CBDC Versus Stablecoin: Collaboration, Not Substitution, in the Future of Digital Money

Economic

Cryptocurrency

Summary:

As central banks accelerate the development of Central Bank Digital Currencies (CBDCs) and stablecoins continue to surge in market capitalization and liquidity, the digital monetary system is evolving toward a hybrid model where both forms coexist...

Digital currencies at a turning point in global finance

April 2025 marked a watershed moment in the digital currency landscape. On one side, central banks intensified their CBDC pilots and legal frameworks. On the other, stablecoins reached record highs in capitalization and utility. The CoinDesk Data report highlights this dual momentum, suggesting not a rivalry but a structural convergence—where CBDCs provide regulatory stability and stablecoins offer the market-driven adaptability essential for decentralized finance (DeFi).

At the heart of this transformation lies a deeper ideological divergence: CBDCs represent centralized, state-backed control of digital payments, while stablecoins reflect market innovation, speed, and global integration.

CBDCs: A government-led shift toward programmable money

Several countries advanced their CBDC agendas in April. Kyrgyzstan granted legal recognition to its digital som, while the UAE and Belarus announced formal issuance plans. South Korea launched a 100,000-person retail pilot of the digital won, allowing bank deposits to be converted into CBDC and used at 7-Eleven stores with a 10% discount—marking one of the most comprehensive consumer-facing CBDC experiments to date.

Unlike traditional currencies, CBDCs are designed to integrate into national payment infrastructures. Transactions occur through digital wallets authorized by the central bank, reducing intermediation costs and enabling real-time, targeted monetary policy interventions—such as direct fiscal stimulus distribution.

However, this model is not without systemic risks. A significant shift of deposits from commercial banks into CBDCs could trigger liquidity imbalances, weakening the role of traditional banks. Furthermore, cross-border utility remains limited; no CBDC to date offers competitive international settlement capabilities compared to the fluidity of stablecoins. The absence of published CBDC supply ratios indicates that most programs remain experimental and have not yet reshaped macro-financial architecture.

Stablecoins: Market dynamism, DeFi integration, and global reach

In contrast, stablecoins continue to dominate liquidity on centralized exchanges and increasingly infiltrate decentralized platforms. According to CoinDesk, stablecoins reached a market cap of $238 billion in April, extending a 19-month growth streak. While their share of the total crypto market fell from 8.64% to 7.88%—due to Bitcoin’s surge from $74,496 to $95,000—stablecoin trading volume soared to $1.32 trillion.

Tether (USDT) led with 75.2% market share, followed by USDC at 18.0%. USDC reached $62.1 billion in capitalization and captured 26% of trading activity—the highest since February 2023. Even non-USD stablecoins like EURC surged 54.1% to $231 million as the USD/EUR rate dropped to 0.87 amid U.S.–EU tariff tensions.

Institutional-grade stablecoins linked to traditional assets are also gaining traction. BlackRock’s BUIDL, pegged to short-term bond funds, expanded 32.5% in April to $2.54 billion. Conversely, First Digital USD (FDUSD) lost its dollar peg, slipping to $0.86 and losing 46.2% of its value—demonstrating the critical role of asset transparency and redemption mechanisms.

Parallel systems, distinct strengths

The CBDC-stablecoin divide is less about competition and more about differentiated functionality. CBDCs offer a policy lever for governments—supporting domestic stability, social transfers, and national financial sovereignty. Stablecoins, meanwhile, serve as agile instruments for cross-border transactions, non-bank financial services, and DeFi participation.

Circle’s April 1 IPO filing, under ticker CRCL, reflects this shift. With $1.68 billion in reserve income in 2024—up from $1.45 billion in 2023—and partnerships with Deutsche Bank, Santander, and Standard Chartered, Circle is building infrastructure for interbank payments using USDC. CBDCs, in contrast, have yet to demonstrate interoperability with smart contracts or DeFi protocols.

Each model still faces limitations. CBDCs remain bounded by national legal frameworks and lack DeFi compatibility. Stablecoins, while more flexible, are exposed to peg instability, regulatory scrutiny, and divergent collateralization standards. As these ecosystems mature, technological convergence may blur these distinctions—but regulatory alignment and governance remain key variables.

