President Donald Trump keeps bragging about the stock index gains since his election. He did so again on Friday, claiming he'd helped create "six trillion dollars in value." Be that as it may, it's also likely that Trump is at least partially responsible for the dollar's weak performance in 2017, which, from an international perspective, wiped out much of that "value."

Last year, the US dollar lost 10 per cent against the euro and 5.5 per cent against the renminbi. It was the second worst performer among major currencies after the New Zealand dollar, and its drop was the steepest in more than a decade despite three interest rate hikes and the passage of Trump's tax reform, which could logically be expected to drive the dollar's value upward. This happened for a complex set of reasons which may include the dollar's popularity as a funding tool for foreign companies and governments, but Trumps's effect on his country's global standing must be a key driver of the dollar's decline.

In a 2017 paper, Barry Eichengreen of the University of California, Berkeley, and Arnaud Mehl and Livia Chitu of the European Central Bank developed a "Mercury and Mars" hypothesis about the value of reserve currencies. They wrote that there are two sides to a currency's appeal.The Mercury side is economic: It's all about safety, liquidity, network effects and economic connections. The Mars side is geopolitical: It reflects the issuing country's strategic, diplomatic and military power.

The researchers attempted to quantify this duality by looking at the composition of nations' currency reserves. They found that as long ago as between 1890 and 1913, countries were more likely to hold reserves in the currencies of their defense pact partners, even when purely economic choice would have dictated otherwise. The same is still true, with a nuclear-era twist. Nations such as Japan and South Korea, dependent on the US for security, hold a greater share of reserves in dollars than France, Russia or China, which possess their own nuclear deterrent. Eichengreen, Mehl and Chitu developed a model to predict the composition of countries' foreign reserves with and without the "Mars effect" and found that for America's security dependents, the actual share of dollar holdings was always higher than the model's highest predictions: