Global finance expert discusses US dollar as the world’s reserve currency

After several sleepless nights, Timothy D. Adams found himself in the Oval Office. He was early in his career, far from his hometown in rural Kentucky and Adams was briefing the president at the time — George H. W. Bush — on labor policy.

In the coming decades, Adams would serve in several roles in the public and private sectors, eventually becoming one of the global financial industry’s most influential thought leaders. On Thursday, April 3, he participated in a Diplomatic Discussion about the future of the U.S. dollar as the world’s reserve currency.

Understanding how the global economy is knit together — and the role of the U.S. dollar in the global economy — is consequential. In the mid-20th century, France’s finance minister — and eventual president — Valéry Giscard d’Estaing declared the U.S. dollar’s dominance as the world’s reserve currency a privilège exorbitant, an exorbitant privilege.

“The dollar is the chief operating currency, store of value and form of payment around the world. It makes the system run,” Adams said.

Vice Provost for Global Affairs and Chief Global Officer Barbara Stephenson, who moderated the event, discussed the history and significance of this “exorbitant privilege” with Adams.

“From Bretton Woods to the rise of the petrodollar, through globalization, economic sanctions, global recessions, and trade wars,” Stephenson said, “the privilege of having the U.S. dollar as the world’s reserve currency has been strengthened, tested and, arguably, weaponized, used as a tool short of war to get our way.”

Adams said that through the years, there have been many times when people feared the end of the U.S. dollar’s reign. This time, he believes, may be different. He warned of eroding international trust in America’s capacity to effectively administer a rules-based financial system, and by extension the power that the U.S. exerts because the U.S. dollar is the reserve currency.

Current trends in U.S. trade policy and economic sanctions, he said, have threatened its strength. Adams contrasted the Biden administration’s targeted approach to tariffs with the broader, more abrupt measures enacted by the Trump administration — policies that took effect the same day as Adams’ visit and, at the time of publication, some of which have been paused. While both administrations’ approaches aim to bolster domestic industry and weaken the dollar to support exports, Adams cautioned that inconsistent messaging and policy volatility could erode confidence.

He also explained the Institute of International Finance’s role in shaping international monetary policy and supporting the financial industry. Adams has been the president and CEO of the institute, which represents 400 financial institutions worldwide, since 2013.

On the future of American manufacturing, Adams said the sector is already strong and growing and, in fact, equivalent to the eighth largest economy in the world.  But the sector is fundamentally different than in the past.

“Modern factories are automated and efficient. We’re not going back to the 1950s. We are investing in high-value, strategically important production,” Adams said. “Whatever factories we build [now] will be fully automated… The idea of millions of men arm in arm with their lunch pails walking into a factory is fantasy.”

Adams’s talk was part of a Diplomatic Discussions series addressing the question, “Whither globalization?” which has included speakers such as former U.S. trade representative Katherine Tai, FedEx founder Frederick W. Smith and Daniel W. Drezner, distinguished professor of international politics at Tufts University. Stephenson asked Adams to consider the role of globalization in shaping American innovation and economic growth.

“We built for 21st-century businesses and industries in this country, and we’ve done it based on efficient supply chains,” he said, adding that 95 percent of consumers and 80 percent of savings are outside the U.S. “Limiting ourselves to the domestic market would be a mistake.”

He said it would worsen well-being, decrease quality of life and increase cost of living. Simply, it would possibly set back American prosperity. Stephenson echoed those remarks, noting the dramatic reduction in global poverty over the last three decades.

“In 1990, at the start of globalization, 38 percent of the world’s population was living in extreme poverty,” Stephenson said. “By 2015, that number had dropped to eight percent. Globalization did more to lift people out of poverty than any other force I can think of.”

Adams and Stephenson agreed that globalization’s achievements were not without consequences. During the event, one student asked about the impact of globalization on workers in developing countries, and another student asked whether the current system ensures adequate labor protections abroad. In response, Adams explained that free trade agreements now regularly include labor and environmental standards, but he acknowledged that enforcement remains difficult. Adams and Stephenson also explored the unequal distribution of the benefits of globalization, and agreed that many issues remain to be addressed.

In addition to the Diplomatic Discussion, Adams met with Carolina Diplomacy Fellows, a group of faculty interested in international relations and economics, and students enrolled in a class on international organizations. Throughout the visit, Adams shared insights drawn from decades of experience in global finance and offered advice to students preparing for careers in international policy and economics.

The Diplomacy Initiative provides opportunities for students to learn about and explore solutions to global challenges, and all Tar Heels are welcome to participate.