Toward a hybrid digital monetary architecture

Rather than replacing one another, CBDCs and stablecoins are carving out symbiotic niches in an increasingly fragmented monetary landscape. The future will likely involve functional coordination: CBDCs ensuring domestic monetary control and policy precision, stablecoins facilitating global liquidity flows, financial inclusion, and decentralized innovation.

In this post-globalization era—marked by geopolitical tension, de-dollarization debates, and digital acceleration—a hybrid architecture combining state-backed trust and market-based innovation is not just possible but necessary. The coexistence of CBDCs and stablecoins represents not a struggle for dominance, but a reflection of the multifaceted demands of a complex, digitally-driven global economy.

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Gerik

Economic

Forex

A historic intervention to uphold a decades-old commitment

On May 3, 2025, the Hong Kong Monetary Authority (HKMA) made its largest foreign exchange market intervention on record, purchasing $6 billion USD in a single day. This action was aimed at preserving the integrity of Hong Kong’s currency peg to the U.S. dollar, a mechanism that has anchored financial stability in the city since 1983.

The HKMA confirmed the move through its New York representative office, stating that this marked its first intervention since 2020. The catalyst was the strengthening of the Hong Kong dollar, which approached the upper limit of its fixed trading band at 7.75–7.85 HKD/USD, compelling the authority to step in to prevent further appreciation.

This surge in the local currency’s value was primarily triggered by the recent depreciation of the U.S. dollar and a broader wave of regional currency volatility, as Asian central banks struggle to manage external shocks and shifting trade dynamics.

USD weakness and geopolitical signals reshape currency dynamics

The April 2025 drop in the U.S. dollar—its worst monthly performance since 2022—was driven by a confluence of factors. Chief among them was investor unease surrounding President Donald Trump's aggressive trade policies, particularly the “Liberation Day” tariff regime launched earlier in the year. These moves destabilized global trade expectations and eroded the U.S. dollar’s traditional role as a financial safe haven.

The Bloomberg Dollar Spot Index, which tracks the greenback against a basket of major currencies, fell 6.5% from the start of the year, indicating a broad loss in relative strength. This depreciation created upward pressure on regional currencies, including the Hong Kong dollar and Taiwan’s new dollar (TWD), prompting both jurisdictions to intervene to avoid destabilizing capital inflows and preserve export competitiveness.

Taiwan, for instance, was forced to intervene on April 25 after the TWD jumped 3% against the USD in a single day—its steepest appreciation since 1988. Such movements underscore the contagious nature of currency shocks in an increasingly fragile global macroeconomic environment.

Peg mechanism under pressure, but remains intact

Hong Kong’s linked exchange rate system was originally introduced during the 1980s to restore market confidence during the uncertain period surrounding the negotiations between the UK and China over the city’s sovereignty. Since then, the HKMA has been tasked with maintaining the currency within a fixed band by automatically buying or selling USD.

This system was slightly liberalized in 2005 to allow trading within a defined range of 7.75–7.85. While the peg has weathered repeated speculative attacks over the years, it has remained intact—thanks largely to HKMA’s deep reserves and policy consistency. Renowned hedge fund managers like Kyle Bass and Bill Ackman have previously bet on the peg’s collapse, but their predictions have yet to materialize.

The current intervention flips the trend seen in 2022–2023, when the HKMA sold USD to defend against a weakening local currency. Now, the pressure has reversed, with the USD’s decline drawing capital toward Hong Kong and necessitating large-scale USD purchases to maintain parity.

Strategic motives and long-term implications

The broader context behind this surge in interventions is not limited to currency management. It also reflects Hong Kong's strategic positioning as a financial hub amid shifting global power dynamics. With signs of renewed U.S.–China trade negotiations emerging, local currency strength may mirror market optimism for de-escalation—but it also amplifies risks for export-driven economies if left unchecked.

By stepping in aggressively, the HKMA reinforces its credibility and signals resilience, especially at a time when doubts are resurfacing about the long-term viability of pegged regimes in a world of floating currencies and fragmented trade.

