The United States has never had a national sovereign wealth fund, but that may change. In an executive order issued on Feb. 3, President Donald Trump gave the Treasury and Commerce Departments 90 days to submit a joint plan for the fund's creation, according to Reuters.
What is it?
Sovereign wealth funds are government-owned investment funds that are usually created with budget surpluses or revenues from natural resources or other commodities, according to the New York Times. Over 90 countries around the world, many of them in the Middle East and Asia, use sovereign wealth funds to invest government dollars. Several U.S. states, including Alaska and Texas, have their own wealth funds.
What are the advantages?
According to the Wilson Center, sovereign wealth funds can provide stable sources of capital for large-scale projects, such as infrastructure or supply chain resilience, that can strengthen a nation's financial health and geopolitical influence over time. They can also stabilize government finances and reduce reliance on foreign investment capital.
Are there any disadvantages?
Critics say that without strong transparency rules and independent watchdogs, sovereign wealth funds can become vehicles for corruption. According to a a 2016 indictment from the U.S. Department of Justice, the misappropriation of $3.5 billion from Malaysia's wealth fund was the "largest kleptocracy case to date." A report from the Carnegie Endowment for International Peace noted more than $1 billion went to the former Malaysian prime minister's bank accounts.
Domestically, the Cato Institute points out that a sovereign wealth fund could easily become another source of partisan bickering.
What would the U.S. invest?
The U.S. does not operate at a budget surplus or bring in significant revenue from exporting natural resources, so it's not clear where the initial startup capital would come from. However, the U.S. proposal that it own a share of TikTok might provide such funds if a deal can be made, Trump said.
But regardless, an act of Congress is required to authorize the fund. While Congress can consider the executive branch's plan for the fund, they can also consider their own priorities.
