Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. Former President Donald Trump
Speaker 1: says the US dollar is under attack and.
Speaker 2: We will keep the US dollar as the world's reserve
Speaker 2: currency and is currently under major siege.
Speaker 3: Many countries are leaving the dollar.
Speaker 1: Since the spring, Trump has been expressing concern over the
Speaker 1: idea that other countries may want to move away from
Speaker 1: the dollar, and he's announced plans to try to keep
Speaker 1: that from happening. This is from a rally he held
Speaker 1: in Wisconsin this month.
Speaker 2: They're not going to leave the dollar with me. I'll say,
Speaker 2: you leave the dollar, you're not doing business with the
Speaker 2: United States, because we're gonna put one hundred percent tariff
Speaker 2: on your goods. Sir, We would like very much to
Speaker 2: get back to the dollar immediately, Thank you very much.
Speaker 2: It's so easy.
Speaker 4: Trump he pioneered new ways of using tariffs as a
Speaker 4: weapon of stay craft during his first presidency.
Speaker 1: The most is Bloomberg Senior Washington correspondent and host of
Speaker 1: Our Big Take DC podcast.
Speaker 4: And he is already promising to go full board next time,
Speaker 4: even deploy this giant tariff to protect apparently the US dollar.
Speaker 1: Welcome to the Big Take Asia from Bloomberg News. I'm Wanha.
Speaker 1: Every week we take you inside some of the world's
Speaker 1: biggest and most powerful economies and the markets, tycoons, and
Speaker 1: businesses that drive this ever shifting region. Today on the show,
Speaker 1: could the US dollar really lose its special status as
Speaker 1: the world's reserve currency and could the Chinese yun replace it? Sileia,
Speaker 1: you have this new book out all about the dollar,
Speaker 1: paper Soldiers, how the weaponization of the dollar changed the
Speaker 1: world order. Remind us how the dollar became the world's
Speaker 1: reserve currency in the first place.
Speaker 4: So the owner of the world's reserve asset is always
Speaker 4: the world's largest economy. So before the US, it was
Speaker 4: Great Britain, and in the eighteen eighties the US outstripped
Speaker 4: Great Britain in terms of sheer economic size. But it
Speaker 4: didn't happen so quickly. It was nineteen forty four, after
Speaker 4: two World Wars, when the economic policymakers of forty four
Speaker 4: Allied nations gathered together for what later became the Bretonwoods Agreement,
Speaker 4: and they all decided that the best way to avoid
Speaker 4: another World war would be to create an economic brotherhood
Speaker 4: where the world economy is knitted close together around shared
Speaker 4: economic goals and They decided at that meeting that the
Speaker 4: US dollar, because of the US's economic size, and also
Speaker 4: because of the US is very good fiscal trajectory at
Speaker 4: the time, that the US dollars should be the anchor
Speaker 4: currency for the global financial system. And two other important
Speaker 4: things happened. The World Bank was created and the International
Speaker 4: Monetary un recreated, and all of that put together made
Speaker 4: the US and its dollar become the world's reserve asset.
Speaker 1: And of course, the dollars maintained its strength it has
Speaker 1: the dollar is still strong.
Speaker 4: Now. There are two definitions of a strong dollar. There's
Speaker 4: strength in terms of foreign exchange rate, how it compares
Speaker 4: to another currency, the yen that you on the euro.
Speaker 4: The second definition of a strong dollar is its sheer dominance.
Speaker 4: The whole global financial system is underpinned by the dollar.
Speaker 4: That gives the dollar a lot of strength and power.
Speaker 4: And that is another definition to a strong dollar.
Speaker 1: And how is it, or actually, why is it that
Speaker 1: other countries are incentivized to use dollars.
Speaker 4: There's a couple of reasons. One, it's a safe investment.
Speaker 4: You will always get a return on that investment. You
Speaker 4: can park your cash a foreign central bank, a foreign
Speaker 4: multinational company, a foreign individual can buy US government debt
Speaker 4: or have any of their asset in American stocks, anything
Speaker 4: that is denominated in dollars coming out of the US,
Speaker 4: you are going to get a return on your investment
Speaker 4: because the US has a lot of economic innovation that
Speaker 4: is driven by its very huge fiscal deficit. It is
Speaker 4: also the owner of the world's most powerful military, which
Speaker 4: is also driven by our huge fiscal deficits.
Speaker 1: But now we have Donald Trump out there basically saying
Speaker 1: the dollar is in danger of losing its special status,
Speaker 1: and he's saying that other countries are actually leaving the dollar.
Speaker 1: Why is he saying that now? I mean, are there
Speaker 1: other countries actually thinking about trading less with the dollar?
Speaker 4: He has since March been publicly showing that he has
Speaker 4: paid attention to the d dollarization discussion and actions that
Speaker 4: have launched since the US led economic sanctions on Russia.
