Global Policymakers Express Cautious Relief at U.S. Economic Order’s Resilience

By Francesco Canepa, Jan Strupczewski and Leika Kihara

WASHINGTON (Reuters) – Global policymakers gathering in Washington this week breathed a collective sigh of relief that the U.S.-centric economic order, prevailing for the past 80 years, was not collapsing just yet despite Donald Trump’s inward-looking approach.

The Spring Meetings of the International Monetary Fund (IMF) and the World Bank were dominated by trade talks, which also brought some de-escalatory statements from Washington regarding its relations with China.

However, deeper questions loomed over central bankers and finance ministers after Trump’s attacks on international institutions and the Federal Reserve: can we still count on the U.S. dollar as the world’s safe haven, and on the two lenders supporting the international economic system since World War Two?

Conversations with dozens of policymakers globally revealed general relief at Trump’s scaling back threats to fire Fed Chair Jerome Powell, whom he previously described as a “major loser”.

Many found a silver lining in U.S. Treasury Secretary Scott Bessent’s call to reshape the IMF and World Bank according to Trump’s priorities, implying the U.S. was not exiting these institutions it helped create at the Bretton Woods conference in 1944.

“This week was one of cautious relief,” said Austria’s central bank governor Robert Holzmann. “There was a turn in the U.S. administration’s stance, but I fret this may not be the last. I keep my reservations.”

The politicization of the Fed and, to a lesser extent, the hollowing out of the IMF and World Bank seem almost unfathomable for most officials. Deprived of a lender of last resort, about $25 trillion of bonds and loans issued abroad could be in jeopardy.

No Alternative

Policymakers are concerned there is no alternative to the U.S. as the world’s financial hegemon—a scenario known as the Kindleberger Trap, named after historian Charles Kindleberger.

While the euro is a distant second reserve currency gaining popularity due to the European Union’s relative stability, most policymakers assert that it’s not ready to challenge the dollar and can only hope to add slightly to its 20% share of global reserves.

Among the 20 countries using the euro, only Germany has the credit rating and size that investors seek from a safe haven. Other members have high debt levels and have faced political and financial turmoil, as seen recently in France, raising questions about the bloc’s long-term viability. Furthermore, the euro zone’s proximity to Russia adds to the concerns for nations like the Baltic states.

With Japan too small and China’s heavily managed currency in a worse position, there is ultimately no alternative to the dollar system, supported by the Fed and the two Bretton Woods institutions. Officials noted that the IMF and World Bank’s survival hinges significantly on U.S. support.

“The U.S. is absolutely crucial for multilateral institutions,” Polish Finance Minister Andrzej Domanski stated. “We’re happy they remain.”

Nevertheless, few anticipate a return to the old status quo, with challenging issues likely on the horizon, such as dependence on U.S. firms for essential services from credit cards to satellites.

Some observers suggest that recent market turmoil, which saw U.S. bonds, shares, and the dollar sharply sell off, may have compelled a change in the administration’s approach. “When President Trump talked about firing Jay Powell, the markets reacted vigorously, reminding the administration of the severe implications if they crossed that line,” commented Nathan Sheets, global chief economist at Citi.