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The main objective of a sovereign wealth fund is to save money to protect the economy from future shocks or crises. (File Photo. AFP)

Saving is the mantra now: what is a sovereign wealth fund and what is it for?

The U.S. government's decision to create a sovereign wealth fund is a decision on the right track. What is it about?

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President Donald Trump on Monday signed an executive order creating a U.S. sovereign wealth fund, which he said could be used to save the social network TikTok.

"Other countries have sovereign wealth funds, and they're much smaller countries, and they're not the United States," Trump told reporters after signing the executive order.

This would be a state-owned investment fund that manages a country's surplus reserves, usually derived from natural resource revenues or trade surpluses, in order to generate long-term returns.

For example, Norway's sovereign wealth fund, built largely with the country's fossil fuel revenues, is the largest in the world. The United Arab Emirates, China and Saudi Arabia also have large funds. In 2024, the Norwegian fund posted a 13% return, bringing its total value to $1.75 trillion.

"The extraordinary size and scale of the U.S. government and the business it does with companies should create value for American citizens," said Commerce Secretary Howard Lutnick.

Treasury head Scott Bessent confirmed that the fund will be established over the next 12 months.

Trump suggested the purchase of TikTok as a possible example of a transaction facilitated by this fund, although he did not detail the exact mechanism. "We could put it in the sovereign wealth fund, whatever we do, or if we make an alliance with very wealthy people," the president added.

TikTok faces a law forcing its Chinese parent company, ByteDance, to sell the app to avoid being banned in the United States. Trump set a deadline of early April to comply. The ban is based on national security concerns over fears that the Chinese government could use the app to spy on Americans or manipulate public opinion through data collection and content alteration.

"If we make the right deal, we will. Otherwise, we won't," Trump said, referring to ongoing negotiations with potential investors such as Elon Musk, Larry Ellison and Microsoft.

The role of sovereign wealth funds

Sovereign wealth funds are a key instrument for the economic stability of the countries that manage them. They represent the capacity to save and manage fiscal and trade surpluses in order to generate long-term returns and strengthen the national economy. Some of the most important sovereign wealth funds worldwide are:

1. Government Pension Fund Global (Norway) - $1.75 trillion.
2. China Investment Corporation (China) - $1.3 trillion.
3. Abu Dhabi Investment Authority (United Arab Emirates) - $0.7 trillion.
Kuwait Investment Authority (Kuwait) - $0.7 billion.
5. GIC Private Limited (Singapore) - $0.6 billion.

The United States and its fiscal paradox

Trump's announcement on the creation of a sovereign wealth fund contrasts with the fiscal and external balance reality of the United States. Unlike countries that have created such funds with fiscal and trade surpluses, the United States faces a budget deficit of $1.7 trillion and a national debt in excess of $34 trillion.

In addition, the country maintains a deficit in its balance of trade, importing more goods and services than it exports. While other nations' sovereign wealth funds are fed by revenues from natural resources or trade surpluses, Trump's strategy for financing this fund is still unclear.

However, the creation of a sovereign wealth fund could be a wise move if it is managed efficiently and transparently, allowing it to generate investment reserves for the future.

With information from AFP.

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