Speaker 4: It was really the economic sanctions package in February twenty
Speaker 4: twenty too when they invaded Ukraine, and that was a
Speaker 4: massive package, and what it did was heavily curtail Russia's
Speaker 4: access to the dollar, including its central bank. It really
Speaker 4: put allies even and then a lot of adversaries on
Speaker 4: guard that the US is willing to go quite far
Speaker 4: to fight a proxy war with another country in terms
Speaker 4: of weaponizing the dollar. And so you see the bricks
Speaker 4: plus economies. It's Brazil, Russia, India, China, South Africa, and
Speaker 4: it's a growing club of economies coming together saying let's
Speaker 4: put our heads together and find a way to trade
Speaker 4: less with the dollar and have our own shared currency
Speaker 4: so that we're less beholden two US economic sanctions in
Speaker 4: case we run a foul of whoever the sitting president
Speaker 4: might be.
Speaker 1: Now, Trump has said he'll answer those concerns about trading
Speaker 1: less with the dollar with some really big, sweeping new tariffs.
Speaker 1: He said, if he wins a second tur he'll put
Speaker 1: in place a ten percent across the board tariff and
Speaker 1: on goods imported from China, it's going to go as
Speaker 1: high as sixty percent. That sounds like a real ramp up,
Speaker 1: certainly from his first term as president. What do you
Speaker 1: make of that?
Speaker 4: Yeah, you know, he's noticed the economic sanctions fatigue that
Speaker 4: is out there. He talks about how you need to
Speaker 4: be judicious in use of economic sanctions, and maybe tariffs
Speaker 4: is the way to go, because if you're using tariffs.
Speaker 4: On the surface of it, it looks like you are
Speaker 4: leveraging the US consumer market rather than leveraging the strength
Speaker 4: of a dollar to sort of carry out your economic
Speaker 4: policy goals.
Speaker 1: Isn't Trump himself responsible for some countries looking to dedollarize
Speaker 1: with his threat of tariffs and sanctions.
Speaker 4: Trump is not the only president who bears responsibility. I
Speaker 4: would say every president since nine to eleven has used
Speaker 4: economic sanctions to achieve foreign policy goals. And if you
Speaker 4: get a chart of the use of economic nations, the
Speaker 4: line just goes straight up. And they went up a
Speaker 4: lot under Obama as well, they went up even more
Speaker 4: under Trump and then even more under Biden.
Speaker 1: After the break, how the US and China have tussled
Speaker 1: over allegations of currency manipulation in the past, and could
Speaker 1: the Chinese yun replace the US dollar as a world's
Speaker 1: reserve currency. We've been talking about former President Donald Trump
Speaker 1: and concerns that the US dollar could be replaced as
Speaker 1: a world's reserve currency, and when it comes to the
Speaker 1: dollar in global trade, Trump's also accused other countries of
Speaker 1: currency manipulation, and one country he's pointed the finger at
Speaker 1: repeatedly is China.
Speaker 3: But that's happening, and it's happening even worse with China.
Speaker 3: They manipulate their currency better than any country in the
Speaker 3: history of the world in history history. And we are
Speaker 3: now working on a new trade deal with China, but
Speaker 3: it must include real structural change to and unfair trade practices.
Speaker 3: Not only has China declined to adopt Promise reforms, it
Speaker 3: has embraced an economic model dependent on massive market barriers,
Speaker 3: heavy state subsidies, currency manipulation product.
Speaker 1: And besides China, there are other Asian countries that the
Speaker 1: US Treasury Department says it's monitoring for currency practices, places
Speaker 1: like Malaysia, Singapore, Taiwan, Vietnam, and Japan was added to
Speaker 1: the list this summer. What is the US's concern overall
Speaker 1: about what could happen with these other currencies.
Speaker 4: The general concern is just that countries will meddle with
Speaker 4: the terms of trade, with the natural laws of supply
Speaker 4: and demand, and keep down the value of their currencies
Speaker 4: against the dollar in order to capitalize on the US
Speaker 4: consumer market. And that is not good for American manufacturers
Speaker 4: and companies and blue collar workers. In the mid two
Speaker 4: thousands and around, the global financial crisis. There allegedly was
Speaker 4: a case to be made to charge China with actual
Speaker 4: currency manipulation, but the US decided not to do it
Speaker 4: because they wanted China's cooperation and they were trying to
Speaker 4: sort of use backdoor channels and talks to slowly wean
Speaker 4: China off that habit.
Speaker 1: And of course that relationship between the US and China
Speaker 1: has been a symbiotic one, right, which you also talk
Speaker 1: in the book as well. I mean, how does that
Speaker 1: work through currency?
Speaker 4: Yeah, and it's a chapter that I call a turbulent
Speaker 4: marriage because the US and China they need each other.