Moreover, investor sentiment has clearly shifted. In recent months, gold has surged to record highs in Hong Kong as residents seek inflation hedges. Meanwhile, talk of legalizing sports betting with expected revenues of $6.7 billion reflects Hong Kong's broader efforts to diversify fiscal revenue sources amid global economic turbulence.

Stability through decisive action

Hong Kong’s $6 billion USD intervention serves as a stark reminder that currency pegs, while rigid, remain powerful tools for financial stability—especially when defended with conviction and liquidity. While global trade disruptions, declining faith in the U.S. dollar, and rising geopolitical tensions have stirred volatility, Hong Kong's rapid and large-scale response underscores its determination to remain a stable outpost in a shifting economic landscape.

Whether future interventions will be required depends on the trajectory of U.S. monetary policy, the durability of global risk sentiment, and the resilience of Hong Kong’s economic fundamentals. For now, the peg holds firm—but the cost of defending it has never been higher.

Source: Financial Times

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China–U.S. Trade War

Policy change reshapes consumer behavior

On May 2, 2025, the U.S. government officially eliminated tax exemptions on imported goods valued under $800 from China—a decision that has quickly reshaped American consumer habits. Previously, online shoppers could take advantage of this loophole to receive small parcels duty-free, but now face import tariffs as high as 120% of the item’s value, with each package potentially incurring a $100 fee. This abrupt cost spike has sparked a wave of unconventional responses.

Instead of abandoning access to affordable goods, a growing number of American consumers—ranging from middle-class shoppers to small business owners—are turning to a novel alternative: traveling directly to China. The phenomenon has gained momentum on social media platforms under the trending term "China Shopping", as individuals seek to bypass heavy taxes by sourcing products firsthand.

Economic logic behind a cross-border shopping spree

At first glance, international airfare might seem prohibitive. However, the price differential between Chinese and American retail markets has reached a point where the savings can not only offset travel costs, but even make the journey profitable. For example, according to Sina Finance, prices at major Chinese supermarkets are estimated to be 30–40% lower than in the U.S. A Huawei Mate60 phone retails for around $600 in China—half the price in the U.S.—and locally produced cosmetics often sell for just one-third of their American counterparts.

The economic rationale becomes even more compelling when considering favorable visa policies. U.S. citizens benefit from China’s 240-hour visa-free transit policy, allowing up to 10 days of travel without a visa, and a 13% VAT refund at departure airports. These incentives reduce logistical friction, transforming what would be a niche workaround into a viable alternative for cost-conscious consumers and micro-entrepreneurs alike.

E-commerce disruption and the rise of alternative platforms

Prior to this travel boom, many Americans had turned to Chinese e-commerce platforms like DHgate, which surged in popularity as consumers sought affordable alternatives to domestic options. According to market trackers, DHgate briefly ranked among the most downloaded apps in the U.S., second only to ChatGPT. Its rise illustrates not just a search for cheaper goods, but a larger pattern of consumers circumventing traditional supply chains to access global pricing.

The new import duties, however, threaten the viability of such platforms by making small-scale shipping prohibitively expensive. As a result, physical travel—previously unthinkable for everyday shopping—is being reframed as a rational economic strategy. For some consumers, particularly influencers and livestreamers, the journey also doubles as content generation and audience engagement, blending commerce with entertainment.

Strategic trade motivations and unintended outcomes

From a policy standpoint, the U.S. administration’s move aims to rebalance the trade deficit with China and encourage domestic consumption. Yet the immediate effect has been paradoxical. Rather than redirect spending toward U.S. goods, the tax hike has motivated a segment of consumers to spend more abroad—and more creatively. This suggests a divergence between the intended economic effect of protectionist tariffs and the actual behavioral response of market-savvy consumers.

Chinese media has been quick to highlight this unintended outcome, portraying the trend as evidence of China’s manufacturing competitiveness and consumer appeal. Meanwhile, small businesses and informal resellers in the U.S. are embracing the travel-and-shop model as a new supply chain tactic—purchasing goods in person, claiming tax refunds, and reselling domestically with minimal overhead.

