1 00:00:10,160 --> 00:00:13,880 Speaker 1: Hello, and welcome to another episode of the Odd Locks podcast. 2 00:00:13,920 --> 00:00:16,200 Speaker 2: I'm Joe Wisenthal and I'm Tracy Alloway. 3 00:00:16,680 --> 00:00:22,560 Speaker 1: Tracy Dollar strength, dollar dominance conversation is not going away. 4 00:00:23,079 --> 00:00:26,120 Speaker 2: No, I mean it's never really gone away. 5 00:00:26,400 --> 00:00:26,759 Speaker 3: Is that? 6 00:00:26,840 --> 00:00:26,960 Speaker 4: Like? 7 00:00:27,040 --> 00:00:29,400 Speaker 2: That was our intro for the last episode we did 8 00:00:29,400 --> 00:00:32,240 Speaker 2: on this topic, which is it seems like every couple 9 00:00:32,240 --> 00:00:34,920 Speaker 2: of years you get this resurgence about oh, the end 10 00:00:34,960 --> 00:00:37,960 Speaker 2: of the dollar. The dollar's going to lose its exorbitant privilege. 11 00:00:38,120 --> 00:00:40,639 Speaker 2: I remember my dad sending me articles about like, oh, 12 00:00:40,680 --> 00:00:43,879 Speaker 2: a Rack is invoicing oil in euros like in nineteen 13 00:00:44,360 --> 00:00:48,280 Speaker 2: ninety eight or something. Lots of conspiracy theories around that one. 14 00:00:48,760 --> 00:00:53,000 Speaker 2: But I will say we had that conversation with Paul McNamara. 15 00:00:53,159 --> 00:00:55,440 Speaker 2: It was a really good overview of some of the 16 00:00:55,560 --> 00:01:00,440 Speaker 2: talk that's happening right now and why certain countries scifically 17 00:01:00,480 --> 00:01:03,639 Speaker 2: emerging markets like China might want to get away from 18 00:01:03,720 --> 00:01:06,080 Speaker 2: the dollar. But I feel like there's more to say. 19 00:01:06,160 --> 00:01:08,000 Speaker 1: All right, I'm going to make a confession, which is 20 00:01:08,040 --> 00:01:10,600 Speaker 1: that in all of these conversations, there are certain things 21 00:01:10,600 --> 00:01:12,040 Speaker 1: that people say and I just sort of like nod 22 00:01:12,080 --> 00:01:14,080 Speaker 1: in my head to like, M that's right. That's right, 23 00:01:14,200 --> 00:01:16,400 Speaker 1: but I don't totally get them. And one of them 24 00:01:16,720 --> 00:01:18,520 Speaker 1: and it can it's not even so much about the 25 00:01:18,560 --> 00:01:21,480 Speaker 1: dollar per se, but about dollar alternatives, right, And the 26 00:01:21,520 --> 00:01:24,319 Speaker 1: big one is like, well, the redmon B cannot be 27 00:01:24,360 --> 00:01:27,520 Speaker 1: a real dollar alternative until China runs a current account deficit. 28 00:01:28,200 --> 00:01:31,560 Speaker 1: That's right, that's right, But like beyond that, like I actually, 29 00:01:31,600 --> 00:01:33,920 Speaker 1: like do not totally get what that means or what 30 00:01:33,920 --> 00:01:37,600 Speaker 1: what actual constraint China's trade position with the rest of 31 00:01:37,640 --> 00:01:41,080 Speaker 1: the world means for the future of renman B internationalization. 32 00:01:41,360 --> 00:01:43,679 Speaker 2: Well, I think the way I would frame it is, 33 00:01:43,720 --> 00:01:46,600 Speaker 2: one thing we hear is that there isn't a viable 34 00:01:46,640 --> 00:01:49,840 Speaker 2: alternative to the dollar. There are no other currencies slash 35 00:01:49,920 --> 00:01:53,040 Speaker 2: country economies that are at the level the US's that 36 00:01:53,080 --> 00:01:55,520 Speaker 2: could possibly replace the dollar. And so I think we 37 00:01:55,560 --> 00:01:59,920 Speaker 2: need to talk about why that is, what exactly that means? 38 00:02:00,080 --> 00:02:02,440 Speaker 2: What does it mean? So I get the idea that, Okay, 39 00:02:02,440 --> 00:02:07,640 Speaker 2: maybe a country doesn't have enough financial assets for savers 40 00:02:07,680 --> 00:02:10,280 Speaker 2: to buy to put their excess money in. I get that, 41 00:02:10,680 --> 00:02:14,160 Speaker 2: But what does it mean that it's not a viable alternative? 42 00:02:14,639 --> 00:02:16,200 Speaker 1: And I guess the question is like, okay, but what 43 00:02:16,240 --> 00:02:18,639 Speaker 1: would it take yeah, right, Like it's like, I guess 44 00:02:18,760 --> 00:02:21,079 Speaker 1: we could sort of agree this basic premise. Maybe there's 45 00:02:21,080 --> 00:02:24,600 Speaker 1: some impulse for some countries to move away from the dollar. Also, 46 00:02:24,680 --> 00:02:27,959 Speaker 1: there are no real alternatives at this point, but maybe 47 00:02:28,040 --> 00:02:30,600 Speaker 1: at one point there will be. But actually, what would 48 00:02:30,600 --> 00:02:34,160 Speaker 1: it take for another currency, maybe the renmand be, maybe 49 00:02:34,200 --> 00:02:38,239 Speaker 1: the euro, to actually become a meaningful global reserve Now, if. 50 00:02:38,160 --> 00:02:40,720 Speaker 2: China woke up tomorrow and put this like at the 51 00:02:40,760 --> 00:02:42,720 Speaker 2: top of its agenda, I don't think it's going to, 52 00:02:43,200 --> 00:02:46,000 Speaker 2: but what would that sort of ten step plan actually 53 00:02:46,040 --> 00:02:46,360 Speaker 2: look like. 54 00:02:46,520 --> 00:02:49,080 Speaker 1: That's a great way to sort of frame the conversation. 55 00:02:49,200 --> 00:02:50,799 Speaker 1: What would it actually look like. So we're going to 56 00:02:50,880 --> 00:02:53,720 Speaker 1: sort of be having part two to our recent conversation 57 00:02:53,880 --> 00:02:56,600 Speaker 1: with Paul actually a long time a friend of Paul's, 58 00:02:57,360 --> 00:02:59,800 Speaker 1: so maybe a similar, different perspective, but sort of like 59 00:03:00,600 --> 00:03:03,040 Speaker 1: of what would it take for some other currency to 60 00:03:03,120 --> 00:03:06,560 Speaker 1: be a meaningful global reserve currency. I'm very excited we're 61 00:03:06,560 --> 00:03:09,440 Speaker 1: gonna be speaking with karthik sonchron a true FX veteran, 62 00:03:09,639 --> 00:03:13,760 Speaker 1: recently at Corpe, He's been at Eurrasier Group, multiple banks, 63 00:03:14,000 --> 00:03:17,520 Speaker 1: an avid maker of dad jokes and puns on Twitter. 64 00:03:17,600 --> 00:03:21,320 Speaker 2: So just to actually cover Paul when he was trading right. 