Trump Welcomes Dollar Decline, But $39T Debt Demands Stability: Ex-Fed President Warns

The U.S. dollar faces a critical juncture as its value declines, prompting concerns over the nation's soaring debt levels.

Jan. 31, 2026 at 5:15pm

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The U.S. dollar has seen a 10% drop in value over the past year, with former President Donald Trump welcoming the decline as it boosts American exports. However, economists and former Federal Reserve officials, like Robert Kaplan, warn that the nation's $38.57 trillion debt demands currency stability, not further depreciation. Kaplan emphasizes that 'when you have that much debt, I think stability of the currency probably trumps exports.' The dollar's status as the world's reserve currency allows the U.S. to borrow at lower rates, and erosion of that status could significantly increase borrowing costs.

Why it matters

The dollar's decline is not occurring in a vacuum, with factors like Trump's 'Liberation Day' tariffs, concerns about the Federal Reserve's independence, and strained relationships with key allies all weighing on the greenback. While investors are not abandoning U.S. assets altogether, they are taking steps to hedge their currency exposure and explore alternative safe havens, such as gold.

The details

The U.S. dollar's recent woes stem from a combination of factors, including Trump's imposition of 'Liberation Day' tariffs last spring, growing anxieties about the independence of the Federal Reserve, and strained relationships with key European allies. These factors have collectively weighed on the greenback, prompting investors to reassess their exposure to dollar-denominated assets. Despite the dollar's decline, fears of a mass exodus from U.S. Treasury bonds have not materialized, with investors instead engaging in risk management by buying 'tail-risk protection' to hedge their currency exposure.

  • The dollar has seen a 10% drop in value over the past year.
  • Trump's 'Liberation Day' tariffs were imposed last spring.

The players

Donald Trump

Former President of the United States who has welcomed the decline of the U.S. dollar, as it boosts American exports.

Robert Kaplan

Former President of the Dallas Federal Reserve, who emphasizes that the nation's $38.57 trillion debt demands currency stability, not further depreciation.

Peter G. Peterson Foundation

An organization that tracks the U.S. national debt, which currently stands at $38.57 trillion.

Robin Brooks

A senior fellow at the Brookings Institution, who argues that a falling dollar could actually benefit the Treasury market.

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What they’re saying

“When you have that much debt, I think stability of the currency probably trumps exports.”

— Robert Kaplan, Former President of the Dallas Federal Reserve (Bloomberg TV)

What’s next

Continued economic growth in the U.S., fueled by innovation and productivity gains, will be crucial in maintaining investor confidence. However, addressing the national debt remains paramount. Without a credible plan to rein in spending and reduce the debt burden, the dollar's long-term stability – and its status as the world's reserve currency – could be jeopardized.

The takeaway

The future of the U.S. dollar hinges on a complex interplay of factors, including the nation's soaring debt levels, the impact of trade policies, and the perceived independence of the Federal Reserve. Maintaining the dollar's status as the world's reserve currency will require a delicate balance between promoting economic growth and addressing the country's debt burden.