Stephen Miran: from tariffs to the desire for control over the Federal Reserve

In the short term, the currency of the exporting country may be depreciated to an extent proportional to the applied tariff. By doing so, the increase in the final dollar price of the imported good may be entirely cancelled out. In this case - apart from the fact that the inflationary impact is nil - the effect on the exchange rate of the US currency would remain limited: the dollar - in theory - does not weaken, at least not immediately, and this goes in the opposite direction to that desired by the proponents of the measure.

The long-term perspective is - for its part - based on a more complex currency mechanism. Every import paid for in dollars implies that these are then exchanged for the local currency of the foreign supplier. This constant outflow of greenbacks does not automatically lead to a weakening of the dollar, since its function as an international store of value feeds global demand for it: a large part of the outflows of dollars returns in the form of investments.

Reducing - on the other hand - imports through targeted tariffs limits the amount of dollars circulating abroad and, consequently, the need to convert them into other currencies. And this is what Miran is aiming for: with less international demand for the US currency, upward pressure on the exchange rate eases, paving the way for a gradual devaluation.

In this logic, tariffs are not only an economic instrument but also a means of political pressure, useful to push other countries into multilateral agreements involving coordinated interventions in currency markets. An oft-cited historical precedent is the 1985 understanding ('Plaza Accord') between the major industrialised economies, known for reducing an excessively strong dollar through joint action. At the time, the operation was successful, but today's geopolitical conditions are very different: both the international consensus and the cooperative environment that made that experiment possible are missing.

Finally, the relationship between politics and central banks, in particular the Fed. Miran, with respect to this front, has repeatedly expressed a critical view of the current level of independence of the Federal Reserve, arguing that it is overstated and that the central bank is already, to some extent, integrated into executive action. In an article in Barron's he argued that the separation between fiscal and monetary policy is already partly eroded, and that 'if it is true that people determine policy, then the Fed is already integrated with the rest of the executive power'.

According to Miran, the Fed - paradoxically to defend its independence, which he considers essential - should be subject to closer political control and mechanisms to increase its accountability to the president and Congress. In a report for the Manhattan Institute in 2024 (co-written with Daniel Katz), the new Fed member proposes radical reforms: from shortening the term of governors from 14 to 8 years to making them removable by the president ("at his will" and no longer for cause) to giving voting rights on monetary policy to all 12 regional bank presidents.

Not only that, there is another interesting point. Regional Federal Reserve Banks should be recognised as public institutions. In such a context, the members of the boards of directors of the regional reserves would be appointed by the governors of the states within the bank's district. A sort of 'check and balance' with respect to the very strong prerogative granted to the US President. In short: the basic idea would be a 'monetary federalism': more voice for regional representatives, but chosen by public authorities (state governors) instead of private banking interests, and with a chain of responsibility more clearly linked to the democratic system.

However: such ideas outline an approach that can be described as paradoxical. On the one hand, the Fed - is the indication - has extended its mandate beyond monetary policy, entering policy areas such as credit allocation, banking regulation and social issues. And, this would foster 'groupthink', monetary policy errors and a weakening of accountability. On the other hand, to allow greater democratic control, multiple reforms are proposed that should 'wrest' the US central bank away from its current autocratic drift. In fact, however, such an overhaul would call into question one of the pivotal principles of the modern Fed: decision-making autonomy from political power. A political power that - as can be seen somewhat throughout the West - has increasingly autocratic drifts. In the end, therefore, rather than a 'democratisation' of the Fed, one should speak of the passing of one power under the control of another. And, the latter - the Executive - is certainly not currently at the heart of the idea of liberal Democracy as we experienced it years ago.