65 00:03:21,280 --> 00:03:24,480 Speaker 1: So a perfect guest for this conversation in many respects, 66 00:03:24,520 --> 00:03:27,079 Speaker 1: and someone who I feel like I've wanted to have 67 00:03:27,120 --> 00:03:29,280 Speaker 1: on the show for like years and is like, in 68 00:03:29,280 --> 00:03:31,440 Speaker 1: my mind, an odd lot's guest even though he hasn't 69 00:03:31,440 --> 00:03:33,800 Speaker 1: been on the show before. Karthik sonchron thank you so 70 00:03:33,880 --> 00:03:35,480 Speaker 1: much for finally joining us here. 71 00:03:36,200 --> 00:03:37,760 Speaker 3: Thank you very much for having me. So that's a 72 00:03:37,800 --> 00:03:38,400 Speaker 3: pleasure to be here. 73 00:03:38,440 --> 00:03:40,640 Speaker 4: And what does that mean? 74 00:03:40,800 --> 00:03:43,240 Speaker 1: Actually before I want to get to the alternatives just 75 00:03:43,320 --> 00:03:46,480 Speaker 1: before we do, though, real quickly. I mean, you listen 76 00:03:46,480 --> 00:03:49,400 Speaker 1: to our recent episode with your long time friend and 77 00:03:49,440 --> 00:03:52,200 Speaker 1: colleague Paul McNamara, in which he said there is some 78 00:03:52,280 --> 00:03:55,960 Speaker 1: global impulse for countries to stop using dollars, but there 79 00:03:55,960 --> 00:03:59,400 Speaker 1: really aren't many alternatives. Do you basically agree with that premise? 80 00:04:00,200 --> 00:04:04,360 Speaker 3: Yeah, I mean there are. I'd say two things about that. 81 00:04:04,440 --> 00:04:09,400 Speaker 3: One is I think going to replacement, and that's how 82 00:04:09,400 --> 00:04:12,600 Speaker 3: this usually gets framed as replacements. I think that's silly. 83 00:04:12,640 --> 00:04:15,960 Speaker 3: And the way I think about it is, would it 84 00:04:16,040 --> 00:04:20,880 Speaker 3: makes sense to see creeping regional displacement rather than replacement? 85 00:04:21,000 --> 00:04:24,839 Speaker 3: And I think that's that's that's that's the possibility, and 86 00:04:24,880 --> 00:04:27,800 Speaker 3: I would argue that the Euro has already done that 87 00:04:27,880 --> 00:04:31,440 Speaker 3: to some extent in you know, not just in the 88 00:04:31,480 --> 00:04:34,360 Speaker 3: Euro area, but also in Central and Eastern Europe, you know, 89 00:04:34,400 --> 00:04:36,320 Speaker 3: And I remember when I started my career. You know, 90 00:04:36,320 --> 00:04:39,559 Speaker 3: if you wanted to trade there's lotty, you traded dollar 91 00:04:39,560 --> 00:04:41,800 Speaker 3: Polish and if someone asked for a price in Marx Lotti, 92 00:04:41,920 --> 00:04:44,799 Speaker 3: you traded through the legs. Now it's the other way around. 93 00:04:45,240 --> 00:04:47,359 Speaker 3: You know, if someone asked for a price in dollar Polish, 94 00:04:47,640 --> 00:04:50,240 Speaker 3: you trade. You're Polish and you're a dollar. So it's 95 00:04:50,279 --> 00:04:54,080 Speaker 3: taken a long time, but I think that's this regional 96 00:04:54,120 --> 00:04:58,240 Speaker 3: displacement idea. But what this also brings out to me 97 00:04:58,320 --> 00:05:01,360 Speaker 3: at least is everyone is so excited about the re 98 00:05:01,440 --> 00:05:06,839 Speaker 3: memby kind of this bricks currency and so on. And 99 00:05:06,920 --> 00:05:09,600 Speaker 3: one way to frame why I think, you know, there 100 00:05:09,680 --> 00:05:12,240 Speaker 3: is a desire but it's a very long way from 101 00:05:12,279 --> 00:05:16,000 Speaker 3: being fulfilled, is that look at what the euro has, 102 00:05:16,040 --> 00:05:19,000 Speaker 3: which is kind of a solid number two pretty you know, 103 00:05:19,040 --> 00:05:21,920 Speaker 3: kind of like avis to the dollars hurts. At least 104 00:05:21,920 --> 00:05:25,080 Speaker 3: that's the way the old commercials used to go. But 105 00:05:26,880 --> 00:05:31,280 Speaker 3: the re memb is really really really far behind. And 106 00:05:31,480 --> 00:05:33,800 Speaker 3: one thing, just because I've been introduced as an avid 107 00:05:33,800 --> 00:05:34,600 Speaker 3: maker of dad joke. 108 00:05:35,320 --> 00:05:37,080 Speaker 4: First one to the first one here. 109 00:05:37,000 --> 00:05:41,400 Speaker 3: It is is that or whenever this is played? But 110 00:05:41,839 --> 00:05:45,960 Speaker 3: you know, you mentioned a ten step program for re 111 00:05:46,000 --> 00:05:49,440 Speaker 3: memb internationalization, and I was reminded that the last person 112 00:05:49,440 --> 00:05:51,400 Speaker 3: who had a ten step program that really worked with 113 00:05:51,480 --> 00:05:52,039 Speaker 3: gengis Khan. 114 00:05:54,200 --> 00:05:56,679 Speaker 4: Okay, let's not go anywhere. 115 00:05:57,400 --> 00:06:01,800 Speaker 2: Okay, sorry, I'm gonna at the dad jokes. Just to 116 00:06:01,839 --> 00:06:02,880 Speaker 2: back up a second. 117 00:06:03,360 --> 00:06:05,919 Speaker 1: Oh, it took me a second to get that one. Actually, sorry, 118 00:06:05,920 --> 00:06:07,840 Speaker 1: I it took me a second to get that. 119 00:06:07,839 --> 00:06:09,400 Speaker 4: That's a good life. Okay, we're gonna have a fun 120 00:06:09,440 --> 00:06:09,840 Speaker 4: time here. 121 00:06:11,120 --> 00:06:13,520 Speaker 2: Just to backup and ask this question in a different way. 122 00:06:13,560 --> 00:06:16,880 Speaker 2: But I mean, there is there is this assumption that 123 00:06:17,000 --> 00:06:23,400 Speaker 2: China would want to have renman be internationalization. Should they 124 00:06:23,440 --> 00:06:26,520 Speaker 2: want that? You know, if you consider China as an 125 00:06:26,520 --> 00:06:31,840 Speaker 2: export driven economy that exchanges goods in return for US dollars, 126 00:06:31,839 --> 00:06:35,880 Speaker 2: which are a relatively stable currency, does it make sense 127 00:06:35,960 --> 00:06:39,440 Speaker 2: that it would want to have a different economic model. 128 00:06:39,480 --> 00:06:41,279 Speaker 2: What are the benefits that it gets out of that? 129 00:06:42,440 --> 00:06:44,640 Speaker 3: I mean, I disagree with this, you know, and the 130 00:06:44,640 --> 00:06:47,720 Speaker 3: stuff that Joe mentioned in the beginning, does the country 131 00:06:47,760 --> 00:06:50,440 Speaker 3: at the center of the international monetary system need to 132 00:06:50,520 --> 00:06:54,680 Speaker 3: run deficits, and I don't think that's necessarily in fact, 133 00:06:56,440 --> 00:06:59,839 Speaker 3: because you have a model written under the gold standard 134 00:07:00,120 --> 00:07:03,280 Speaker 3: with a huge exporter of capital. The US, until the 135 00:07:03,320 --> 00:07:05,920 Speaker 3: mid nineteen sixties was the center of the Bretonwood system 136 00:07:06,000 --> 00:07:08,840 Speaker 3: and was also a huge exporter of capital. So what 137 00:07:08,839 --> 00:07:13,720 Speaker 3: that suggests is that it is possible for a surplus 138 00:07:13,760 --> 00:07:19,880 Speaker 3: country to run to be the center of the monetary system. 