Policy, price, and the power of adaptation

The sharp rise in import taxes has not curtailed American demand for affordable Chinese products—it has simply rerouted it. With price gaps persisting across sectors, and with tools like visa waivers and tax refunds making travel more feasible, “China Shopping” is becoming more than just a trend. It reflects a larger dynamic: when trade barriers rise, adaptable consumers find new paths—sometimes literally across borders.

Whether this behavior will remain a niche workaround or grow into a mainstream solution depends on future policy shifts in both Washington and Beijing. But for now, it underscores the complexity of global trade, and the surprising lengths to which consumers will go to beat the system.

Source: The New York Times

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Gerik

Cryptocurrency

Rising prominence of digital assets on a global scale

The exponential rise of digital currencies—led by Bitcoin, which alone accounts for over 60% of the $3 trillion market capitalization as of May 1, 2025—has compelled governments worldwide to reassess their regulatory frameworks. With Bitcoin’s individual market cap equaling 6% of the U.S. GDP and over three times that of Vietnam’s 2024 GDP, the scale and influence of cryptocurrencies have clearly moved beyond speculative assets to systemic financial actors.

The penetration of crypto into everyday economic life is also reflected in user adoption. Vietnam ranks second globally in cryptocurrency ownership, with over 20% of its population holding crypto, trailing only the UAE’s 34.4%. These trends have forced governments to confront both the opportunities and systemic risks posed by these assets.

Divergent regulatory responses and strategic priorities

China’s prohibition-based model offers the clearest example of a zero-tolerance approach. Since 2013, the People's Bank of China has systematically restricted crypto-related activities, culminating in a total ban in 2021 on trading and mining. These moves reflect China’s prioritization of state-controlled financial instruments such as the central bank digital currency (CBDC), the digital yuan. Yet, China’s parallel investment in blockchain technologies shows it does not reject innovation entirely—only those innovations beyond state control.

Japan and the European Union, by contrast, represent structured regulatory models that embrace crypto within existing financial ecosystems. Japan has treated crypto as a legal asset since 2017, mandating strict KYC and AML requirements and offering investor protection through financial regulators like the FSA. The EU, through the MiCA regulation effective December 2024, has harmonized crypto oversight across member states. MiCA introduces strict registration and compliance standards, especially for stablecoins, and aligns digital assets with broader financial risk management frameworks.

These strategies reflect not just a parallel movement but a clear interdependence: as crypto gains prominence, jurisdictions with robust financial systems are increasingly compelled to integrate these assets rather than ignore or reject them.

Toward an innovation-friendly yet cautious approach

The United States illustrates a more fragmented yet evolving regulatory landscape. Various federal and state agencies currently oversee crypto through disparate frameworks. While the SEC historically viewed most crypto assets as securities and pursued enforcement-first strategies, 2025 has seen a softening of this stance. The establishment of a Crypto Task Force and reduced legal pressure on firms like Coinbase reflect a shift toward clarification over litigation.

Political support is also reshaping regulatory tone. Former President Donald Trump, having returned to the White House, has openly embraced the digital asset economy—proposing a Bitcoin reserve, easing restrictions on mining, and urging crypto integration into banking. His executive order in January 2025 signaled a national strategy to establish U.S. leadership in fintech and digital currency, moving the country closer to regulatory consolidation.

Singapore, the UK, and Dubai have positioned themselves as crypto-friendly hubs. Singapore’s Payment Services Act offers clear guidelines on digital tokens while embedding anti-money laundering standards. The UK aspires to be a global crypto and blockchain hub, focusing on investor protection and technological leadership. Meanwhile, Dubai’s dedicated regulatory authority has attracted a large number of crypto exchanges, making the emirate a prime location for crypto business expansion in the Middle East.

Regulatory alignment and future outlook

The regulatory adjustments seen globally point toward a converging realization: digital assets cannot remain in a legal gray zone. However, the methods differ significantly. Some countries use regulation to facilitate adoption within conventional finance, while others prioritize sovereign control or risk aversion.

What remains consistent is the causal relationship between rising crypto adoption and regulatory evolution. As digital currencies become more embedded in financial markets and consumer behavior, the regulatory focus is shifting from reactionary controls to proactive governance.

In essence, governments are not merely responding to crypto—they are recalibrating the architecture of financial regulation itself. This pivot underscores the shared need to protect consumers, mitigate systemic risks, and harness the potential of digital innovation in a controlled yet forward-thinking manner.

