Trump thinks a weaker dollar is great, but the U.S. needs a stable currency as national debt heads toward $40 trillion, former Fed president says

President Donald Trump welcomed the dollar’s recent decline, but a former Federal Reserve president said the astronomical size of U.S. debt requires more stability for the currency.

The U.S. dollar index has plunged 10% over the last year and 1.2% this month alone. That’s after Trump shocked global market last spring with his “Liberation Day” tariffs, while concerns about ballooning debt, central bank independence, and a schism with European allies have weighed on the greenback more recently.

“I think it’s great,” Trump said on Tuesday about the dollar’s drop. “Look at the business we’re doing. The dollar’s doing great.”

The currency later rebounded somewhat after Treasury Secretary Scott Bessent reaffirmed that the U.S. has a strong dollar policy and denied rumors of an intervention to prop up the yen.

Former Dallas Fed President Robert Kaplan attributed the dollar’s recent slump to investors buying some tail-risk protection by hedging the currency. He also noted that demand for U.S. stocks remains high, contradicting fears of a “sell America” trade.

“Yes, it is true a weaker dollar boosts exports,” Kaplan told Bloomberg TV on Tuesday. “However, we have in the United States $39 trillion of debt, on its way to $40 trillion plus. And when you have that much debt, I think stability of the currency probably trumps exports. And so I actually think the U.S. is going to want to see a stable dollar.”

According to the Peter G. Peterson Foundation, U.S. debt currently stands at $38.57 trillion.

The U.S. has long enjoyed the “exorbitant privilege” of the dollar serving as the world’s reserve currency. With such built-in demand for dollar assets like Treasury bonds, the government can borrow money at lower rates than would otherwise be possible.

But Trump’s efforts to upend the postwar global order have created doubts about U.S. financial dominance and the sustainability of the national debt if that advantage disappears.

Still, Kaplan pointed to the overall health of the American economy and prospects for robust growth as continued draws for investors.

“I think there’s a lot of strengths in the United States in terms of innovation, very strong year for GDP growth coming, we believe, and a lot of positives,” he added.

Rather than running away from the U.S., markets are managing risk by seeking some alternative safe havens like gold, Kaplan said.

Meanwhile, Robin Brooks, a senior fellow at the Brookings Institution, argued that a falling dollar won’t hurt demand for Treasury bonds. In fact, it could help, he said in a Substack post on Friday.

That’s because foreign central banks, especially those in export-oriented Asian economies, have an incentive to buy Treasuries to stop their currencies from rising against the dollar.

“At the current juncture, this means a falling Dollar should actually be good for the Treasury market,” Brooks wrote. “Dollar weakness mobilizes new demand and—all else equal—puts downward pressure on longer-term yields.”

This story was originally featured on Fortune.com