139 00:07:20,240 --> 00:07:21,960 Speaker 3: You just have to find a way to get that 140 00:07:22,000 --> 00:07:26,240 Speaker 3: currency out the door in size, in massive size. And 141 00:07:26,320 --> 00:07:31,400 Speaker 3: you can do that either through the trade account by 142 00:07:31,480 --> 00:07:34,240 Speaker 3: running very large external deficits, or you can do it 143 00:07:34,280 --> 00:07:37,960 Speaker 3: by externing great jobs of capital either in your currency 144 00:07:38,480 --> 00:07:43,600 Speaker 3: or that other countries are denominating your currency. So I 145 00:07:43,600 --> 00:07:46,840 Speaker 3: think that's one way to think about it. But clearly 146 00:07:47,600 --> 00:07:50,520 Speaker 3: China is not there, and they'll have a very long 147 00:07:50,600 --> 00:07:56,960 Speaker 3: time getting there, not just because of the issues with 148 00:07:57,000 --> 00:08:00,320 Speaker 3: capital con convertibility, but there's a lot of things in 149 00:08:00,360 --> 00:08:05,480 Speaker 3: the basic way that Chinese financial markets operate that make 150 00:08:05,520 --> 00:08:08,400 Speaker 3: it difficult even for other people to issue in REMN 151 00:08:08,440 --> 00:08:09,240 Speaker 3: and BA size. 152 00:08:09,320 --> 00:08:11,280 Speaker 1: So let's jump into this because I think this is 153 00:08:11,320 --> 00:08:15,920 Speaker 1: a point that I have not really heard many people make. 154 00:08:16,000 --> 00:08:18,280 Speaker 1: So people make the point that it's like, Okay, one 155 00:08:18,280 --> 00:08:21,080 Speaker 1: way to get your currency out there into the world 156 00:08:21,200 --> 00:08:24,560 Speaker 1: is to run a big trade deficit. But as we know, 157 00:08:25,440 --> 00:08:28,080 Speaker 1: and I'm even thinking back to some of our conversations 158 00:08:28,120 --> 00:08:30,120 Speaker 1: with like lev men and about the rise of the 159 00:08:30,160 --> 00:08:33,000 Speaker 1: shadow banking system in euro dollars, the other pot way 160 00:08:33,240 --> 00:08:36,959 Speaker 1: is just for other entities to start issuing your currency 161 00:08:37,800 --> 00:08:41,760 Speaker 1: or assets that are denominated in your currency. And theoretically 162 00:08:41,880 --> 00:08:46,319 Speaker 1: I could issue a renmon b denominated loan and off 163 00:08:46,480 --> 00:08:48,319 Speaker 1: tell someone I'm going to pay them back in renman b. 164 00:08:48,679 --> 00:08:50,360 Speaker 4: But you made this point with respect. 165 00:08:50,960 --> 00:08:53,200 Speaker 1: It's a great thread with respect to Brazil, which is 166 00:08:53,200 --> 00:08:55,439 Speaker 1: that actually like what we need to see as countries 167 00:08:55,520 --> 00:08:59,000 Speaker 1: like Brazil being willing to take out renmon be denominated debt. 168 00:08:59,040 --> 00:09:01,880 Speaker 1: Can you talk a little bit about the importance of that, Like, 169 00:09:02,400 --> 00:09:03,600 Speaker 1: I think that's a very powerful thing. 170 00:09:03,679 --> 00:09:05,840 Speaker 4: Not many people have talked about like this element of it. 171 00:09:06,000 --> 00:09:07,640 Speaker 3: Yeah, And I think they are actually two issues in 172 00:09:07,679 --> 00:09:10,920 Speaker 3: some ways. It might actually be a good idea for 173 00:09:10,960 --> 00:09:15,040 Speaker 3: Bristol to issue remimbi debt, right because you have and 174 00:09:15,120 --> 00:09:18,200 Speaker 3: I think this is one of the arguments for a 175 00:09:18,280 --> 00:09:22,920 Speaker 3: multipolar system. More broadly is if you're a country whose 176 00:09:23,640 --> 00:09:27,360 Speaker 3: terms of trade are driven by what's happening in China, 177 00:09:27,360 --> 00:09:30,240 Speaker 3: if your business cycle is much more responsive to China, 178 00:09:30,760 --> 00:09:33,040 Speaker 3: that it makes sense to be able to issue in 179 00:09:33,080 --> 00:09:36,160 Speaker 3: the Chinese currency, because what you don't want to be 180 00:09:36,160 --> 00:09:38,200 Speaker 3: in the situation that you see emerging markets end up 181 00:09:38,200 --> 00:09:42,720 Speaker 3: in all the time they issued in dollars, the commodity exporters, 182 00:09:42,720 --> 00:09:47,640 Speaker 3: commodities are priced in dollars, the world slows Chinas, commodity 183 00:09:47,640 --> 00:09:51,120 Speaker 3: prices tank, the dollar goes up, and their host I 184 00:09:51,120 --> 00:09:53,200 Speaker 3: mean this is like, you know, this is like this 185 00:09:53,800 --> 00:09:57,440 Speaker 3: rinse and repeat cycle in the international financial system. So 186 00:09:57,480 --> 00:10:01,080 Speaker 3: it might actually make sense for you know, that thread 187 00:10:01,160 --> 00:10:03,240 Speaker 3: for you know, I was saying, like I'll get excited 188 00:10:03,240 --> 00:10:07,760 Speaker 3: when cbr D issues like a huge amount in pandemonds. 189 00:10:08,640 --> 00:10:13,440 Speaker 3: But that's difficult, that's really difficult, and there's so many 190 00:10:13,440 --> 00:10:16,560 Speaker 3: different reasons for that related to the way Chinese financial 191 00:10:16,600 --> 00:10:21,440 Speaker 3: markets work. One is, if you issue in REDMENB, which 192 00:10:21,559 --> 00:10:24,040 Speaker 3: remenbe do you want to issue in do you want 193 00:10:24,080 --> 00:10:28,120 Speaker 3: to issue in the onhore market which is deeper, or 194 00:10:28,160 --> 00:10:31,320 Speaker 3: do you want to issue in the offshore market, which 195 00:10:31,559 --> 00:10:34,120 Speaker 3: you know, which where you might have more people able 196 00:10:34,160 --> 00:10:38,280 Speaker 3: to transact, but it's a much sellower market. If you 197 00:10:38,280 --> 00:10:41,439 Speaker 3: do end up issuing the entre market, obviously they're you know, 198 00:10:42,000 --> 00:10:46,480 Speaker 3: and you may not want to. The reputation that Chinese 199 00:10:46,559 --> 00:10:50,400 Speaker 3: investors have is of being somewhat more excitable. I think 200 00:10:50,400 --> 00:10:54,240 Speaker 3: we've seen that in via in the equity markets. On 201 00:10:54,280 --> 00:10:58,680 Speaker 3: the other hand, if you issue offshore, the problem is 202 00:10:58,720 --> 00:11:02,480 Speaker 3: that China not only have as to currency CNY and 203 00:11:02,559 --> 00:11:05,920 Speaker 3: CNH and not your currency and off shore currency that 204 00:11:06,200 --> 00:11:11,640 Speaker 3: trade reasonably closely together a lot of the time. But 205 00:11:11,800 --> 00:11:14,120 Speaker 3: one of the ways they do that is by having 206 00:11:14,160 --> 00:11:19,160 Speaker 3: different interest rates. And one of the things that Chinese 207 00:11:19,280 --> 00:11:23,360 Speaker 3: do periodically is when their worried about the speculative pressure 208 00:11:23,559 --> 00:11:28,400 Speaker 3: on their MMB, which they think is coming from offshore players, 209 00:11:29,200 --> 00:11:31,720 Speaker 3: is they will jack up interest rates on CNH. They 210 00:11:31,720 --> 00:11:33,240 Speaker 3: will take it to the moon. They've seen it a 211 00:11:33,240 --> 00:11:39,040 Speaker 3: few times, which might work in deterring the speculators, bring 212 00:11:39,920 --> 00:11:43,760 Speaker 3: you know, speculative pressure back down again, get