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Gerik

Economic

A historic moment during the annual shareholders’ meeting

The 2025 annual meeting of Berkshire Hathaway unexpectedly turned into a landmark event when Warren Buffett announced his intention to step down as CEO at the end of the year. After six decades of transforming Berkshire from a struggling textile business into a $1.2 trillion conglomerate, the legendary investor is preparing to hand over the reins.

Buffett made the announcement during an extended Q&A session on Sunday, stating that he had already proposed the transition to the board. Only his two children were informed prior to the public disclosure. While many had long speculated about succession, the actual timing caught shareholders off guard. As Jim Ross, a longtime investor from Omaha, expressed, “I didn’t think this moment would come so soon.”

A planned succession and early indicators of change

Greg Abel, who currently leads Berkshire’s energy division, is set to take over as CEO—pending board approval. While Buffett will retain involvement in certain capacities and has no intention of selling his Berkshire shares, his departure from the top executive role marks a symbolic turning point. Few leadership tenures in corporate America have matched Buffett’s in both longevity and cultural impact.

Hints of this transition had been present for some time. In his 2024 annual letter to shareholders, Buffett hinted that it wouldn’t be long before Abel began writing those letters in his place. He also referenced the physical limitations of old age, such as now relying on a cane—another quiet signal that the transition was approaching.

Market sentiment and investor reaction

While the news did not cause immediate market volatility, its emotional impact on shareholders and the broader investment community was significant. Buffett’s decision to announce the succession proactively helped reduce uncertainty and gave the market time to absorb and adapt to the change. Grant Macklem, a software engineer from Colorado, noted, “I always knew this time would come, just not this year. Still, it’s better that the announcement came from him directly.”

This year’s shareholder meeting also revealed subtle changes that reinforced the shifting landscape—such as a shorter Q&A session and the absence of the traditional opening video. These adjustments, while minor on the surface, contributed to the growing sense of transition and marked a departure from long-held traditions.

A legacy beyond business performance

Warren Buffett’s legacy extends far beyond his investing prowess. Thousands of attendees stood and applauded after his announcement, with many wearing shirts bearing his image. His approach to life and values has earned him admiration not only as an investor but also as a moral compass. “He’s not just an investor—he’s a way of life,” said Brazilian shareholder Polliana Elena Varnier.

Buffett’s closest business partner, Charlie Munger, passed away in 2023, marking the first significant leadership loss at Berkshire in decades. The absence of the Buffett–Munger duo—once synonymous with the company’s identity—further cements the significance of this transition. Bill Smead, CIO at Smead Capital, remarked, “Losing Charlie and the aging of Warren brings an era to an end.”

Despite the leadership change, shareholders expressed unwavering respect for Buffett’s lasting influence. His presence has symbolized consistency and trust, two qualities highly valued by institutional investors who have long associated Berkshire’s stability with Buffett’s leadership.

The next chapter for Berkshire Hathaway and Omaha

Buffett’s impact also resonates deeply with his hometown. Jim Ross noted how much Omaha has transformed since Buffett moved back from New York in the late 1950s, attributing part of that evolution to Buffett’s presence and civic contributions.

Though the official handover signals the end of a historic leadership era, it also opens the door to a new phase for Berkshire Hathaway. While leadership may evolve, the principles and culture that Buffett built are likely to endure. His legacy, built not only on financial success but also on ethical leadership and long-term vision, will remain a cornerstone for future generations of investors.

Source: CNBC

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Owen Li

Economic

It is difficult to determine the precise impact of tariffs on emerging market economic activity. There are too many moving parts, including the possibility of negotiated reductions, retaliatory actions by US trading partners and fluctuations in the currencies of affected economies.

That said, we can look at the current level of tariffs and exports to the US to give us an idea about the extent of EM gross domestic product that is at risk (see Figure 1). Economic theory suggests that tariffs should lead to weaker exports and reduce domestic inflation in the tradable goods sector.

