed cross-rate position.

To this, as noted in the IMF 1949 Annual Report that “Multiple selling rates… discriminate either to the categories of transactions for which payment is to be made (e.g. payments to the United States may be penalised by making the US dollar dear). The latter type of discrimination inevitably corresponds very closely to disorderly cross-rates.”

The consequence of this is that global trade is being undermined, regardless of the level of bilateral trade and available national currencies to facilitate that trade, as national parity values are fixed and as a result distort global trade.

A case in point over this dilemma was observed by the first IMF Managing Director Mr. Camille Guttenstein at his Harvard University address on “The Practical Problems of Exchange Rates” on the February 13, 1948, in which “the indirect exchange rate of the US dollar to the Sterling pound was £1 per US$2.6 as US$1 equalled 600 Lire and £1 equalled 1,560 Lire, while the direct Sterling-US dollar rate stood at £1 per US$4.”

Here, Italian exporters were allowed to retain half their export earnings that they sold to importers, while the other half was sold to monetary authorities. Not all the export revenue was directly offloaded on to Italy’s money market which in turn affected exchange rates and hence the cross rates.

Americans found it cheaper to buy goods from the U.K. via Italy. Italy’s money market liquidities against its traded goods with specific trading partners provided certain volumes of foreign currencies which did not duplicate the IMF fixed cross rate position found in London’s money market. The U.K. objected to Italy’s position as Italy was gaining US dollars at the expense of the Sterling Area acquiring those US dollar inflows, much like cheap Chinese products gaining US dollar inflows. This pushed the already delicate Sterling Area’s balance of payments with the US Dollar Area into a precarious condition. This ‘precarious condition’ is what the 2025 Trump Shock wishes to address.

The IMF executive moved in and imposed the fixed cross rate regime in the name of “multiple currency practices” in favour of the U.K. according to their perception and agendas at the time. Italy thus lost out on trade with America and a supply of US dollars, while Americans now had to pay more for U.K. goods as the IMF cross rates acted like a tariff/surcharge on trade. British firms within the U.K. lost out on American clients and would have still earned Sterling pounds regardless of its origin and value in other international markets, as a Sterling pound was still a Sterling pound within the U.K. jurisdiction.

It is against this that the issues of trade deficits, and alleged currency manipulation, continue to haunt global trade, as seen in the exchange rate value tiff between China and the U.S. The fixed IMF cross rate system is not a market driven system and basically indicates symptoms of multiple currency practices promoted by the mis-application of Adam Smith’s Supply and Demand Doctrine (SDD).

Economics 101 in its simplicity teaches us that British goods supplied are demanded by British Sterling pound holders that buy up those goods. The supply and demand of both goods and money sets a price.

If one includes John Stuart Mills’ doctrine, which is also fundamentally anchored to the supply and demand of currencies, it sets what is commonly known as an exchange rate. For example, if a South African wanted British goods, they would first have to get their South African Rands changed to British Sterling pounds and use those Sterling pounds to buy British goods. The supply of the British Sterling pound comes from British Sterling pound holders wanting South African Rands to buy South African goods. The supply and demand of both currencies sets a price called an exchange rate, which also is a function of the price of the goods wanted in their respective domestic economies.

Examining the fundamental tenets of the SDD with regards to exports being directly sold in US dollars, to which France’s former President General de Gaulle called an “exorbitant privilege” reveals that the underlying axioms in the SDD is that goods manufactured in the nation should be purchased only by the same nation’s national currency and not by an alien currency.

The current global practice of directly paying exporters in US dollars circumnavigates local money markets that have a reduced access to all the available US dollar revenue generated from export. Naturally this pushes up the price to purchase US dollars on the local money market for local importers wishing to buy US dollars to purchase imports. To this, the U.S. manufacturing sectors has lost out on their foreign markets as their goods appear expensive due to the high-local US dollar parity price, and China has moved in with cheaper products set at a ‘producer price’.

The ‘producer price’ operatus morandi is recorded by a former editor at The Economist magazine, Baron Geoffrey Crowther in his book “An Outline of Money,” (it’s online) that, “if a purchaser is someone who wants D-marks in order to pay for German exports, the fact that he can get his marks cheap is equivalent to a reduction in the price of exports; it will stimulate sales in exactly the same way as an ordinary depreciation of the exchange rate.”

Here it is German D-marks purchasing German goods. Although Chinese firms quote in US dollars for their exports, these US dollar payments are deposited into their bank accounts. The deposited US dollars are then swapped for Chinese Renminbi Yuan and the US dollars are transferred to the People’s Bank of China

The final payment settlement for Chinese exports for Chinese firms is the Chinese Renminbi Yuan. China’s trump card has been its producer price as it was and is “a reduction in the price of exports… [that would] stimulate sales in exactly the same way as an ordinary depreciation of the exchange rate.” This is in line with the SDD.