CNY and 213 00:11:43,800 --> 00:11:47,760 Speaker 3: CNH to converge, but that's really not that comfortable if 214 00:11:47,760 --> 00:11:52,040 Speaker 3: you've issued in you know, in the you know, in 215 00:11:52,080 --> 00:11:55,000 Speaker 3: the off shore currency. So you know, and one of 216 00:11:55,040 --> 00:11:57,160 Speaker 3: the things that the US has the dollar has is 217 00:11:57,280 --> 00:12:00,200 Speaker 3: incredibly deep derivative markets or instance, so if you want 218 00:12:00,240 --> 00:12:02,800 Speaker 3: to issue, if you if you issue in dollars and 219 00:12:02,880 --> 00:12:06,000 Speaker 3: you want to head your interest rate risk, you can 220 00:12:06,080 --> 00:12:08,360 Speaker 3: do it by trading your dollars. Probably the most liquid, 221 00:12:08,440 --> 00:12:12,040 Speaker 3: one of the most liquid financial futures contracts in the world, 222 00:12:12,280 --> 00:12:15,560 Speaker 3: I would remember financial futures. Interest rate futures are just 223 00:12:15,600 --> 00:12:18,680 Speaker 3: a are like a very very very small fraction of that. 224 00:12:19,360 --> 00:12:21,960 Speaker 3: The other issue with issuing on shore is you know 225 00:12:22,000 --> 00:12:27,120 Speaker 3: what's your and I'm China has this huge domestic debt market. 226 00:12:27,120 --> 00:12:32,200 Speaker 3: It's the world's second largest debt domestic debt market, but 227 00:12:33,520 --> 00:12:37,800 Speaker 3: to a very significant extent, it's composed of entities with 228 00:12:37,920 --> 00:12:41,360 Speaker 3: opaque finances. Right the CGB market, the Chinese government bond 229 00:12:41,360 --> 00:12:44,760 Speaker 3: market is a relatively small fraction of the onshore market. 230 00:12:44,880 --> 00:12:47,600 Speaker 3: Just true, you know which and treasuries are not the 231 00:12:47,679 --> 00:12:51,840 Speaker 3: entirety of the US market either, but the opacity of 232 00:12:52,040 --> 00:12:56,319 Speaker 3: entities issuing domestically is significantly hard. You know. My one 233 00:12:56,360 --> 00:12:58,840 Speaker 3: liner on this is everyone talks about China not having 234 00:12:58,840 --> 00:13:01,040 Speaker 3: a rule of law. My view is that the real 235 00:13:01,040 --> 00:13:03,080 Speaker 3: problem the China doesn't have rule of accounting. That's the 236 00:13:03,120 --> 00:13:06,480 Speaker 3: real issue here, so expect that. 237 00:13:06,760 --> 00:13:10,600 Speaker 2: Yeah, I was expected I was stealing myself karthk So 238 00:13:10,920 --> 00:13:12,600 Speaker 2: I guess this brings me to the big question, which 239 00:13:12,640 --> 00:13:16,280 Speaker 2: is how much of this boils down to just capital 240 00:13:16,320 --> 00:13:18,800 Speaker 2: controls and the fact that China does not have an 241 00:13:18,840 --> 00:13:21,640 Speaker 2: open economy, and you might expect that one of the 242 00:13:21,720 --> 00:13:25,439 Speaker 2: requisites for having an international currency would be to have 243 00:13:25,559 --> 00:13:28,160 Speaker 2: relatively free movement of that currency. 244 00:13:29,080 --> 00:13:33,839 Speaker 3: Absolutely, I mean that's I think capital controls are a 245 00:13:33,920 --> 00:13:36,480 Speaker 3: you know, and that's the obvious that's the obvious one, 246 00:13:37,000 --> 00:13:39,160 Speaker 3: and they're trying to tinker with it at the edges, 247 00:13:39,840 --> 00:13:43,800 Speaker 3: allowing in flows and outflows. But even at those edges, 248 00:13:44,280 --> 00:13:45,520 Speaker 3: you know, what I was trying to get at was 249 00:13:45,559 --> 00:13:48,640 Speaker 3: this idea that you know, you have in offshore rem MEMB. 250 00:13:48,800 --> 00:13:52,640 Speaker 3: That's much that's more freely tradeable than the onshore REMMB, 251 00:13:53,280 --> 00:13:57,679 Speaker 3: But there are very sizable disincentives to issuing in size 252 00:13:57,679 --> 00:14:02,800 Speaker 3: in the offshore REMMB because these things like a smaller market. 253 00:14:03,160 --> 00:14:05,240 Speaker 3: How do you head? So capital controls are a huge 254 00:14:05,240 --> 00:14:06,600 Speaker 3: part of it, But if you dig deeper into the 255 00:14:06,600 --> 00:14:11,040 Speaker 3: capital controls issue, I think it raises more questions. 256 00:14:11,559 --> 00:14:14,080 Speaker 1: Well, then I would sort of want to maybe just 257 00:14:14,120 --> 00:14:17,080 Speaker 1: go back to a question Tracy asked, which is, like, 258 00:14:17,800 --> 00:14:21,120 Speaker 1: is there a reason China should pursue the internationalization of 259 00:14:21,120 --> 00:14:24,880 Speaker 1: the renmen b or should pursue having more global central 260 00:14:24,920 --> 00:14:29,200 Speaker 1: banks hold renmon be as part of their reserve stock, Like, 261 00:14:29,360 --> 00:14:32,120 Speaker 1: is there some obvious reason why you know, it's not 262 00:14:32,160 --> 00:14:34,120 Speaker 1: going to be number one on the agenda, but is 263 00:14:34,160 --> 00:14:35,800 Speaker 1: there a reason why it should be in the top 264 00:14:35,840 --> 00:14:37,640 Speaker 1: ten or top twenty of the agenda. 265 00:14:38,600 --> 00:14:40,720 Speaker 3: I mean, one of the things that they've said for 266 00:14:40,880 --> 00:14:47,440 Speaker 3: years is that they want to see a more internationalizedrum, 267 00:14:47,480 --> 00:14:49,080 Speaker 3: and but I think when they look at the trade 268 00:14:49,080 --> 00:14:51,680 Speaker 3: offs that they might need to make, I don't think 269 00:14:51,680 --> 00:14:55,520 Speaker 3: they're ready to, you know, take a to take a 270 00:14:55,600 --> 00:14:58,800 Speaker 3: huge jump. And I think the the other issue is 271 00:14:58,800 --> 00:15:01,320 Speaker 3: that we've seen this before, right Japan didn't want to. 272 00:15:01,640 --> 00:15:04,320 Speaker 3: Japan didn't want to either, And about thirty years ago 273 00:15:04,760 --> 00:15:08,680 Speaker 3: people were talking about the extent to which Japan and 274 00:15:08,760 --> 00:15:11,600 Speaker 3: the end could act as another reserve currency, and the 275 00:15:11,680 --> 00:15:15,160 Speaker 3: Japanese just decided they simply didn't want to because of 276 00:15:15,200 --> 00:15:17,880 Speaker 3: the pressure it would put on the profitability of their 277 00:15:17,880 --> 00:15:21,040 Speaker 3: industrial base. Things are somewhat different from China in the 278 00:15:21,120 --> 00:15:24,800 Speaker 3: sense that they seem to have a hankering for kind 279 00:15:24,800 --> 00:15:27,240 Speaker 3: of broad spectrum global power in a way that the 280 00:15:27,320 --> 00:15:31,120 Speaker 3: Japanese did not have, and maybe having an international currency 281 00:15:32,000 --> 00:15:34,960 Speaker 3: is part of that, but to the extent that it happens, 282 00:15:35,000 --> 00:15:37,280 Speaker 3: it would likely be much more halting. But they've got 283 00:15:37,280 --> 00:15:39,760 Speaker 3: a really, really long way though regard. 