After global ministers of finance and central bankers met for the World Bank/IMF Spring Meetings in Washington at the end of April, the buzz is the future of the international monetary system anchored on the dollar. US Treasury Secretary Scott Bessent’s address to the Spring Meetings reaffirmed that “the purpose of the IMF and the World Bank was to better align national interests with international order, thereby bringing stability to an unstable world. In short, their purpose was to restore and preserve balance. This remains the purpose of the Bretton Woods institutions. Yet everywhere we look across the international economic system today, we see imbalance.” Bessent complained how the US “face(s) the stark reality of large and persistent U.S. deficits as a result of an unfair trading system.

Intentional policy choices by other countries have hollowed out America’s manufacturing sector and undermined our critical supply chains, putting our national and economic security at risk. The persistent over-reliance on the United States for demand is resulting in an ever more unbalanced global economy.” As the former George Soros fund manager and now Treasury Secretary put it, “We’re going to monetize the asset side of the U.S. balance sheet for the American people”. These may include creating a sovereign wealth fund, using digital assets, allowing oil shale assets to be exploited and perhaps even revaluing gold reserves. What does the US balance sheet look like?

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According to the Federal Reserve Board’s flow of funds and national balance sheet accounts, US households’ net worth was $169.4 trillion at end 2024, with Federal government net liability of $24.6 trillion and net liability to foreigners of $24.7 trillion. In short, American households have grown rich on the back of rising financial and real estate values, which rose by $43.2 trillion and $21.3 trillion respectively since end-2017. Foreigners’ net holdings of American assets have also increased by $17.4 trillion, reflecting their liking of US debt and equity due to high returns. On the other hand, the US Federal net debt rose by $11.7 trillion since 2017, reflecting the need to borrow to cover fiscal deficits. As Bessent acknowledged, “in the United States, we know we need to get our fiscal house in order.”

The stark reality of the global balance sheet is that the deficit of one country is matched by the surplus of others. According to the Brookings Net National Wealth database at the end of 2023, the US net liability to the rest of the world was $19.9 trillion. The surplus economies can be grouped into five categories – Oil and gas producers (Norway, Russia, Saudi, Qatar, UAE, Kuwait and Iran) $5.4 trillion; Greater China (Mainland, HKSAR and Macao) $4.8 trillion; East Asians (Taiwan Korea and Singapore) $3.4 trillion; Japan $3.3 trillion; and Eurozone + Switzerland and Sweden, $1.5 trillion. Germany, which has a large surplus position of $3.3 trillion, is a member of the Eurozone, which had a net surplus of only $0.4 trillion, due to large deficits in many Eurozone economies.

These five groups basically accounted for $18.4 trillion net foreign surplus, which explained 92.5 per cent of the US net liability of $19.9 trillion. In effect, if America wants to reduce her net foreign liability, she must induce the surplus economies to agree voluntarily or otherwise to reduce their current account surpluses through either exchange rate revaluation, or cutting their savings rate through fiscal expansion or voluntary export restraints as happened during the 1985 and 1987 Plaza and Louvre Accords. Many pundits doubt whether the Trump Administration will be able to convene an equivalent Mar a Lago Accord meeting to get agreement on reducing America’s unsustainable trade and fiscal deficits including debt burden. In conventional banking, it is the borrower who often does the re-balancing, not the creditors.

The inconvenient truth is that the US dollar has a winner’s curse, since the more the rest of the world uses the dollar as reserve currency, the larger the capital inflows into dollar assets and corresponding fiscal and trade deficits. As the dollar strengthened, US holdings for foreign assets depreciated in dollar terms, whereas the US cannot devalue away its liabilities, which are mostly denominated in dollars. On the flip side, asking surplus countries like Japan, oil producers and East Asian exporters to revalue against the dollar would cause them to suffer large foreign exchange losses. Moving the Yen from 160 to current levels of 140 or lower against the dollar would impose foreign exchange losses on Japanese holdings of US assets of approximately $2.6 trillion as at end June 2024 or roughly 12.5 per cent or $323.8 billion. That is a serious loss equivalent to 7.7 per cent of Japanese 2024 GDP.

In 2009, then US Secretary of State Hilary Clinton famously asked in US dealings with China, “How do you deal toughly with your banker’’? Bessent may think that since the US provides the security umbrella for her allies, they could be pressured to coughing up more. But US rivals will certainly not agree and try to reduce their dollar exposures. To sum up, the current international monetary system is in a dollarcentered trap. The IMF and World Bank cannot be tough on their nonUS shareholders who control the majority of their voting power. Bessent’s call to the IMF and World Bank to be tough on the majority shareholders who are surplus economies is just as unlikely as they can be tough on the USA, which is their founder and controls the veto vote of 16.49 per cent. The old golden rule is that he who has the gold rules.

The US has only 8133.5 tonnes or 22.4 per cent of total official gold reserves of 36,223.9 tonnes as of February 2025, but she owes a growing and alarming net debt to the rest of the world. How to square this winner’s curse will be a financial engineer’s dream. More financial engineering cannot paper over what applied engineers see very clearly: 4.22 per cent of the world’s population cannot dictate to the rest of the world and solve its debts in a democratic rule-of-law manner. There will be pain, either shared by all voluntarily through peaceful negotiation or imposed on all through force. Take your pick.

(The writer is a former Central banker. The views expressed are personal.)