01

A Lament for Gold and Rust:
The Fall of the Empire's Currency

Beneath the palatial dome of the Roman Senate, 265 AD, Chief Mint Officer Antonius trembled as he held up a denarius silver coin. 

Sunlight filtered through the mottled stained glass, refracting eerie light spots onto the remaining silver coating on the coin's surface - this coin, which was supposed to contain 95% silver, now had its inner core corroded by bronze and turned into a hollow shell. 

Outside, the grain ships from Egypt were refusing to unload due to the devaluation of the currency. Soldiers, holding rusty Gladii, stormed into the market and demanded food in gold instead of the "false silver promise". 

This was the dusk of the collapse of the Roman Empire and its once complacent monetary system. 

When Emperor Caracalla inscribed the lie of "double denarii" on coins that were less than 1.5 times the original weight, the fate of the empire was like a corroded silver coin - irreversible. 

Prices in the Empire skyrocketed by a thousand times in 30 years. Barbarian mercenaries on the borders demanded gold as pay, while the once-continuous merchant ships across the Mediterranean now carried crates filled with counterfeit bronze coins - these currencies were shattered by waves during the voyage and turned into glittering metal debris on the seabed. 

02

History's Astonishing Repeat:

The Pennsylvania Plan

History always astonishingly repeats the code of the rise and fall of monetary hegemony. 

When Deutsche Bank proposed the "Pennsylvania Plan" in 2025 to U.S. President Donald Trump, those financial elites who roamed around Wall Street might recall Caracalla's "double silver coin" - both attempting to use monetary illusions to cover up the fiscal abyss. 

Deutsche Bank has recently proposed a new viewpoint, introducing the Pennsylvania Plan while deeming the previous Trump's Mar-a-Lago Agreement unfeasible. 

Do you still recall the so-called Mar-a-Lago Agreement? 

Its primary objective was to address the U.S. debt issue. Trump aimed to reverse the current U.S. trade deficit and fiscal problems through a series of tariff and trade measures. 

However, Deutsche Bank argues that the Mar-a-Lago Agreement is not viable and presents the Pennsylvania Plan as an alternative. In essence, whether it's the Mar-a-Lago Agreement or the Pennsylvania Plan, the focus should be on how the U.S. can resolve its crisis amidst twin deficits—fiscal and trade. 

Deutsche Bank concludes that resolving the twin deficits is impossible. The best approach for the U.S. to tackle this issue is through dollar devaluation, which indirectly allows it to default on its debts. When the U.S. issues Treasury bonds, it is essentially borrowing from other sovereign nations. With the U.S. debt approaching $37 trillion, over $7 trillion is held by overseas investors or institutions, constituting foreign liabilities. 

If the dollar were to depreciate significantly, the value of these liabilities would diminish, gradually diluting the debt. 

Conversely, those holding substantial dollar assets or U.S. debt, such as Japanese pension funds and other Asian economic entities, would suffer losses. Recent months have seen reports of financial shortfalls among these entities, attributed to dollar devaluation and wealth dilution. 

In essence, these financial institutions are indirectly assisting the U.S. in debt resolution. 

Returning to Deutsche Bank's Pennsylvania Plan view, its core argument is that under the twin deficit scenario, with overseas investors reluctant to hold U.S. debt, future sales of U.S. Treasury bonds will face immense pressure. 

The recent relaxation of U.S. bank regulations, including the easing of supplementary leverage ratios, is seen as preparation for future Treasury bond sales. The plan envisions issuing special long-term Treasury bonds to absorb pension and insurance company funds, shifting the U.S. dollar's external circulation to internal circulation. 

03

Triffin Dilemma and
Its Implications for the USD

Haunted by the spectre of the Triffin Paradox, the U.S. is once again repeating the most perilous fiscal experiment of the former glorious empire: achieving the "magic of debt dilution" through currency devaluation. 

Recall our discussion in March about the Triffin Dilemma concerning the U.S. dollar? 

Read in detail: Inter-Talk: Will April 2 Mark a Take-Off for U.S. Stocks? Tell Me What You Think in the Comments!

Let's briefly revisit it. 

The U.S. dollar in today's monetary system serves two purposes: 

Firstly of which, to meet global liquidity demands, necessitating continuous output and resulting in long-term U.S. balance of payments deficits and unsustainable debt. 

In trade, a medium of exchange is essential, and the dollar has historically served this role effectively. As global trade expands, the demand for dollars increases. However, if the U.S. restricts dollar issuance, global trade could face deflationary pressures, reminiscent of the gold standard era. 

The 1980s' shift from the gold standard to a credit-based monetary system occurred because gold production could not keep pace with burgeoning trade volumes, leading to a situation where "bad money drives out good." 

Similarly, if global trade continues to expand, the demand for dollars will rise, compelling the U.S. to print more money. Failing to do so would result in dollar deflation and, consequently, incessant printing and borrowing by the U.S. government, leading to unsustainable long-term deficits—the current U.S. predicament. 

Alternatively, if the U.S. aims to maintain dollar credibility, it must control its deficits. 

However, reducing fiscal deficits would decrease the dollar supply, causing global liquidity shortages and forcing nations to abandon dollar reserves. 

This is the essence of the Triffin Dilemma. 

And the Pennsylvania Plan is just an extension of this dilemma. 

Historically, the U.S. has sustained its dollar cycle by importing goods and exporting dollars, with financial accounts offsetting trade deficits. However, a widening fiscal gap, exacerbated by tax revenue shortfalls in financing U.S. Treasury bond issuance, threatens this cycle. 

Just as Roman soldiers eventually refused to accept "bronze-plated silver coins" as their pay, central banks around the world are quietly shifting their foreign exchange reserves to gold and cryptocurrencies - these "new precious metals" are no longer backed by a single sovereign authority.

04

The Millennium Mirror of
Power and Currency

Today, the U.S. dollar is at a crossroads similar to that of the Roman silver coins from the 3rd century - in the current trading floor of Wall Street, the fluctuating numbers on the electronic screens are in a strange resonance with the Roman squares. 

Trump and Bessent's proposals aim to restore dollar credibility, but controlling U.S. fiscal deficits remains elusive. If this path proves untenable, continued dollar devaluation (which is already happening) is inevitable, as previously discussed. 

The pressing question is the future of the dollar's global reserve status. 

As the dollar's reserve status declines, global dollar liquidity will contract, significantly impacting asset prices denominated in dollars. 

With Trump's trade war and manufacturing revival plans potentially disrupting dollar output and financial account inflows, the dollar may transition to internal circulation. This shift would require U.S. financial institutions and residents to purchase U.S. debt, transforming the U.S. from a consumption-driven economy to a savings-oriented one. 

Should the reforms succeed, this paradigm shift will redefine global asset prices.

But in both ways, whenever the Wall Street investment banks design "debt metamorphosis" schemes involving nested derivatives, or the Trump administration claimed to digest the national debt through an "internal circulation", they might not have realized that these leverages were something very similar to the "gilded copper coins" in circulation in the late Roman Empire, with a shiny surface but an empty core. 

Is it a disregard for the laws of historical cycles, or arrogance stemming from the exceptionalism of empires, or an inevitable paradox that cannot be avoided at a certain stage?

It matters not anyway.

This situation just reminded me of the cunning defence of Emperor Trajan, who justified the insufficient fineness of the silver coins with the purpose of "Make Roman goods competitive again". 

But eventually, the wheels of history will roll over any ruins of empires, leaving the eternal warning: 

Any monetary system that cannot resolve the fundamental contradiction of "credit creation and physical support" will eventually become another monument of financial civilisation in the Triffin Trap.