284 00:15:56,600 --> 00:16:00,800 Speaker 2: So Karthik, just going back to the deficit, I and 285 00:16:00,880 --> 00:16:02,720 Speaker 2: I know you kind of spoke to this already, but 286 00:16:02,840 --> 00:16:05,880 Speaker 2: what if instead of telling China to run like a 287 00:16:05,920 --> 00:16:09,960 Speaker 2: massive deficit, what if China was able to retool its 288 00:16:10,000 --> 00:16:12,640 Speaker 2: economy in some way where I mean, the reason it 289 00:16:12,760 --> 00:16:17,080 Speaker 2: runs this big ball of savings that tends to roll 290 00:16:17,120 --> 00:16:19,920 Speaker 2: around internally is because there isn't that much of a 291 00:16:20,000 --> 00:16:22,600 Speaker 2: social safety net. There isn't that much of a you know, 292 00:16:22,960 --> 00:16:25,760 Speaker 2: social welfare in the state, and so people tend to 293 00:16:25,920 --> 00:16:29,640 Speaker 2: accumulate a lot of savings or maybe rely on their children. 294 00:16:29,720 --> 00:16:32,040 Speaker 2: But given the one child policy that's been in effect 295 00:16:32,120 --> 00:16:35,360 Speaker 2: for a long time until recently, that wasn't really viable. 296 00:16:35,600 --> 00:16:38,840 Speaker 2: What if China just built a social safety net to 297 00:16:38,960 --> 00:16:42,800 Speaker 2: reduce the excess savings. Would that go some way towards 298 00:16:42,840 --> 00:16:46,160 Speaker 2: retooling the economy in such a way that you could 299 00:16:46,600 --> 00:16:48,840 Speaker 2: have r and b internationalization. 300 00:16:50,280 --> 00:16:52,120 Speaker 3: Yeah, I mean I think so. I mean, to my mind, 301 00:16:52,160 --> 00:16:54,600 Speaker 3: it would actually take care of two or three different issues. 302 00:16:54,960 --> 00:16:59,120 Speaker 3: And one is the underlying growth model in and of itself, right, 303 00:16:59,160 --> 00:17:02,840 Speaker 3: because you've kind of, you know, all the low hanging 304 00:17:02,960 --> 00:17:08,760 Speaker 3: fruit on investment, particularly real estate investment. You know, they're gone. 305 00:17:09,520 --> 00:17:13,200 Speaker 3: And I've kind of tended to be an optimist about 306 00:17:13,480 --> 00:17:16,160 Speaker 3: China because I think you kind of need two things. 307 00:17:16,880 --> 00:17:21,800 Speaker 3: One is a kind of demonstrated capacity for technological convergence 308 00:17:21,840 --> 00:17:25,240 Speaker 3: and income convergence for the rest of the world, which 309 00:17:25,240 --> 00:17:28,720 Speaker 3: they've shown. But the other thing you really need is 310 00:17:28,880 --> 00:17:33,280 Speaker 3: internal convergence between kind of the coast and the interior, more. 311 00:17:33,200 --> 00:17:36,040 Speaker 2: Middle income in the Middle Kingdom. That's my dad joke. 312 00:17:36,800 --> 00:17:37,600 Speaker 2: Thank you. 313 00:17:38,080 --> 00:17:41,560 Speaker 3: I like that. Thanks, And you know, and you kind 314 00:17:41,560 --> 00:17:44,359 Speaker 3: of look at you know works, you know works about 315 00:17:44,400 --> 00:17:47,440 Speaker 3: what rural China is like. There's just there's a huge 316 00:17:47,680 --> 00:17:52,800 Speaker 3: incentive both socially and economically to to do that. To 317 00:17:52,880 --> 00:17:55,920 Speaker 3: do that, and think the other thing that lower precautionary 318 00:17:55,960 --> 00:18:01,200 Speaker 3: savings would would achieve is that would be a contribution 319 00:18:01,320 --> 00:18:05,720 Speaker 3: to ending this kind of like really horrible nexus of 320 00:18:06,000 --> 00:18:10,200 Speaker 3: excess savings no place to put them, and underfunded mandates 321 00:18:10,240 --> 00:18:14,040 Speaker 3: for local governments, which then end up having to sell 322 00:18:14,080 --> 00:18:19,919 Speaker 3: real estate to developers in order to, you know, in 323 00:18:20,000 --> 00:18:21,760 Speaker 3: order to get the money to provide the services the 324 00:18:21,760 --> 00:18:25,520 Speaker 3: central government want. So there's this really nasty nexus right 325 00:18:25,640 --> 00:18:29,360 Speaker 3: there that a larger social safety net would also help 326 00:18:29,400 --> 00:18:31,240 Speaker 3: with it help with financial stability. 327 00:18:31,280 --> 00:18:34,000 Speaker 2: I think, Joe, this is something that I've never really 328 00:18:34,080 --> 00:18:37,520 Speaker 2: understood about China, that it's ostensibly a socialist country, but 329 00:18:37,600 --> 00:18:40,200 Speaker 2: it actually doesn't have that big. 330 00:18:40,080 --> 00:18:40,480 Speaker 4: Of a say. 331 00:18:41,640 --> 00:18:43,760 Speaker 1: I think like anti unions and weren't there like some 332 00:18:43,880 --> 00:18:46,359 Speaker 1: stories like they didn't want kids reading marks and stuff 333 00:18:46,400 --> 00:18:46,680 Speaker 1: like that. 334 00:18:46,760 --> 00:18:47,919 Speaker 4: I don't know, maybe I may have. 335 00:18:48,119 --> 00:18:51,040 Speaker 1: I think I read something like that. Anyway, I don't 336 00:18:51,080 --> 00:18:51,960 Speaker 1: want to expect it. 337 00:18:52,040 --> 00:18:53,760 Speaker 3: I think that I don't Well, you know, this is 338 00:18:53,880 --> 00:18:57,920 Speaker 3: the socialist The Chinese road to socialism is the Lendinis 339 00:18:57,960 --> 00:19:00,000 Speaker 3: road to capitalism. Is kind of how you could think. 340 00:18:59,840 --> 00:19:02,480 Speaker 1: Of there you go going back to the US real quickly. 341 00:19:02,520 --> 00:19:05,920 Speaker 1: So you pointed out that like Japan decided in the end, 342 00:19:05,960 --> 00:19:07,760 Speaker 1: it didn't want to make the trade offs that would 343 00:19:07,840 --> 00:19:11,080 Speaker 1: have required for the for the end to be a 344 00:19:11,080 --> 00:19:14,720 Speaker 1: big international currency, and maybe China will not anytime soon 345 00:19:15,400 --> 00:19:17,480 Speaker 1: choose to make those trade offs. But that of course 346 00:19:17,520 --> 00:19:20,160 Speaker 1: brings back to another sort of like other debate that 347 00:19:20,200 --> 00:19:23,040 Speaker 1: people have and again Klein petests and some of these others, 348 00:19:23,080 --> 00:19:26,520 Speaker 1: it's like, well, is the dollar strength of burden? And 349 00:19:26,720 --> 00:19:30,119 Speaker 1: you know, should we reverse that basically try? Should we 350 00:19:30,160 --> 00:19:32,440 Speaker 1: try on some level, at least at the margins to 351 00:19:32,520 --> 00:19:35,840 Speaker 1: deinternationalize the US dollar that maybe is not so great. 352 00:19:35,880 --> 00:19:38,080 Speaker 1: I'm curious, like where you stand on that question. 