First-order impact

Based on the level of tariffs as of 8 April, Asia will bear the brunt, with Latin America coming off better. Elsewhere, Central and Eastern Europe countries have limited trade with the US, so any direct impact will be relatively muted. Most Middle Eastern countries are only facing the baseline tariffs, while energy might be excluded. Africa is a mixed bag, with some markets at or close to the baseline and others more significant.

There is also a more indirect impact that will be felt by countries that are more trade-orientated and integrated in global supply chains. Tariffs will result in a drag to the overall trade cycle, reducing exports and growth. Asia will be in the firing line, given trade links with China, but also CEE and Türkiye given their links to the European Union.

Figure 1. Direct impact from tariffs on EM countries

Tariff rate and exports to the US

Emerging markets and tariffs: Asia will bear the brunt_1

Source: DataStream and White House. As at 7 April 2025.

THB = Thailand, MYR = Malaysia, DOP = Dominican Republic, HUF = Hungary, CLP = Chile, COP = Colombia, ILS = Israel, PHP = Philippines, NGN = Nigeria, CNY = China, ZAR = South Africa, INR = India, IDR = Indonesia, PLN = Poland, BRL = Brazil, SAR = Saudi Arabia, RON = Romania, TRY = Türkiye.

Secondary effects

Secondary effects are likely to dominate EMs through the following channels.

Slower US growth is expected, but there is a possible upside from China stimulus. Higher US import prices will negatively impact domestic consumers, while the uncertainty around tariffs might cause businesses to postpone investment and hiring. Slower US/global growth (and potentially a recession) has the potential to impact EM countries through weaker demand for exports, lower tourism and remittances. That said, a significant stimulus package from China, if it materialises, could offset some of the weakness in US growth.

Oil prices have dropped, which will affect EM countries differently. Saudi Arabia is the most exposed among Gulf Cooperation Council economies, while the United Arab Emirates remains the most diversiﬁed. Meanwhile, lower oil prices will be a significant positive for the big energy importers like India and Türkiye, where the benefits could outweigh the negative impact of slower US growth.

Lower EM inflation looks likely. Unlike the US, which is facing higher inflation risks, tariffs might heighten deflationary pressure in China, which may then spill over to other EMs. With Chinese exporters increasingly excluded from the US market, Chinese goods might be redirected to other countries, thereby lowering prices in those economies. Weaker global growth and lower commodity prices may also lead to lower EM inflation.

Market sentiment is currently weak, but core EM should be resilient. The last few years have seen a bifurcated EM universe emerge, consisting of higher-rated core EM countries and lower-rated frontier economies. Lower-rated economies may struggle with a prolonged downturn in market sentiment, with some of them only regaining access to international markets fairly recently. The more developed core countries, meanwhile, have altered their borrowing characteristics to become less reliant on short-term foreign borrowing than in the past. Many of these countries have strong enough external balance sheets and access to capital to withstand any volatility.

With tariffs specifically, markets will also be determining which EMs have a higher share of household consumption in their GDP and a higher share of services in their export basket, as well as those that have the fiscal and monetary headroom to support their economies if needed.

Investing in this environment

EM credit: EMs with lower external vulnerabilities and smaller internal imbalances offer greater market resilience and more flexibility for policy-makers to address external risks. That said, spreads are generally fairly tight in these higher-rated economies. Currently, we see opportunities in certain Latin American corporates, where companies are expected to have a competitive advantage due to the relatively lower tariffs imposed. Additionally, the companies and sectors we favour are generally not overly dependent on the US.

Exchange rates: In theory, the dollar should be stronger because there is greater demand for US dollars and lower demand for foreign currencies. But longer term, tariffs may reduce US growth, leading to lower real rates, which both tend to weaken the dollar. Current dollar weakness most likely reflects the lack of clarity on tariffs and their impact on US growth.

As well as any impact from the dollar, EM currencies could be more directly impacted through the trade channel and growth concerns/market sentiment. Regionally, EM Asian currencies might weaken the most, especially if this supports exports in the face of tariffs. CEE could fare better given their higher correlation to the euro, while Latin American currencies could outperform given the region’s relatively better outcome.

EM local currency debt: During the pandemic, many major EM central banks allowed weaker currencies and cut interest rates to support growth. We could see a similar approach now, especially given current levels of real rates, inflation dynamics, lower commodity prices and the softening dollar. More developed EM countries might focus more on their domestic mandates, relying less on guidance from the Federal Reserve.

