WEBVTT - Could the Chinese Yuan Ever Replace the US Dollar? 0:00:03.120 --> 0:00:10.240 Bloomberg Audio Studios, Podcasts, radio news. Former President Donald Trump 0:00:10.280 --> 0:00:13.960 says the US dollar is under attack and. 0:00:13.920 --> 0:00:16.639 We will keep the US dollar as the world's reserve 0:00:16.760 --> 0:00:19.800 currency and is currently under major siege. 0:00:19.880 --> 0:00:21.760 Many countries are leaving the dollar. 0:00:22.480 --> 0:00:25.919 Since the spring, Trump has been expressing concern over the 0:00:25.960 --> 0:00:29.320 idea that other countries may want to move away from 0:00:29.320 --> 0:00:32.120 the dollar, and he's announced plans to try to keep 0:00:32.159 --> 0:00:34.800 that from happening. This is from a rally he held 0:00:34.840 --> 0:00:36.000 in Wisconsin this month. 0:00:36.280 --> 0:00:38.480 They're not going to leave the dollar with me. I'll say, 0:00:38.520 --> 0:00:40.800 you leave the dollar, you're not doing business with the 0:00:40.880 --> 0:00:43.720 United States, because we're gonna put one hundred percent tariff 0:00:43.760 --> 0:00:46.120 on your goods. Sir, We would like very much to 0:00:46.159 --> 0:00:48.520 get back to the dollar immediately, Thank you very much. 0:00:49.040 --> 0:00:49.800 It's so easy. 0:00:51.840 --> 0:00:55.640 Trump he pioneered new ways of using tariffs as a 0:00:55.680 --> 0:00:59.160 weapon of stay craft during his first presidency. 0:01:00.000 --> 0:01:03.440 The most is Bloomberg Senior Washington correspondent and host of 0:01:03.440 --> 0:01:05.520 Our Big Take DC podcast. 0:01:05.440 --> 0:01:08.839 And he is already promising to go full board next time, 0:01:08.959 --> 0:01:13.720 even deploy this giant tariff to protect apparently the US dollar. 0:01:16.400 --> 0:01:19.600 Welcome to the Big Take Asia from Bloomberg News. I'm Wanha. 0:01:20.319 --> 0:01:22.800 Every week we take you inside some of the world's 0:01:22.840 --> 0:01:26.959 biggest and most powerful economies and the markets, tycoons, and 0:01:27.120 --> 0:01:31.040 businesses that drive this ever shifting region. Today on the show, 0:01:31.440 --> 0:01:34.840 could the US dollar really lose its special status as 0:01:34.880 --> 0:01:43.040 the world's reserve currency and could the Chinese yun replace it? Sileia, 0:01:43.200 --> 0:01:45.160 you have this new book out all about the dollar, 0:01:45.560 --> 0:01:49.160 paper Soldiers, how the weaponization of the dollar changed the 0:01:49.160 --> 0:01:52.800 world order. Remind us how the dollar became the world's 0:01:52.840 --> 0:01:54.760 reserve currency in the first place. 0:01:55.480 --> 0:01:58.280 So the owner of the world's reserve asset is always 0:01:58.360 --> 0:02:01.920 the world's largest economy. So before the US, it was 0:02:02.240 --> 0:02:06.640 Great Britain, and in the eighteen eighties the US outstripped 0:02:06.800 --> 0:02:10.720 Great Britain in terms of sheer economic size. But it 0:02:10.760 --> 0:02:14.680 didn't happen so quickly. It was nineteen forty four, after 0:02:14.919 --> 0:02:19.880 two World Wars, when the economic policymakers of forty four 0:02:19.919 --> 0:02:24.840 Allied nations gathered together for what later became the Bretonwoods Agreement, 0:02:25.280 --> 0:02:28.440 and they all decided that the best way to avoid 0:02:28.760 --> 0:02:33.200 another World war would be to create an economic brotherhood 0:02:33.240 --> 0:02:37.799 where the world economy is knitted close together around shared 0:02:37.840 --> 0:02:40.800 economic goals and They decided at that meeting that the 0:02:40.919 --> 0:02:45.360 US dollar, because of the US's economic size, and also 0:02:45.440 --> 0:02:48.280 because of the US is very good fiscal trajectory at 0:02:48.280 --> 0:02:52.120 the time, that the US dollars should be the anchor 0:02:52.240 --> 0:02:57.120 currency for the global financial system. And two other important 0:02:57.120 --> 0:02:59.520 things happened. The World Bank was created and the International 0:02:59.520 --> 0:03:03.720 Monetary un recreated, and all of that put together made 0:03:03.800 --> 0:03:08.200 the US and its dollar become the world's reserve asset. 