Document Type

Book Chapter

Publication Date

6-2025

Abstract

The second Trump administration’s approach to financial markets and institutions mixes familiar deregulatory policies with a range of other policies (financial and non-financial) that are largely without precedent and may lead to significant structural change in the long term. Combined, these policies have the potential to affect the financial sector in at least four ways. First, they could threaten the foundations of the global dollar system – mutual cooperation, trust, and interdependency, both between the producers and consumers of financial instruments and among the nations that constitute the dollar bloc. Second, they may undermine financial stability by loosening prudential standards, especially with respect to limits on leverage. Third, they can jeopardise consumer and investor confidence by relaxing regulatory standards and lessening financial law enforcement. Fourth, they could frustrate the financial crimes and sanctions regime, notably by promoting stablecoins, which can be used beyond the reach of governments to enable various forms of illicit activity.

These effects, in turn, could have a negative impact on the economy in the medium to long term. They raise the risk of financial instability and a messy deleveraging. They also may put upward pressure on interest rates for public and private dollar-denominated debt. Although the global dollar system has proven robust to past disruptions, and remains well entrenched, the administration’s new stance, if pursued to its logical end, could increase financial fragility and impair capital formation. If that comes to pass, a future exogenous shock to the economic or financial system would pose significant risk to economic growth if policymakers are unable, in the face of such a shock, to come together swiftly to avert a disorderly monetary contraction.

Disciplines

Banking and Finance Law | Consumer Protection Law | Law | President/Executive Department

Download

Share

COinS