Adam Posen: "U.S. Shifts from Free Trade and Security 'Insurance' to 'Extortion'...Cracks in Dollar Trust" [2026 Financial Forum]

Adam Posen, President of the Peterson Institute for International Economics, Delivers Special Lecture
Fiscal Instability, Tariffs, and Transactional Alliances: Warning of Eroding Trust in the Dollar
Potential for Multipolarity as Dollar Hegemony

Warnings have emerged that the dollar-centric international financial order is showing signs of strain, as U.S. protectionism, fiscal instability, and political uncertainty continue to accumulate.

Adam Posen, President of the Peterson Institute for International Economics (PIIE), is giving a special lecture via Zoom connection at the "2026 Asia Financial Forum," hosted by The Asia Business Daily at the Chosun Hotel in Jung-gu, Seoul on May 21, 2026. Photo by Kim Hyunmin

Adam Posen, President of the Peterson Institute for International Economics (PIIE), assessed during a special lecture at the "2026 Asia Financial Forum" held at The Westin Chosun Seoul in Jung-gu, Seoul on May 21, under the theme "Future Financial Transformation: The Era of Productive Capital and the New Financial Order," that "While the dollar-centric order will be maintained for the time being, it is increasingly difficult to guarantee its absolute status as before." On this day, he gave a presentation titled "Can Dollar Hegemony Last? Korea's Strategic Choices Amid Global Currency Order Changes."

President Posen evaluated that the recent "King Dollar" phenomenon does not indicate a structural advantage for the dollar. He said, "There has been a short-term inflow into the dollar due to concerns related to Iran, but within the United States, factors undermining trust in the dollar are accumulating." He added, "America's fiscal situation and the upside risks to inflation could, in the medium to long term, lead to downward pressure on the dollar."

From Free Trade and Security Order to an Extortion Structure...Even Alliances Are Shaken

President Posen analyzed that the dollar system has now entered a phase of "hidden trend change." On the surface, the dollar remains strong due to the preference for safe assets, but beneath this, structural changes are underway that undermine confidence in the dollar system. In the past, the U.S. effectively provided "insurance service" to the global economy on the basis of free trade and a security umbrella. Now, however, he argued, the U.S. is increasingly operating in a manner closer to "extortion" across trade, security, and finance. He described these as "structural changes that damage the long-term appeal of dollar assets."

He identified changes in the U.S.-centered security alliance system as the background for these developments. President Posen explained, "The dollar is not just a currency—it is a system built on security relationships. As questions about the credibility of America's security commitments grow, the utility of the dollar is inevitably weakened."

He emphasized that this trend has accelerated as the U.S. has approached its alliances in a more transactional manner under the "America First" stance, which intensified following the launch of the Donald Trump administration. "Once tariffs are imposed, they are not easily withdrawn, making it difficult to return to the old free trade system," he said. "There is a high likelihood that demands for direct investment, weapons purchases, and energy purchases from allied nations will continue."

As a result, allies such as Korea, Japan, and Europe are increasing their defense spending, and some countries are working to expand alternative payment systems and currency swaps to reduce their reliance on U.S. financial sanctions.

U.S. fiscal and monetary policies were also cited as risk factors. President Posen projected that tariffs, anti-immigration policies, increased defense spending, and expansionary fiscal policy could keep U.S. inflationary pressures elevated for longer than expected. In addition, expanded industrial policy, increased investment in artificial intelligence (AI), and heightened geopolitical risks are pushing up the level of the neutral interest rate itself. He pointed out, "Although the Federal Reserve currently judges its monetary policy to be sufficiently tight, actual financial conditions may be looser than expected."

Adam Posen, President of the Peterson Institute for International Economics (PIIE), is giving a special lecture via Zoom connection at the "2026 Asia Financial Forum" hosted by The Asia Business Daily, held on May 21 at the Chosun Hotel in Jung-gu, Seoul. 2026.5.21 Photo by Hyunmin Kim

Dollar Hegemony Weakening and the Prospect of Multipolarity..."Korea's Role Grows, But Limits to Won Internationalization"

However, President Posen said there is little chance that a currency will immediately emerge to replace the dollar. While the euro and the yuan may slightly expand their roles, he explained that the dollar-centric system is more likely to weaken gradually and move toward a multipolar system rather than collapse abruptly. He noted, "The expansion of political uncertainty in the United States, strengthened cooperation among China, Korea, Japan, and ASEAN (Association of Southeast Asian Nations), and increased issuance of joint European bonds could all serve as triggers for weaker dollar demand."

President Posen also suggested that Korea's strategic role could expand as dollar hegemony weakens. "Many nations will seek supply chains that are neither U.S.- nor China-centered," he said, "and Korea can occupy a more important position in the semiconductor, defense, and advanced manufacturing sectors." He continued, "Korea has far more choices and influence than anticipated and may secure new opportunities in regions such as Southeast Asia and the Middle East."

Regarding the internationalization of the won, President Posen identified practical limitations. "Korea has very sophisticated investors and companies, but its financial services industry has yet to reach the level of global financial hubs like Singapore, London, and New York," he said. "Moreover, since Korea has maintained a fiscal surplus for a long time, the size and depth of its won-denominated government bond market are also limited." He further pointed out, "The U.S. government, especially the Trump administration, may not be favorable to the internationalization of the won."

However, he added, "Even if the won does not reach the level of replacing the dollar or the euro, it could play a meaningful role as an international currency in specific sectors and regions, similar to the Singapore dollar or the Norwegian krone."

This content was produced with the assistance of AI translation services.