The Dollar's Unshakable Foothold: How Game Theory Explains the US Currency's Global Dominance

In a world of geopolitical turbulence and shifting economic alliances, US Treasury Secretary Scott Bessent has turned to game theory to defend the dollar’s preeminence. His recent remarks frame the greenback not merely as a currency but as a “Schelling point”—a concept borrowed from Nobel laureate Thomas Schelling—that global investors, governments, and markets inevitably converge upon. This strategic narrative seeks to quell doubts about the dollar’s staying power amid recent volatility, while justifying aggressive trade policies as tools to reinforce American financial primacy.

The Schelling Point: Why the Dollar Defies Gravity

At the heart of Bessent’s argument is the idea that the dollar is the world’s most stable focal point in a complex, uncoordinated system. A Schelling point, in game theory, is a solution that emerges naturally when parties lack communication—think of a default meeting spot in a city. Bessent asserts that the dollar’s status as the global reserve currency, combined with the depth of US financial markets and its rule-of-law framework, makes it the “anti-fragile” center of global finance.

This position, Bessent claims, is self-reinforcing. Even when the dollar weakens temporarily—such as its recent 2% dip against the Taiwanese dollar, the largest since the 1980s—the currency’s role as a safe haven and trading staple ensures long-term resilience.

Tariffs as Strategic Leverage: The Game of “Strategic Uncertainty”

Bessent’s defense of President Trump’s tariffs hinges on another game theory concept: “strategic uncertainty.” By deliberately withholding information about future policy (e.g., threatening further tariff hikes), the administration creates a power imbalance in negotiations. Trading partners, Bessent argues, must now align with US demands to avoid the risk of punitive measures.

This “carrot-and-stick” approach—tariffs as the stick, US market access as the carrot—has been deployed against China, with tariffs on $360 billion of Chinese goods since 2018.

Critics argue this risks alienating allies, but Bessent insists it’s a calculated play to reset trade dynamics. “Strategic uncertainty is not a flaw—it’s the mechanism,” he stated, emphasizing that rivals like China have no equivalent leverage over US capital flows.

Countering the Critics: Miran’s Caution vs. Bessent’s Boldness

Bessent’s optimism contrasts with earlier warnings from White House economist Stephen Miran, who feared that the dollar’s strength could exacerbate trade deficits. Miran’s concern stemmed from the “inelastic demand” for dollar assets: as foreign investors buy Treasuries and equities, the dollar strengthens, making US exports costlier.

Yet Bessent now frames this as an advantage. He argues that the Republican tax cuts and deregulation have transformed the US into an “engine” of economic growth, attracting capital even as the dollar rises. “The market’s confidence in the dollar isn’t a liability—it’s proof of our system’s strength,” he said.

Geopolitical Chess: Why the Dollar’s Foothold Matters

Bessent’s vision extends beyond economics to geopolitics. A Schelling-point dollar, he argues, acts as a geopolitical anchor—a currency so deeply embedded in global systems that rivals cannot dislodge it. This is critical as China seeks to internationalize the yuan and Europe debates the euro’s role.

Recent data underscores his case. Despite a triple-selloff in Treasuries, the dollar, and stocks in early 2023, the dollar’s reserve share held steady. Meanwhile, US bond yields—key to attracting capital—remain higher than those of most developed nations.

Conclusion: The Dollar’s Game-Theory Edge

Bessent’s game-theory framework offers a compelling defense of the dollar’s dominance, backed by both fundamentals and strategy. The currency’s 60% share of global reserves, its unmatched market liquidity, and the US’s legal stability create a self-reinforcing “Schelling point” that even geopolitical rivals cannot easily challenge.

While tariffs may strain trade ties, they also serve as a tool to maintain US leverage—a calculated risk Bessent deems worth taking. The data supports this: despite recent dips, the dollar’s resilience in volatile periods (e.g., its 5% rebound against the yen in 2023) aligns with Bessent’s narrative of anti-fragility.

Investors, however, must weigh this against risks. If geopolitical tensions escalate or if alternatives like digital currencies erode trust, the dollar’s Schelling-point status could fray. Yet for now, Bessent’s analysis holds: the dollar remains the game’s most secure bet.