Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. A shorter version, was published by Project Syndicate.

March 22, 2025 — What is to be made of proposals for a “Mar-a-Lago Accord” coming from some Trump devotees, notably Stephen Miran?  (He is the new Chair of President Trump’s Council of Economic Advisers.)

Sometime during the next 3 years and 10 months, Trump could well find some event that he will want to trumpet under the name of his Florida residence.   But the Mar-a-Lago Accord about which people are talking, regarding the dollar, doesn’t stand a chance.

1. The return of international coordination?

The proposal comprises an effort, coordinated among large countries, to intervene to depreciate the dollar, in hopes of improving the US trade balance. That much resembles the successful 1985 Plaza Accord, which is said to be its inspiration.
One could imagine a sensible proposal for concerted intervention to bring down the dollar from its height, coordinated with American steps to cut its budget deficit and steps by Germany and China to increase their budget deficits, thus helping to address the fundamental causes of the international trade imbalances. But this is not that.

The Trump people seek to address two side effects of dollar intervention: the implications for (1) financing US deficits, in particular for keeping US interest rate low; and (2) maintaining the role of the dollar as the number one international currency.

2. Can Trump lower the dollar without raising US interest rates?

The fear of upward pressure on US interest rates is well-founded: if foreign central banks intervene to reduce the foreign exchange value of the dollar, they do it by holding fewer US Treasury bills than they do now.  With demand for T bills down, their price would fall, and their interest rate would rise. Another way to see the upward pressure on the US interest rate is to consider what happens when the trade balance improves but the economy is at full capacity, so that components of domestic demand (household consumption and business investment) have to be crowded out.

The first to use the term Mar-a-Lago Accord was apparently Zoltan Pozar, who proposed  a ‘Bretton Woods III’ agreement that would give up dollar dominance.  It would abandon the dollar-based world monetary system and replace it with a new system based on CBDCs (Central Bank Digital Currencies) and gold or other commodities. Also, the US government would strengthen its balance sheet by revaluing gold.

The de-throning of the dollar would be accelerated if the plan to depreciate it were to include an easier US monetary policy, which is something Trump has pushed for anyway.

But Trump wants to maintain the role of the dollar as the premier international currency .  We know it is important to him, because he threatens tariffs against any of the BRICs countries who shift away from the dollar to some new currency.  Treasury Secretary Scott Bessent in October said that dollar devaluation and dollar dominance are not necessarily ‘mutually exclusive’ objectives.  This is true.  For example, in the early 1990s, while the dollar was depreciating, it actually gained shares in international currency measures such as central banks’ international reserve holdings.  But there is a clear tension between the two.  And if the plan is designed so as to discourage central banks from holding US Treasury securities, then it is hard to see how this could be consistent with promoting continued dominance by the dollar in the global monetary system.  The US Administration can’t have its cake and eat it too.

3. The proposal discussed by Stephen Miran

So, the version of the Mar-a-Lago proposal discussed by Stephen Miran includes, besides a depreciation of the dollar, measures that attempt to preserve the ease of US financing (that is, to keep US interest rates from rising), while yet preserving the international role of the dollar, by some combination of:

• (1) making foreign central banks hold 100-year US bonds without coupon payments, in place of the Treasury bills that they now hold. This would constitute restructuring the US debt, which is essentially a default.  That is a pretty drastic step to propose.
• Or (2) charging “user fees” to foreign central banks that hold U.S. debt.
• Or (3) a more general tax on foreign investment in the US, putting sand in the wheels, reminiscent of the Tobin tax proposed long ago by some skeptics of free- flowing international financial markets.
• Also (4), the Sovereign Wealth Fund (SWF) that Trump ordered on February 3 is supposed to have something to do with this. But it is not clear what.  In any case, one has to ask where the money to fund the SWF would come from.  Good advice for developing countries is not to start a sovereign wealth fund if it would require borrowing to set it up because they haven’t already accumulated a big stock of international reserves.  It is also good advice to note that a SWF works best when it is invested in foreign assets, rather than domestic.  This advice applies to the US as well.  Trump’s SWF does not meet either of these two criteria.

4. Can foreigners be forced to accept restructuring of US debt?

Why would the world’s central banks and other investors accept 100-year bonds — which would pay no interest for 100 years — in place of good old Treasury bills?  Presumably, Trump would threaten tariffs against their countries.  But he has waved this weapon in the air so often, in the names of so many objectives, with so many postponements and reversals, that it would not retain much credibility if used to force purchases of US treasury securities.  If the US persists in over-using tariffs and financial sanctions, it will incentivize foreign countries to move out of dollars altogether, accelerating the loss of dollar dominance.

The rest of the proposal is to force foreign countries to accept the inferior treasury bonds by brandishing US military and geopolitical power.  The situation is perhaps reminiscent of the 1960s when Germany, wanting to preserve the Bretton Woods system, willingly paid the foreign exchange costs of stationing American soldiers in Germany.   Or 1991, when Kuwait and Saudi Arabia transferred enough money to the US to pay the costs of fighting the war against Iraq, fully paying for the US trade deficit.

But back then, the US had the goodwill of its allies; the Germans and Kuwaitis acted voluntarily.  Lately, we have been busy throwing away US geopolitical leadership with both hands, and there is little, if any, goodwill or political capital left to draw on.  The Mar-a-Lago Accord proposal sounds more coercive.  Like the Roman Empire demanding tribute from the territories occupied by its legions.  Next comes the decline and fall.

The post written by Jeffrey Frankel.