0:03:09.520 --> 0:03:12.519 And of course, the dollars maintained its strength it has 0:03:12.639 --> 0:03:13.760 the dollar is still strong. 0:03:14.040 --> 0:03:17.320 Now. There are two definitions of a strong dollar. There's 0:03:17.600 --> 0:03:21.240 strength in terms of foreign exchange rate, how it compares 0:03:21.720 --> 0:03:24.240 to another currency, the yen that you on the euro. 0:03:24.880 --> 0:03:28.799 The second definition of a strong dollar is its sheer dominance. 0:03:29.280 --> 0:03:32.239 The whole global financial system is underpinned by the dollar. 0:03:32.280 --> 0:03:34.840 That gives the dollar a lot of strength and power. 0:03:34.880 --> 0:03:37.280 And that is another definition to a strong dollar. 0:03:37.640 --> 0:03:40.280 And how is it, or actually, why is it that 0:03:40.360 --> 0:03:43.000 other countries are incentivized to use dollars. 0:03:43.560 --> 0:03:46.840 There's a couple of reasons. One, it's a safe investment. 0:03:47.920 --> 0:03:50.720 You will always get a return on that investment. You 0:03:50.760 --> 0:03:53.760 can park your cash a foreign central bank, a foreign 0:03:53.840 --> 0:03:58.200 multinational company, a foreign individual can buy US government debt 0:03:58.480 --> 0:04:02.320 or have any of their asset in American stocks, anything 0:04:02.320 --> 0:04:05.400 that is denominated in dollars coming out of the US, 0:04:06.000 --> 0:04:09.680 you are going to get a return on your investment 0:04:09.720 --> 0:04:13.560 because the US has a lot of economic innovation that 0:04:13.720 --> 0:04:17.159 is driven by its very huge fiscal deficit. It is 0:04:17.240 --> 0:04:20.600 also the owner of the world's most powerful military, which 0:04:20.640 --> 0:04:24.120 is also driven by our huge fiscal deficits. 0:04:24.440 --> 0:04:27.559 But now we have Donald Trump out there basically saying 0:04:27.680 --> 0:04:31.279 the dollar is in danger of losing its special status, 0:04:31.279 --> 0:04:34.320 and he's saying that other countries are actually leaving the dollar. 0:04:34.800 --> 0:04:37.120 Why is he saying that now? I mean, are there 0:04:37.240 --> 0:04:40.279 other countries actually thinking about trading less with the dollar? 0:04:41.120 --> 0:04:44.800 He has since March been publicly showing that he has 0:04:44.839 --> 0:04:49.360 paid attention to the d dollarization discussion and actions that 0:04:49.440 --> 0:04:54.840 have launched since the US led economic sanctions on Russia. 0:04:54.960 --> 0:04:59.719 It was really the economic sanctions package in February twenty 0:04:59.760 --> 0:05:02.760 twenty too when they invaded Ukraine, and that was a 0:05:02.920 --> 0:05:07.040 massive package, and what it did was heavily curtail Russia's 0:05:07.080 --> 0:05:10.280 access to the dollar, including its central bank. It really 0:05:10.520 --> 0:05:14.200 put allies even and then a lot of adversaries on 0:05:14.279 --> 0:05:16.839 guard that the US is willing to go quite far 0:05:17.760 --> 0:05:22.120 to fight a proxy war with another country in terms 0:05:22.160 --> 0:05:25.599 of weaponizing the dollar. And so you see the bricks 0:05:25.760 --> 0:05:31.480 plus economies. It's Brazil, Russia, India, China, South Africa, and 0:05:31.760 --> 0:05:35.679 it's a growing club of economies coming together saying let's 0:05:35.720 --> 0:05:39.039 put our heads together and find a way to trade 0:05:39.320 --> 0:05:42.400 less with the dollar and have our own shared currency 0:05:42.480 --> 0:05:46.400 so that we're less beholden two US economic sanctions in 0:05:46.480 --> 0:05:49.640 case we run a foul of whoever the sitting president 0:05:49.720 --> 0:05:50.080 might be. 0:05:50.680 --> 0:05:54.000 Now, Trump has said he'll answer those concerns about trading 0:05:54.080 --> 0:05:57.960 less with the dollar with some really big, sweeping new tariffs. 