It was the same ‘producer price’ policy Anglo American Corporation Ltd (AAC) and Rhodesia Selection Trust (RST) in the mid-1960 used to sell copper from Northern Rhodesia, now Zambia.

The U.S. Federal Reserve similarly has depreciated the US dollar since 2022 as interest rates drastically increased, meaning the US dollar float rate has accelerated downwards to stimulate exports.

As the US dollar depreciates in value terms, holders of US dollars using a US dollar final payment settlement system for exports, have faced a depreciating US dollar on the import side. This fall in the US dollar purchasing power naturally has also made U.S. goods more expensive as firstly the US dollar buys less on the import side, and secondly its supply is restricted by exporters holding onto US dollars as they only sell a fraction of the US dollar revenue in national money markets to pay for domestic costs. The end result is a Catch 22, as an exorbitantly expensive US dollar penalises the purchase of goods and services from the U.S. directly, which in turn fuels a widening trade deficit with the U.S. as so rightly exposed by President Trump.

A higher price being paid for foreign currencies acts like a tariff on imports that the 1948 IMF Annual Report notes that “certain countries, particularly in Latin America, have used them [multiple currency] as a means of restricting imports without resorting to complicated administrative controls.”

To this end, the 1953 IMF Fourth Annual Report on Exchange Restrictions records that “the Fund discussed [the] practices under which part of the exchange earnings or their equivalent are to be retained by exporters…Most of these practices have discriminatory currency features; some are clearly multiple currency practices.”

Such practices infringe on the Fund’s 2011 Articles of Agreement: Article VIII Section 3 that “no member shall engage in…any discriminatory currency arrangements or multiple currency practices.”

The dictatorial stance of the IMF executive imposing IMF fixed cross rates undermines the tenets of the SDD. It is the supply and demand of currencies that should determine the price of currencies and price the degree of personalised convertibility.

What President Trump has to do is finish off what President Nixon should have done by taking one step further and that is the introduction of free floating cross rates if he is to deal with the ‘Tariff Crisis’ imposed by the IMF fixed cross rates.

The picture that emerges with a free float cross rate system that the January 1976 IMF Jamaica Reforms wrongly accepted as a fait accompli shows a more realistic position of global trade with regards to currency values.

The picture in a free floating cross rate system for example, may see Country S having trade surplus with Country J as it uses Yen to convert into Country S’s currency, the Rand, to buy platinum. This creates an exchange rate of ¥1,000 per R1 as Country J uses her Yen to purchase Rands, Country S’s national currency. Country S buys very little from Country J in relation to what Country S exports to Country J. To this, Country J uses the purchased Country S’s Rands to buy platinum, against which Country S accumulates Yen in its money market.

Although the exchange rate in Country S for the US dollar, based on Country S’s market liquidity may be R8 per US dollar, in Country J it may well be ¥200 per US dollar as Country J trades more with the United States than Country S.

If a citizen in Country S wanted to import an iPhone from the United States pegged at US$500, it would be cheaper to buy the iPhone via Country J, but this would in turn affect market liquidities in both Country S and Country J money markets and hence exchange rates as exchange arbitrage operations occur. The US$500 iPhone in Country S in Rand terms based on its R8 per US dollar rate would cost R4,000, but through Country J the cost of the iPhone would be ¥100,000 at ¥200 per US dollar, being through Country S’s Rand/Yen exchange rate at ¥1,000 per R1 would be worth R100, which is equal in US dollars, based on Country S’s US dollar/Rand exchange rate be worth US$12.50. At US$12.50 per iPhone the United States would be on an equal footing to deal with another country called China with its cheap exports unless China’s free floating cross-rates are lower in the countries China/United States/Country S’s exchange rate configurations.

It would then be a question of finding the best value path in currency arbitrage operations before a buy.

The United States would still get its US$500 disregardless of the value step up or step down currency arbitrage operations and the problem of external disequilibrium is addressed provided each country settled its exports in its national currencies. The real value of the US dollar is multi-dimensional, varying from one national market to another and from time to time.

The potential of a Sterling pound/US dollar driven free floating cross rate system to rejuvenate global trade can be observed through the efforts of Richard Cobden (1804-1865) who sought to the removal of the corn tariffs placed on cheaper imported corn by the Corn Law, as it raised the price of imported corn. The British people suffered with high bread prices when cheaper tariff-less corn could be imported. Cobden views led to the Anti-Corn Law Association in 1836 that advocated for corn market liberalisation.

The Corn Law was finally repealed leading to cheaper corn entering England as bread prices dropped, creating more disposable income for workers to buy other manufactured goods that spurred on England’s industrial revolution. It was Liberation Day and can be so again once IMF fixed cross rates are replaced with free floating cross rates.