We anticipate the most policy easing in Asia, where inflation is at or below target levels and real interest rates remain in restrictive territory. There are several opportunities in Asian duration, particularly in Indonesia, which offers high real rates and stable low inflation. India’s large deficits are mitigated by local funding and a multi-year tightening trend, making it an attractive option for longer-duration investments.

We also see duration opportunities in Latin American countries. Mexico and Brazil are particularly noteworthy, both offering relatively high yields. Mexico is experiencing a slowdown in inflation and economic activity, combined with a relatively stable currency, which should pave the way for further rate cuts. Brazil has historically been less affected by tariff-induced volatility due to its relatively closed economy, and aggressive rate hikes have helped stabilise its macroeconomic environment.

Overall, the high carry of select EM positions should provide a sufficient income cushion against any meaningful slowdown in global growth.

Source:Kirstie Spence

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Damon

Economic

Laughter over tariffs set by US President Donald Trump on imports from various countries quickly turned to chills as stock markets plummeted. Then, once plans were paused after tanking financial markets, we all laughed again.

Yet somehow, in the glee over Trump’s apparent defeat, we failed to notice that we’ve accepted as a baseline for negotiations tariffs on our US exports that are roughly five times higher than those applied to the European Union and UK until April 2025.

Financial markets and fairness

The administration’s stance on international trade has long been driven by the belief that the US trade deficit results from unfair trade relationships. In order to curb a significant weakening of the US position in its critical rivalry with China, this leads to three core approaches to US import tariffs.

First, for Trump’s team, global trade isn’t governed by principles of fair, equal competition. The only way to measure this unfair competition is the outcome itself: the US trade deficit. The formula for calculating new ‘reciprocal’ tariffs doesn’t focus on tariffs for specific goods but on the overall trade balance between the US and its partners.

Second, US import tariffs have two main goals: weakening China in global competition and generating federal revenue to enable the elimination or significant reduction of corporate and individual income taxes, even capital gains taxes. Tariffs, therefore, cannot remain at current levels – they must increase.

Third, they were prepared for – and expected – radical changes to the US tax system and new tariffs to cause disruption and potential financial market shocks before delivering a manufacturing revival. Only the threat of collapsing government bond prices, signalling broader financial market trouble, might have prompted some reflection.

It’s also worth noting that Trump’s team often speaks of other measures beyond tariffs, such as taxes on incoming capital to reduce its attractiveness to the US. Less frequently, but still notably, they mention the possibility of restructuring US debt, likely targeting debt held by foreign owners.

In outlining the Trumpian worldview, it’s only fair to add a few factual notes. The loss of manufacturing jobs in the US stopped long ago. US manufacturing actually added jobs compared with the situation more than 10 years ago. Average wages in manufacturing have grown steadily at over 3% annually, with hourly wages now exceeding $35. The median real income has risen by about 23% since its 2012 low. That’s roughly 1% per year, not spectacular but hardly a collapse into poverty. As for growing inequality, data suggest it has largely stabilised for over a decade.

Europe’s role in America’s worldview

In discussions about Europe’s part to play for the US, their perspective and goals can’t be ignored. This defines the potential compromise the EU could achieve – ideally to our benefit – on tariffs and industrial policy.

Any compromise must include easing our non-tariff barriers. Changes to the General Data Protection Regulation framework, under discussion in the European Parliament in March 2025 – with talk of possibly abandoning it – could be a promising start.

Another demand from Trump’s negotiators will surely be limiting EU trade with China. It’s hard to imagine the US tolerating the EU becoming a ‘backdoor’ for Chinese subcomponents entering the US market via European products.

Similarly, zero tariffs for European goods seem highly unrealistic. Tariffs are meant to generate revenue and the EU – ignoring US objections to value-added tax – is too significant an importer to the US market to be exempt from ‘contributing to the federal coffers’. Nor does the UK’s position seem dramatically different.