0:05:58.520 --> 0:06:00.640 He said, if he wins a second tur he'll put 0:06:00.680 --> 0:06:04.240 in place a ten percent across the board tariff and 0:06:04.279 --> 0:06:07.000 on goods imported from China, it's going to go as 0:06:07.120 --> 0:06:10.720 high as sixty percent. That sounds like a real ramp up, 0:06:11.160 --> 0:06:14.080 certainly from his first term as president. What do you 0:06:14.080 --> 0:06:14.520 make of that? 0:06:15.080 --> 0:06:19.400 Yeah, you know, he's noticed the economic sanctions fatigue that 0:06:19.520 --> 0:06:21.600 is out there. He talks about how you need to 0:06:21.640 --> 0:06:26.040 be judicious in use of economic sanctions, and maybe tariffs 0:06:26.160 --> 0:06:28.480 is the way to go, because if you're using tariffs. 0:06:28.480 --> 0:06:31.240 On the surface of it, it looks like you are 0:06:31.360 --> 0:06:35.200 leveraging the US consumer market rather than leveraging the strength 0:06:35.200 --> 0:06:38.760 of a dollar to sort of carry out your economic 0:06:38.800 --> 0:06:39.560 policy goals. 0:06:39.880 --> 0:06:44.240 Isn't Trump himself responsible for some countries looking to dedollarize 0:06:44.360 --> 0:06:46.360 with his threat of tariffs and sanctions. 0:06:46.920 --> 0:06:51.279 Trump is not the only president who bears responsibility. I 0:06:51.279 --> 0:06:55.440 would say every president since nine to eleven has used 0:06:55.480 --> 0:06:59.800 economic sanctions to achieve foreign policy goals. And if you 0:07:00.080 --> 0:07:02.159 get a chart of the use of economic nations, the 0:07:02.200 --> 0:07:04.800 line just goes straight up. And they went up a 0:07:04.800 --> 0:07:07.480 lot under Obama as well, they went up even more 0:07:07.560 --> 0:07:09.960 under Trump and then even more under Biden. 0:07:13.560 --> 0:07:17.160 After the break, how the US and China have tussled 0:07:17.240 --> 0:07:21.280 over allegations of currency manipulation in the past, and could 0:07:21.280 --> 0:07:24.480 the Chinese yun replace the US dollar as a world's 0:07:24.520 --> 0:07:39.120 reserve currency. We've been talking about former President Donald Trump 0:07:39.400 --> 0:07:42.440 and concerns that the US dollar could be replaced as 0:07:42.440 --> 0:07:45.520 a world's reserve currency, and when it comes to the 0:07:45.600 --> 0:07:49.640 dollar in global trade, Trump's also accused other countries of 0:07:49.720 --> 0:07:53.800 currency manipulation, and one country he's pointed the finger at 0:07:53.880 --> 0:07:56.840 repeatedly is China. 0:07:56.920 --> 0:08:00.800 But that's happening, and it's happening even worse with China. 0:08:00.920 --> 0:08:05.360 They manipulate their currency better than any country in the 0:08:05.400 --> 0:08:09.160 history of the world in history history. And we are 0:08:09.200 --> 0:08:13.160 now working on a new trade deal with China, but 0:08:13.240 --> 0:08:18.720 it must include real structural change to and unfair trade practices. 0:08:19.200 --> 0:08:24.160 Not only has China declined to adopt Promise reforms, it 0:08:24.200 --> 0:08:29.440 has embraced an economic model dependent on massive market barriers, 0:08:30.200 --> 0:08:34.480 heavy state subsidies, currency manipulation product. 0:08:34.520 --> 0:08:37.600 And besides China, there are other Asian countries that the 0:08:37.679 --> 0:08:42.160 US Treasury Department says it's monitoring for currency practices, places 0:08:42.200 --> 0:08:47.080 like Malaysia, Singapore, Taiwan, Vietnam, and Japan was added to 0:08:47.080 --> 0:08:50.760 the list this summer. What is the US's concern overall 0:08:50.920 --> 0:08:53.520 about what could happen with these other currencies. 0:08:54.120 --> 0:08:59.680 The general concern is just that countries will meddle with 0:08:59.800 --> 0:09:03.160 the terms of trade, with the natural laws of supply 0:09:03.200 --> 0:09:08.000 and demand, and keep down the value of their currencies 0:09:08.040 --> 0:09:11.160 against the dollar in order to capitalize on the US 0:09:11.200 --> 0:09:15.160 consumer market. And that is not good for American manufacturers 0:09:15.200 --> 0:09:19.000 and companies and blue collar workers. In the mid two 0:09:19.000 --> 0:09:22.840 thousands and around, the global financial crisis. There allegedly was 0:09:22.840 --> 0:09:26.800 a case to be made to charge China with actual 0:09:26.840 --> 0:09:30.079 currency manipulation, but the US decided not to do it 0:09:30.120 --> 0:09:33.839 because they wanted China's cooperation and they were trying to 0:09:34.040 --> 0:09:38.680 sort of use backdoor channels and talks to slowly wean 0:09:38.840 --> 0:09:39.960 China off that habit. 