353 00:19:38,840 --> 00:19:42,920 Speaker 3: My personal view is that the my response to the 354 00:19:43,040 --> 00:19:49,639 Speaker 3: burden discourse is check your exorbitan privilege, because you know, 355 00:19:49,640 --> 00:19:53,000 Speaker 3: I've been around, you know em long enough that I 356 00:19:53,000 --> 00:19:55,359 Speaker 3: think that if you think being able to print dollars 357 00:19:55,359 --> 00:19:58,720 Speaker 3: to pay your debt is a problem, try owing dollars 358 00:19:58,760 --> 00:20:02,480 Speaker 3: without having any. So that's you know, that's that's extreme. 359 00:20:02,520 --> 00:20:05,439 Speaker 3: But I guess more substantively, I would say that there 360 00:20:05,440 --> 00:20:07,840 Speaker 3: are lots of reasons I don't think the dollar is 361 00:20:07,840 --> 00:20:11,560 Speaker 3: is a burden. It certainly is a burden for certain 362 00:20:11,600 --> 00:20:16,640 Speaker 3: sectors of the US economy that are very exchange rates 363 00:20:16,640 --> 00:20:21,160 Speaker 3: sensitive and very exposed to kind of catch up growth 364 00:20:21,280 --> 00:20:25,800 Speaker 3: in other countries, you know, and those regions also fall 365 00:20:25,880 --> 00:20:31,000 Speaker 3: basically along America's political fulcrum, which is the upper Midwest 366 00:20:31,000 --> 00:20:33,880 Speaker 3: and western pensivey, you know, so, so I think that 367 00:20:34,240 --> 00:20:39,080 Speaker 3: adds a political urgency to this debate. That said, you know, 368 00:20:39,119 --> 00:20:43,920 Speaker 3: the US in total, I think is a much more 369 00:20:43,960 --> 00:20:47,280 Speaker 3: interest rate sensitive economy than it is an exchange rate 370 00:20:47,359 --> 00:20:49,480 Speaker 3: sensitive economy. It's basically it's a much more closed to 371 00:20:49,480 --> 00:20:52,879 Speaker 3: economy than either China or Europe. And if you think 372 00:20:52,960 --> 00:20:58,879 Speaker 3: that the flip side of dollar centrality leading to dollar strength, 373 00:20:58,880 --> 00:21:02,320 Speaker 3: which I'm also not convinced is always true, is lower 374 00:21:02,359 --> 00:21:06,560 Speaker 3: interest rates and otherwise, then you have to ask the question, 375 00:21:07,359 --> 00:21:09,720 Speaker 3: why are we not doing more with that windfall from 376 00:21:09,760 --> 00:21:12,199 Speaker 3: low interest rates? Why why did we sink it all 377 00:21:12,240 --> 00:21:16,360 Speaker 3: in countertops as opposed to doing things like you know, 378 00:21:16,840 --> 00:21:20,320 Speaker 3: improving Laguardi you know, fifteen years ago, or building a 379 00:21:20,359 --> 00:21:23,239 Speaker 3: better bque. I've only been here five years, so all 380 00:21:23,240 --> 00:21:28,000 Speaker 3: my analogies is still East coast in egg. But you know, 381 00:21:28,600 --> 00:21:31,120 Speaker 3: and I think there, I mean, I think finally we're 382 00:21:31,200 --> 00:21:33,959 Speaker 3: moving that direction of having a more activist government that 383 00:21:34,280 --> 00:21:38,960 Speaker 3: uses that potential windfall from issuing currency to do something 384 00:21:38,960 --> 00:21:42,080 Speaker 3: more in terms of building out essential infrastructure, rather than 385 00:21:42,160 --> 00:21:44,320 Speaker 3: being oh, the government always does stupid things, let's give 386 00:21:44,320 --> 00:21:46,600 Speaker 3: it the households. So you know, then you end up 387 00:21:46,800 --> 00:21:49,680 Speaker 3: what happened before two thousand and eight. But that's said. 388 00:21:49,760 --> 00:21:55,560 Speaker 3: The evidence that dollar centrality, which has been true basically 389 00:21:55,600 --> 00:21:57,720 Speaker 3: since nineteen forty five in one form and since nineteen 390 00:21:57,760 --> 00:22:00,920 Speaker 3: seven to one another, always leads to dollars strength, I 391 00:22:00,960 --> 00:22:04,800 Speaker 3: think is not really true because in the fifty years 392 00:22:04,840 --> 00:22:09,600 Speaker 3: since nineteen seventy one and Betton was essentially ended, the dollar. 393 00:22:09,720 --> 00:22:14,840 Speaker 3: You know, I'm an FX guy, the dollar has appreciated 394 00:22:14,880 --> 00:22:17,840 Speaker 3: for fifty five percent of that time and depreciated for 395 00:22:17,840 --> 00:22:22,560 Speaker 3: forty five percent of that time. The period of maximum 396 00:22:22,760 --> 00:22:26,679 Speaker 3: current account deficits by the US, it's between two thousand 397 00:22:26,680 --> 00:22:29,640 Speaker 3: and two and two thousand and eight. We're running currentcount 398 00:22:29,640 --> 00:22:31,760 Speaker 3: deficit are close to six percent of GDP. In two 399 00:22:31,760 --> 00:22:34,879 Speaker 3: thousand and six, the US current account death the largest 400 00:22:34,880 --> 00:22:36,560 Speaker 3: in terms of the rest of the world GDP back 401 00:22:36,600 --> 00:22:39,560 Speaker 3: then close to two and a half percent, and no 402 00:22:39,600 --> 00:22:42,920 Speaker 3: one wanted to hold dollars. I remember that, I remember, 403 00:22:43,080 --> 00:22:45,840 Speaker 3: you know, that was when that's when Giselle wanted euros. 404 00:22:46,000 --> 00:22:49,240 Speaker 3: That's when you know. So this idea that you have 405 00:22:49,320 --> 00:22:52,280 Speaker 3: an excessive demand for the safety of US assets that 406 00:22:52,400 --> 00:22:56,680 Speaker 3: leads to dollar strength is not true. It's not true 407 00:22:56,720 --> 00:23:00,000 Speaker 3: in the nineteen seventies. It's not true between two thousand 408 00:23:00,080 --> 00:23:02,439 Speaker 3: in two. In two thousand and eight, people want to 409 00:23:02,440 --> 00:23:05,159 Speaker 3: hold dollars when US interestrates are rising, when you have 410 00:23:05,280 --> 00:23:08,399 Speaker 3: terms of trade shock like shale, when you have a 411 00:23:08,520 --> 00:23:12,359 Speaker 3: perceived technological productivity miracle like the Internet book in nineteen 412 00:23:12,400 --> 00:23:15,320 Speaker 3: ninety five and two thousand and two, those are strong 413 00:23:15,400 --> 00:23:19,399 Speaker 3: dollar moments. But the dollar goes up and down all 414 00:23:19,440 --> 00:23:21,040 Speaker 3: the time. It's been central and I think that's not 415 00:23:21,119 --> 00:23:22,840 Speaker 3: appreciated enough of to burden discourse. 