It’s nice to see Treasury Secretary Bessent addressing the challenge of maintaining a “strong dollar” despite the fiat nature of our currency. “What does a strong dollar mean?” Mr. Bessent mused in an exchange with Bloomberg’s Saleha Mohsin. The secretary points to “credibility” as the decisive issue “when we think about a fiat currency as a piece of paper.” Missing from Mr. Bessent’s analysis, though, is a nod to the historic basis of monetary value — gold.
Seen through that lens, the dollar’s value has never been lower. The fiat greenback is fetching less than a 2,800th of an ounce of gold in trading today. That means the value of the dollar is plunging below even the most pessimistic estimates made earlier this year by market watchers. It’s a warning of future inflation and a signal of the weakness of America’s fiat greenback — despite its purported strength when measured against other fiat currencies.
Mr. Bessent’s remarks underscore the fact that the dollar, as a “fiat currency,” is competing against other currencies with no backing in gold. “The dollar is either weak or strong versus something else,” he says, and generally denoted as “a bilateral price.” He avers, too, that “we want the dollar to be strong,” and to maintain its “reserve currency status.” To that end, he says, “what we don’t want is other countries to weaken their currencies, to manipulate their trade.”
That concern, though, points to precisely the weaknesses of today’s system of fiat money. That’s the ability it gives countries to manipulate the value of their currencies. Under the gold standard, currencies were defined by law as a fixed weight in specie and convertible on demand for hard money. The discipline of that system helped keep prices steady and prevented countries from gaining an advantage by devaluing their currencies. Gold was the ultimate yardstick.
A gold-backed dollar is what helped to fuel America’s rise to economic predominance, while keeping inflation down to 0.2 percent a year, on average, up until the formation of the Federal Reserve. To keep the dollar “credible,” though — that is, convertible to gold — Uncle Sam had to hold the line on federal budget deficits and borrowing. This fiscal prudence waned over the 20th century and vanished after the abandonment of gold convertibility in 1971.
With that background in mind, these columns after President Trump’s election win encouraged him to opt for a Treasury secretary who was “familiar enough with the history of money to decide whether the time has come for America to revert to a convertible currency,” as monetary sage James Grant put it. That would mean a restoration of honest money, the Constitutional dollar shaped by Mr. Bessent’s predecessor, Alexander Hamilton.
It was, after all, voter rage over inflation that hoisted Mr. Trump back into the White House. It’s his problem to fix, now. The most effective path to curbing inflation — and even rolling back prices, as the voters really want — would be to restore honest money. To that end, Messrs. Trump and Bessent could find that the dollar’s reserve currency role — which lets America run up deficits and debt with no consequences — could prove a hindrance, rather than a help.
Which brings us back to Mr. Bessent and credibility. We very much appreciate his preparedness to talk about the fiat nature of our current system. He says “we want to have the best policies that create the environment for a strong dollar.” His call for 3 percent growth, lowering the deficit to 3 percent of GDP, and 3 million more barrels of oil a day is a start. Secretary Yellen would never have done such a thing.
If Mr. Bessent means what he says, his program can’t be truly credible without a plan for monetary reform. It will be hard for President Trump, whom we endorsed, or the Treasury, to restore the dollar’s credibility without returning us to a dollar defined in specie. That involves serious strategic thinking, and crediting the famous formulation of J. P. Morgan, who knew a thing or two about credibility and said: “Money is gold, nothing else.”