This doesn’t mean the EU must agree or lacks alternatives. Closer co-operation with China is one option but, as a citizen of one of the EU’s ‘new economies’ I believe such co-operation today is likely to require compromise with China’s eastern ally, Russia. I struggle to see how that would benefit central and eastern Europe or the Balkans – former satellites of an ally that openly dreams of our return to that status.

Tariffs as compensation for tax cuts

This brings us to Trump’s other economic goals: a not-too-strong dollar and lower interest rates. Achieving higher tariffs, lower rates and a stable currency without raising prices is simply impossible in today’s US economy.

The US federal budget expects revenues of around $5.5tn this fiscal year. Individual income taxes account for roughly $2.6tn, corporate taxes $4.7bn and capital gains taxes about $3bn. US imports in 2024 totalled around $3.5tn, with goods making up $2.8tn and services the rest. Imports from China were under half a trillion. At best, they might offset reductions in capital gains or corporate taxes. Meanwhile, the federal deficit, projected at $1.9tn, is likely to exceed that based on first-half trends.

This matters because new tariffs will inevitably raise the price of goods US voters consume. The announced tariffs will hit not only cheap Chinese goods but even cheaper products from other Asian manufacturers – think $5 t-shirts and socks – that US workers can hardly produce.

We must remind ourselves that voter dissatisfaction with rising prices partly swung the 2024 election against Democrats. Meanwhile, in 1981, when another Republican president, Ronald Reagan, arrived in office, he was mocked by media as a ‘second-rate actor’ with no intelligence. Today, he is regarded as one of America’s most successful presidents. That doesn’t mean he didn’t face fierce criticism for radically changing US policy but there’s a key difference.

Reagan welcomed capital inflows and opened the economy to foreign competition, driven by optimistic faith in deregulated US businesses succeeding globally. Unlike Trump, he didn’t shy from military confrontations with the US’s main global rival at the time. The differences – perhaps shaped by today’s reality with China – are clear. The Trump administration’s economic philosophy carries far more pessimism about America’s global role than Reagan’s did.

The mid-term elections could split Congress between Democrats and Republicans, ending the Trump administration’s ability to push through major changes. This may delay the implementation of decisions, but the administration wants them not just drafted but approved.

Source:Miroslav Singer

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CBDC Versus Stablecoin: Collaboration, Not Substitution, in the Future of Digital Money

Digital currencies at a turning point in global finance

CBDCs: A government-led shift toward programmable money

Stablecoins: Market dynamism, DeFi integration, and global reach

Parallel systems, distinct strengths

Toward a hybrid digital monetary architecture

Hong Kong's Record USD Purchase Signals Renewed Defense of Currency Peg Amid Global Instability

A historic intervention to uphold a decades-old commitment

USD weakness and geopolitical signals reshape currency dynamics

Peg mechanism under pressure, but remains intact

Strategic motives and long-term implications

Stability through decisive action

Source: Financial Times

Soaring Import Tariffs Spark a Surprising Trend: Americans Fly to China for Bargain Shopping

Policy change reshapes consumer behavior

Economic logic behind a cross-border shopping spree

E-commerce disruption and the rise of alternative platforms

Strategic trade motivations and unintended outcomes

Policy, price, and the power of adaptation

Source: The New York Times

A Global Shift Toward Regulatory Maturity in Cryptocurrency Governance

Rising prominence of digital assets on a global scale

Divergent regulatory responses and strategic priorities

Toward an innovation-friendly yet cautious approach

Regulatory alignment and future outlook

A Defining End to an Era: Warren Buffett Prepares to Step Down After 60 Years at Berkshire Hathaway

A historic moment during the annual shareholders’ meeting

A planned succession and early indicators of change

Market sentiment and investor reaction

A legacy beyond business performance

The next chapter for Berkshire Hathaway and Omaha

Source: CNBC

Emerging markets and tariffs: Asia will bear the brunt

First-order impact

Figure 1. Direct impact from tariffs on EM countries

Source: DataStream and White House. As at 7 April 2025.

Secondary effects

Investing in this environment

Source:Kirstie Spence

EU’s ‘new economies’ mustn’t be strongarmed by tariffs

Financial markets and fairness

Europe’s role in America’s worldview

Tariffs as compensation for tax cuts

Source:Miroslav Singer

Risk Disclosure