416 00:23:24,920 --> 00:23:28,120 Speaker 2: So what about x US And you know, I take 417 00:23:28,160 --> 00:23:32,800 Speaker 2: the point about maybe, you know, the dollar's centrality doesn't 418 00:23:32,840 --> 00:23:37,080 Speaker 2: always lead to dollar benefits necessarily. But one argument that 419 00:23:37,240 --> 00:23:38,919 Speaker 2: has been made, and I think it came up in 420 00:23:38,960 --> 00:23:42,439 Speaker 2: the episode with Paul, is that the dollar can be 421 00:23:42,680 --> 00:23:45,640 Speaker 2: a problem for the rest of the world at various 422 00:23:45,640 --> 00:23:48,280 Speaker 2: points in time. And you know, we've had Yung Sunction 423 00:23:48,520 --> 00:23:51,440 Speaker 2: on the show talking about this idea that the stronger 424 00:23:51,480 --> 00:23:55,520 Speaker 2: dollar basically acts as an economic drag on other economies 425 00:23:55,600 --> 00:23:59,280 Speaker 2: because of its role in the world and in trade 426 00:23:59,320 --> 00:24:02,600 Speaker 2: and business activity. Is there an argument to be made 427 00:24:02,680 --> 00:24:05,600 Speaker 2: that maybe it would make sense from a financial stability 428 00:24:05,640 --> 00:24:10,360 Speaker 2: perspective for instance, to have alternatives to the US currency. 429 00:24:11,240 --> 00:24:13,639 Speaker 3: Absolutely, I am one hundred percent. I am like a 430 00:24:13,680 --> 00:24:17,240 Speaker 3: total multiple prolaetarian on that front, right. And the reason 431 00:24:17,400 --> 00:24:19,240 Speaker 3: is this idea, you know, like I was saying earlier, 432 00:24:20,359 --> 00:24:24,320 Speaker 3: if you think about the global real economies organized around 433 00:24:24,440 --> 00:24:28,600 Speaker 3: some hubs and there are spokes, right, and you know, 434 00:24:28,600 --> 00:24:31,160 Speaker 3: if you think about Germany or kind of Germany France 435 00:24:31,200 --> 00:24:33,840 Speaker 3: as being a hub, what the EU has done and 436 00:24:33,920 --> 00:24:36,600 Speaker 3: what the Eurozone has done and the extended EU has 437 00:24:36,640 --> 00:24:45,280 Speaker 3: done has created a financial cycle that kind of parallels 438 00:24:45,280 --> 00:24:48,840 Speaker 3: the real cycle in the hub, right, Because if you're 439 00:24:48,880 --> 00:24:52,320 Speaker 3: barring in euros and you're highly exposed to what's happening 440 00:24:52,400 --> 00:24:56,560 Speaker 3: in Germany or the core European or the broader core 441 00:24:56,640 --> 00:25:01,520 Speaker 3: European economies, when that economy slows, the euro will go down, 442 00:25:02,800 --> 00:25:07,040 Speaker 3: the ECB will cut rates unless it's doing something really stupid, 443 00:25:07,040 --> 00:25:12,800 Speaker 3: which it does periodically that could not be excluded. But 444 00:25:13,000 --> 00:25:17,119 Speaker 3: still you have this kind of and to me, that's 445 00:25:18,680 --> 00:25:22,640 Speaker 3: that kind of coincidence of real and financial cycles is 446 00:25:22,760 --> 00:25:29,520 Speaker 3: really important. And a world in which the dollar is 447 00:25:29,560 --> 00:25:34,600 Speaker 3: the only currency and the most important cross border liability currency, 448 00:25:34,880 --> 00:25:36,879 Speaker 3: which is something also I keep harping on is that 449 00:25:36,960 --> 00:25:40,760 Speaker 3: the big role is as a liability denomination, not as reserves, 450 00:25:40,800 --> 00:25:43,800 Speaker 3: not as invoices, none of this stuff. And that's where 451 00:25:43,800 --> 00:25:47,680 Speaker 3: the financial stability issues come from. If you are indebted 452 00:25:47,720 --> 00:25:49,960 Speaker 3: in a currency, the tends to strengthen every time the 453 00:25:50,000 --> 00:25:53,480 Speaker 3: global economy slows. It's bad news for everybody, and that's 454 00:25:53,520 --> 00:25:54,400 Speaker 3: consumptioning spart. 455 00:25:55,160 --> 00:25:57,760 Speaker 1: This is also like not to diverge. But this is 456 00:25:57,840 --> 00:26:01,400 Speaker 1: also like what the bitcoiners never get the liability aspect, 457 00:26:01,400 --> 00:26:04,680 Speaker 1: because people are like, oh right, sure, some people may 458 00:26:04,760 --> 00:26:08,320 Speaker 1: like the idea of like getting paid in bitcoin, but 459 00:26:08,359 --> 00:26:11,359 Speaker 1: no one really like wants to like take bitcoin denominated debt. 460 00:26:11,440 --> 00:26:13,600 Speaker 1: And that's like, and I understand I don't want to 461 00:26:13,640 --> 00:26:16,080 Speaker 1: like have like a big like crypto or bitcoin tangent, 462 00:26:16,160 --> 00:26:18,119 Speaker 1: but it really is like this like this idea of 463 00:26:18,160 --> 00:26:21,920 Speaker 1: like the liability side is being like really crucial and 464 00:26:21,960 --> 00:26:23,640 Speaker 1: in like you have to ask yourself, are you willing 465 00:26:23,720 --> 00:26:26,639 Speaker 1: to take on debt denominated in this currency? And I 466 00:26:26,680 --> 00:26:30,119 Speaker 1: don't think many people would say yes. And that really 467 00:26:30,160 --> 00:26:31,680 Speaker 1: like sort of like blows up the whole thing. 468 00:26:32,200 --> 00:26:34,440 Speaker 3: Yeah, And but I mean I think the other thing 469 00:26:34,480 --> 00:26:36,679 Speaker 3: that the you know, this is also I think the 470 00:26:36,680 --> 00:26:40,880 Speaker 3: liability side is also really important to the broader discourse 471 00:26:40,960 --> 00:26:43,960 Speaker 3: about this because you see all this excitement, you know about, 472 00:26:44,240 --> 00:26:45,960 Speaker 3: oh my god, they're going to do their trade and 473 00:26:45,960 --> 00:26:49,880 Speaker 3: they're going to do their trading dollars, and yeah, it's 474 00:26:49,920 --> 00:26:54,400 Speaker 3: interesting because this is your classic economic comparison, right. One 475 00:26:54,400 --> 00:26:57,200 Speaker 3: of the ways you and an argument of the economist 476 00:26:57,359 --> 00:27:00,159 Speaker 3: is you're confusing stocks and flows. But I think that's 477 00:27:00,160 --> 00:27:03,080 Speaker 3: exactly what's a issue here. People are focused on the invoicing, 478 00:27:03,080 --> 00:27:06,159 Speaker 3: which is a flow, but the stock of debt is 479 00:27:06,200 --> 00:27:10,280 Speaker 3: a multiple both of reserves and of trade flows. 480 00:27:11,280 --> 00:27:16,000 Speaker 2: So okay, classic stock versus flow thing going on there. 481 00:27:16,080 --> 00:27:18,720 Speaker 2: But one of the things you do hear from China 482 00:27:18,840 --> 00:27:20,840 Speaker 2: every once in a while is, you know, it might 483 00:27:20,880 --> 00:27:25,520 Speaker 2: talk about doing invoicing more stuff in renmon b but 484 00:27:25,600 --> 00:27:30,960 Speaker 2: it also talks about special drawing rights so SDRs, which 485 00:27:31,200 --> 00:27:36,439 Speaker 2: I have never quite understood what means are. But this 486 00:27:36,520 --> 00:27:39,600 Speaker 2: idea of like, I think it's basically a basket of currencies, 487 00:27:39,640 --> 00:27:43,240 Speaker 2: like a supercurrency that would involve a lot of you know, 488 00:27:43,480 --> 00:27:47,439 Speaker 2: different currencies from different countries. How viable is that? Like, 489 00:27:47,560 --> 00:27:51,800 Speaker 2: maybe instead of trying to create a multi polar currency 490 00:27:52,119 --> 00:27:56,119 Speaker 2: reserve system, maybe we should just move on to SDRs 491 00:27:56,160 --> 00:27:56,760 Speaker 2: and use those. 