Speaker 4: They are deeply entrenched with each other still, but they're
Speaker 4: at odds with each other. Now. The example that I
Speaker 4: can give is that in the aftermath of the global
Speaker 4: financial crisis in two thousand and eight, you know, it
Speaker 4: was an American made crisis that spilled into the rest
Speaker 4: of the world. Everyone suffered, and the Chinese had a
Speaker 4: humongous holding of assets in US dollars, whether it was
Speaker 4: shares or ownership stocks and Fanny and Freddy or in
Speaker 4: US treasuries are US government bonds. So if treasuries and
Speaker 4: the US economy was not doing well, it was bad
Speaker 4: for China because of their investments. And so China couldn't say, Okay,
Speaker 4: we're pulling out of the US economy because as they
Speaker 4: would pull out of this massive stake, you know, the
Speaker 4: first ten percent, maybe you'd win, and then the next
Speaker 4: ninety percent, prices would just plummet and you would take
Speaker 4: a loss. Right, And the US also realized that we
Speaker 4: need to keep in close contact with China because we
Speaker 4: need their support. We don't want them to pull out.
Speaker 4: And that relationship, just that one tiny example, it tells
Speaker 4: you how deeply integrated the two countries are.
Speaker 1: We've talked a lot about Trump and his plans to
Speaker 1: try to protect the US economy and its status as
Speaker 1: a world's reserve currency. What do we know about what
Speaker 1: his opponent, Kamala Harris has said or has in mind
Speaker 1: to you know, around the dollar.
Speaker 4: We don't know anything we have not heard. There is
Speaker 4: an absolute paucity of policy when it comes to Harris's
Speaker 4: campaign right now. We don't know much about her foreign
Speaker 4: policy or her international economic diplomacy and plans. Part of
Speaker 4: that has to do with the fact that she launched
Speaker 4: her campaign veryy late. Part of it has to do
Speaker 4: with the fact that she could rely on the Biden
Speaker 4: administration and lean on some of those policies.
Speaker 1: Okay, so we've talked a lot about concerns that the
Speaker 1: dollar could be replaced as a world's reserve currency. But
Speaker 1: based on your reporting, how likely is it that this
Speaker 1: could actually happen.
Speaker 4: One thing to point out is that the tide is turning,
Speaker 4: but only in terms of rhetoric. No one has abandoned
Speaker 4: the dollar. There is slightly less trade in the dollar
Speaker 4: compared to before, but it will be very hard to
Speaker 4: actually supplant the dollar. There's three main reasons for that.
Speaker 4: It's because the dollar is big, it's stable, and it's entrenched.
Speaker 4: So the dollar rules because the US economy is the biggest.
Speaker 4: It is almost biggest, as numbers two, three, and four
Speaker 4: on that list. China, Japan, and Germany combined banknotes have
Speaker 4: the words in God we trust printed on them. But
Speaker 4: it's the strength of American institutions that underpin investors faith
Speaker 4: in the dollar, rule of law, independent institutions, pre and
Speaker 4: fair elections, and as I illustrate in paper soldiers, the
Speaker 4: Treasury secretaries in the way they've dealt with foreign governments.
Speaker 4: The dollar has this power of incumbency on its side.
Speaker 4: You know, it's like trying to say the English is
Speaker 4: not going to be the world's universal language. So that's
Speaker 4: sort of a starting point. But there is death definitely
Speaker 4: more discussion about de dollarization. It's a lot of rhetoric,
Speaker 4: a few small moves. Now, nothing would happen quickly. This
Speaker 4: could take a decade, maybe two decades to actually play out.
Speaker 4: But it would mean that multinational companies, smaller emerging markets,
Speaker 4: frontier markets, and mid size economies would need to consider
Speaker 4: how they trade. So it's really hard to say exactly
Speaker 4: how this would play out. In the past, it's taken
Speaker 4: an economic crisis for a world's reserve asset to be dethroned.
Speaker 1: Obviously, it would have huge ramifications for the global economy.
Speaker 1: But you know, you do have China, the world's second
Speaker 1: largest economy. Could China Could the yon be a currency
Speaker 1: that supplants the dollar potentially? I mean, is there a
Speaker 1: contender to supplant the dollar?
Speaker 4: There really isn't contender. A lot of people talk about
Speaker 4: the Chinese run. Now, China's economy is the world's second largest,
Speaker 4: but it is still second play a long gap. The
Speaker 4: other thing is that investors are really tied to the
Speaker 4: world's reserve asset being backed by a democracy, an open democracy,
Speaker 4: and that is not what China has. And the reason
Speaker 4: investors want democracy underpinning the anchor to the world's financial
Speaker 4: system is because that comes with transparency, which is also
Speaker 4: something that the Chinese yan doesn't offer.
Speaker 1: This is The Big Take Asia from Bloomberg News. I'm
Speaker 1: wan ha. This episode was produced by Jessica Beck and
Speaker 1: Young Young. It was mixed by Blake Maples and fact
Speaker 1: checked by Thomas lou It was edited by Kaitlin Kenney.
Speaker 1: Our senior editor is Elizabeth Ponso, Nicole Memester Bower is
Speaker 1: our executive producer, and Sage Bauman is Bloomberg's head of Podcasts.
Speaker 1: So Lea's book Paper Soldiers, How the Weaponization of the
Speaker 1: Dollar Changed the World Order is now available in Korean
Speaker 1: and Chinese translations. Please follow and review The Big Take
Speaker 1: Asia wherever you listen to podcasts. It helps new listeners
Speaker 1: find the show. See you next time.