0:09:40.360 --> 0:09:43.160 And of course that relationship between the US and China 0:09:43.280 --> 0:09:45.480 has been a symbiotic one, right, which you also talk 0:09:45.559 --> 0:09:46.920 in the book as well. I mean, how does that 0:09:47.040 --> 0:09:48.319 work through currency? 0:09:48.679 --> 0:09:51.000 Yeah, and it's a chapter that I call a turbulent 0:09:51.040 --> 0:09:53.800 marriage because the US and China they need each other. 0:09:54.280 --> 0:09:57.520 They are deeply entrenched with each other still, but they're 0:09:57.559 --> 0:09:59.440 at odds with each other. Now. The example that I 0:09:59.440 --> 0:10:02.240 can give is that in the aftermath of the global 0:10:02.280 --> 0:10:04.600 financial crisis in two thousand and eight, you know, it 0:10:04.600 --> 0:10:08.400 was an American made crisis that spilled into the rest 0:10:08.440 --> 0:10:12.680 of the world. Everyone suffered, and the Chinese had a 0:10:12.960 --> 0:10:17.800 humongous holding of assets in US dollars, whether it was 0:10:18.280 --> 0:10:22.600 shares or ownership stocks and Fanny and Freddy or in 0:10:22.880 --> 0:10:27.840 US treasuries are US government bonds. So if treasuries and 0:10:27.880 --> 0:10:30.480 the US economy was not doing well, it was bad 0:10:30.520 --> 0:10:34.880 for China because of their investments. And so China couldn't say, Okay, 0:10:34.880 --> 0:10:37.280 we're pulling out of the US economy because as they 0:10:37.280 --> 0:10:39.840 would pull out of this massive stake, you know, the 0:10:39.920 --> 0:10:42.280 first ten percent, maybe you'd win, and then the next 0:10:42.360 --> 0:10:45.160 ninety percent, prices would just plummet and you would take 0:10:45.200 --> 0:10:48.080 a loss. Right, And the US also realized that we 0:10:48.200 --> 0:10:51.280 need to keep in close contact with China because we 0:10:51.400 --> 0:10:54.000 need their support. We don't want them to pull out. 0:10:54.040 --> 0:10:58.400 And that relationship, just that one tiny example, it tells 0:10:58.440 --> 0:11:00.840 you how deeply integrated the two countries are. 0:11:01.760 --> 0:11:05.000 We've talked a lot about Trump and his plans to 0:11:05.080 --> 0:11:07.800 try to protect the US economy and its status as 0:11:07.800 --> 0:11:10.800 a world's reserve currency. What do we know about what 0:11:10.880 --> 0:11:13.800 his opponent, Kamala Harris has said or has in mind 0:11:13.840 --> 0:11:15.280 to you know, around the dollar. 0:11:15.600 --> 0:11:18.520 We don't know anything we have not heard. There is 0:11:18.520 --> 0:11:21.160 an absolute paucity of policy when it comes to Harris's 0:11:21.200 --> 0:11:24.120 campaign right now. We don't know much about her foreign 0:11:24.160 --> 0:11:29.280 policy or her international economic diplomacy and plans. Part of 0:11:29.280 --> 0:11:31.480 that has to do with the fact that she launched 0:11:31.480 --> 0:11:33.720 her campaign veryy late. Part of it has to do 0:11:33.760 --> 0:11:36.439 with the fact that she could rely on the Biden 0:11:36.600 --> 0:11:39.119 administration and lean on some of those policies. 0:11:39.720 --> 0:11:42.440 Okay, so we've talked a lot about concerns that the 0:11:42.480 --> 0:11:46.200 dollar could be replaced as a world's reserve currency. But 0:11:46.400 --> 0:11:49.000 based on your reporting, how likely is it that this 0:11:49.080 --> 0:11:50.320 could actually happen. 0:11:51.559 --> 0:11:53.840 One thing to point out is that the tide is turning, 0:11:53.880 --> 0:11:57.160 but only in terms of rhetoric. No one has abandoned 0:11:57.200 --> 0:12:00.400 the dollar. There is slightly less trade in the dollar 0:12:00.600 --> 0:12:04.560 compared to before, but it will be very hard to 0:12:04.880 --> 0:12:09.160 actually supplant the dollar. There's three main reasons for that. 0:12:09.520 --> 0:12:14.600 It's because the dollar is big, it's stable, and it's entrenched. 