Lagarde asks the world to come check out the euro…

The 4:15 pm EDT fix …

As Memorial Day winds down in the United States, the EUR/USD is priced at 1.1382 and the USD/JPY is priced at 142.75. These prices indicate some weakening of the U.S. dollar since 10:17 pm EDT on 22 May when the EUR/USD was sitting at 1.1305 and the USD/JPY was priced at 143.78.

A report from Reuters attributes the dollar weakening in part to U.S. President Donald Trump backing down from his threat to impose 50% duties on goods from the European Union. Proposed increases in government spending combined with proposed reductions in taxes has reportedly soured investors on U.S. assets.

Lagarde on hard power and rule of law …

In a speech delivered in Berlin, Christine Lagarde, president of the European Central Bank, commented that the currency global order was fracturing.

“Multilateral cooperation is being replaced by zero-sum thinking and bilateral power plays. Openness is giving way to protectionism. There is even uncertainty about the cornerstone of the system: the dominant role of the US dollar”, said Mrs. Lagarde.

Mrs. Lagarde added that, “Any change in the international order that leads to lower world trade or fragmentation into economic blocs will be detrimental to our economy. But – with the right policy responses – there could also be opportunities. The changing landscape could open the door for the euro to play a greater international role.”

I haven’t visited the gold bugs today over on YouTube, but I am sure they are ecstatic that Mrs. Lagarde has hinted at gold’s increasing prominence and mention that gold makes up 20% of foreign reserves. They may take issue with Mrs. Lagarde’s reference to a digital euro where she argues that such a currency would make Europe increasingly attractive for global trade along with enhancing cross-border payment schemes.

Mrs. Lagarde points out that investors prefer trade zones that can exercise hard power. Translate into military power. For the euro to be more widely used, investments, according to Mrs. Lagarde, will have to be made in hard power, both on the national and EU level.

Mrs. Lagarde then closed out her speech by putting on her lawyer hat and discussed the role of the rule of law. As an example, she briefly discussed how America’s legal foundations, i.e., a Federal Reserve System that combats inflation and a U.S. Treasury that channels liquidity via the bond markets, help create investor confidence.

My takeaway is that Mrs. Lagarde’s speech gives some insights into how a banking system leads the global economy. I have abandoned the notion that governments lead. Rather, governments deploy via narrative the rationale for circulating capital and extracting yield. Government institutions are the outgrowth of a banking system principle based on energy circulation and extraction.

The banking system, within which I include traders, exchanges and brokerages, employs government institutions to ensure and protect the flow of capital, the collateralization of physical, financial, and human resources, and manage a narrative that encourages the spending and savings behavior of consumers. The rule of law and hard power concepts are about trader and investor protection.

The ongoing question for the banking system is how best it minimizes hacks to the system that would reduce its ability to circulate liquidity as a result of an imbalance that favors consumers?

Alton Drew

26 May 2025

DISCLAIMER: I am not a financial adviser. These blog posts are for educational purposes only. Trading of any kind involves risk. Your trading decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary.

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