0:12:15.040 --> 0:12:19.280 So the dollar rules because the US economy is the biggest. 0:12:19.760 --> 0:12:23.040 It is almost biggest, as numbers two, three, and four 0:12:23.200 --> 0:12:27.960 on that list. China, Japan, and Germany combined banknotes have 0:12:28.240 --> 0:12:30.440 the words in God we trust printed on them. But 0:12:30.480 --> 0:12:34.960 it's the strength of American institutions that underpin investors faith 0:12:35.040 --> 0:12:39.880 in the dollar, rule of law, independent institutions, pre and 0:12:39.920 --> 0:12:44.680 fair elections, and as I illustrate in paper soldiers, the 0:12:44.720 --> 0:12:48.640 Treasury secretaries in the way they've dealt with foreign governments. 0:12:48.960 --> 0:12:51.920 The dollar has this power of incumbency on its side. 0:12:51.960 --> 0:12:54.680 You know, it's like trying to say the English is 0:12:54.679 --> 0:12:57.480 not going to be the world's universal language. So that's 0:12:57.480 --> 0:13:00.480 sort of a starting point. But there is death definitely 0:13:01.000 --> 0:13:05.000 more discussion about de dollarization. It's a lot of rhetoric, 0:13:05.080 --> 0:13:09.560 a few small moves. Now, nothing would happen quickly. This 0:13:09.600 --> 0:13:13.240 could take a decade, maybe two decades to actually play out. 0:13:13.600 --> 0:13:18.080 But it would mean that multinational companies, smaller emerging markets, 0:13:18.080 --> 0:13:21.800 frontier markets, and mid size economies would need to consider 0:13:22.200 --> 0:13:26.719 how they trade. So it's really hard to say exactly 0:13:26.960 --> 0:13:30.200 how this would play out. In the past, it's taken 0:13:30.280 --> 0:13:36.720 an economic crisis for a world's reserve asset to be dethroned. 0:13:38.280 --> 0:13:41.679 Obviously, it would have huge ramifications for the global economy. 0:13:42.040 --> 0:13:43.920 But you know, you do have China, the world's second 0:13:43.960 --> 0:13:47.599 largest economy. Could China Could the yon be a currency 0:13:47.720 --> 0:13:50.240 that supplants the dollar potentially? I mean, is there a 0:13:50.240 --> 0:13:51.959 contender to supplant the dollar? 0:13:52.679 --> 0:13:55.000 There really isn't contender. A lot of people talk about 0:13:55.000 --> 0:13:58.240 the Chinese run. Now, China's economy is the world's second largest, 0:13:58.240 --> 0:14:02.000 but it is still second play a long gap. The 0:14:02.080 --> 0:14:06.640 other thing is that investors are really tied to the 0:14:06.679 --> 0:14:11.719 world's reserve asset being backed by a democracy, an open democracy, 0:14:11.840 --> 0:14:15.240 and that is not what China has. And the reason 0:14:15.600 --> 0:14:21.400 investors want democracy underpinning the anchor to the world's financial 0:14:21.440 --> 0:14:25.000 system is because that comes with transparency, which is also 0:14:25.040 --> 0:14:26.720 something that the Chinese yan doesn't offer. 0:14:30.120 --> 0:14:32.880 This is The Big Take Asia from Bloomberg News. I'm 0:14:32.880 --> 0:14:37.000 wan ha. This episode was produced by Jessica Beck and 0:14:37.120 --> 0:14:40.080 Young Young. It was mixed by Blake Maples and fact 0:14:40.160 --> 0:14:43.080 checked by Thomas lou It was edited by Kaitlin Kenney. 0:14:43.400 --> 0:14:46.960 Our senior editor is Elizabeth Ponso, Nicole Memester Bower is 0:14:47.000 --> 0:14:51.080 our executive producer, and Sage Bauman is Bloomberg's head of Podcasts. 0:14:51.520 --> 0:14:54.840 So Lea's book Paper Soldiers, How the Weaponization of the 0:14:54.880 --> 0:14:58.200 Dollar Changed the World Order is now available in Korean 0:14:58.240 --> 0:15:01.800 and Chinese translations. Please follow and review The Big Take 0:15:01.880 --> 0:15:05.040 Asia wherever you listen to podcasts. It helps new listeners 0:15:05.080 --> 0:15:06.800 find the show. See you next time.