492 00:27:58,320 --> 00:28:01,160 Speaker 3: I mean, I think that's and I think that's even 493 00:28:01,240 --> 00:28:04,680 Speaker 3: less frankly, I mean in China. I mean, China's big 494 00:28:04,760 --> 00:28:08,640 Speaker 3: tantrum over SDRs was in two thousand and nine, and 495 00:28:08,840 --> 00:28:11,160 Speaker 3: one of the reasons for that was the FED did 496 00:28:11,240 --> 00:28:17,199 Speaker 3: QI and you had a situation where the dollar had 497 00:28:17,240 --> 00:28:20,239 Speaker 3: resumed weakening again after this huge dollar spike, you know, 498 00:28:20,560 --> 00:28:26,320 Speaker 3: post Sleman, and what China was concerned about at the 499 00:28:26,480 --> 00:28:31,600 Speaker 3: time was that it was holding all these dollars. The 500 00:28:31,640 --> 00:28:35,159 Speaker 3: FED was doing QI, and commodity prices were rising again 501 00:28:35,640 --> 00:28:39,200 Speaker 3: partly because of Chinese in good part because of Chinese stimulus, 502 00:28:39,480 --> 00:28:43,240 Speaker 3: you know, post crisis stimulus, and also because and also 503 00:28:43,320 --> 00:28:45,320 Speaker 3: because of Hue. So that conjunction in China was like, 504 00:28:45,360 --> 00:28:47,600 Speaker 3: oh my god, these are the Americans are doing things 505 00:28:47,600 --> 00:28:50,720 Speaker 3: that's making the real value of our reserves go down. 506 00:28:51,240 --> 00:28:54,200 Speaker 3: It's kind of very similar to the Arab reaction in 507 00:28:54,200 --> 00:28:56,840 Speaker 3: the nineteen seventies, for instance. And I think that's one 508 00:28:56,840 --> 00:28:58,600 Speaker 3: of the things that kicked off Opeck was not just 509 00:28:58,640 --> 00:29:00,880 Speaker 3: the young people wall on all the other stuff. It's like, 510 00:29:01,000 --> 00:29:04,280 Speaker 3: we're holding all these dollars and now they're worthless because 511 00:29:04,560 --> 00:29:05,720 Speaker 3: the US is now floating. 512 00:29:06,200 --> 00:29:09,560 Speaker 2: This is the old Dick Beauvet argument that que was 513 00:29:09,640 --> 00:29:13,680 Speaker 2: actually like a currency war in disguise. Almost right, That's 514 00:29:13,720 --> 00:29:14,760 Speaker 2: what it's reminding me of. 515 00:29:15,000 --> 00:29:18,479 Speaker 3: Yeah, I mean it's a I mean, interestingly enough, I 516 00:29:18,480 --> 00:29:23,080 Speaker 3: think to some extent not so much currency war, but 517 00:29:23,800 --> 00:29:28,960 Speaker 3: more just a way to reflate, to reflate the US economy. 518 00:29:29,400 --> 00:29:33,040 Speaker 3: And I think the FED was kind of koi about that. 519 00:29:33,440 --> 00:29:35,800 Speaker 3: The FED had has been pretty coy about the dollar 520 00:29:36,240 --> 00:29:39,040 Speaker 3: until twenty fourteen, twenty fifteen, when it was finally like, Okay, 521 00:29:39,080 --> 00:29:40,880 Speaker 3: we'll just come out. We'll just come out and say it. 522 00:29:40,880 --> 00:29:43,360 Speaker 3: And that's wonderful. If it's been much more open about 523 00:29:43,360 --> 00:29:45,760 Speaker 3: the way the dollar figures into his thinking. You know, 524 00:29:46,040 --> 00:29:49,120 Speaker 3: the world needed reflation and it got it from US 525 00:29:49,200 --> 00:29:53,240 Speaker 3: monetary policy and Chinese fiscal policy, and together that's what 526 00:29:53,400 --> 00:29:54,880 Speaker 3: did a good deal to pull the world out of it. 527 00:29:55,640 --> 00:29:57,600 Speaker 3: It's something in two thousand and eight was this combination 528 00:29:57,840 --> 00:30:02,600 Speaker 3: of US monetary policy, eat a Chinese fiscal pause, huge investments. 529 00:30:19,960 --> 00:30:23,320 Speaker 1: I want to go back to Chinese domestic trade offs 530 00:30:23,600 --> 00:30:25,720 Speaker 1: and this idea. You know, I think we have some 531 00:30:25,880 --> 00:30:29,520 Speaker 1: idea that the elites might lose out in China. Were 532 00:30:29,520 --> 00:30:33,880 Speaker 1: there to be some domestic reorientation towards more robust household consumption, 533 00:30:34,560 --> 00:30:36,960 Speaker 1: or maybe just from the question of Japan in terms 534 00:30:37,000 --> 00:30:38,720 Speaker 1: of they didn't want to make those trade offs that 535 00:30:38,760 --> 00:30:40,880 Speaker 1: would take you know, that would allow the end to 536 00:30:40,920 --> 00:30:43,680 Speaker 1: become more international. What are we actually talking about in 537 00:30:43,760 --> 00:30:46,720 Speaker 1: terms of the potential costs either to the country as 538 00:30:46,720 --> 00:30:49,880 Speaker 1: whole or to a certain category, maybe the coastal elites 539 00:30:49,920 --> 00:30:53,360 Speaker 1: within China, and what kind of like hit laws or 540 00:30:53,480 --> 00:30:55,760 Speaker 1: meaningful shift, because it's hard to like, Okay, yeah, there's 541 00:30:55,760 --> 00:30:58,080 Speaker 1: gonna be some domestic shift that happens everywhere. What are 542 00:30:58,080 --> 00:31:00,360 Speaker 1: we really talking about in terms of how signify that 543 00:31:00,360 --> 00:31:00,680 Speaker 1: would be? 544 00:31:01,200 --> 00:31:02,800 Speaker 3: I'm honestly not sure to be frank, And this is 545 00:31:02,800 --> 00:31:05,240 Speaker 3: probably a question for form, you know, for for tom 546 00:31:05,240 --> 00:31:07,200 Speaker 3: oi like Mike Pettis or you know, I'm not a 547 00:31:07,920 --> 00:31:10,600 Speaker 3: I'm not a deep. I'm not a deep you know, 548 00:31:10,760 --> 00:31:12,760 Speaker 3: China expert to the same extent I pretend to be 549 00:31:12,800 --> 00:31:15,040 Speaker 3: an expert on f X for anything else like that. 550 00:31:15,160 --> 00:31:18,520 Speaker 3: But but you know, one thing you do know about 551 00:31:18,600 --> 00:31:23,120 Speaker 3: China is that it sets a fair amount of store. 552 00:31:23,160 --> 00:31:25,280 Speaker 3: The leadership sets a fair amount of store in kind 553 00:31:25,280 --> 00:31:28,080 Speaker 3: of output legitimacy, right, and that you know, we're doing 554 00:31:28,120 --> 00:31:31,160 Speaker 3: things that make people's lives better, which is a very 555 00:31:31,200 --> 00:31:35,280 Speaker 3: significant difference from the Soviet Union, you know, or you know, 556 00:31:35,400 --> 00:31:39,200 Speaker 3: or where the big calling card was we won the war, 557 00:31:39,240 --> 00:31:40,960 Speaker 3: what do you want from us? We won World War Two? 558 00:31:41,000 --> 00:31:43,720 Speaker 3: And increasingly that kind of became, you know, this is 559 00:31:43,760 --> 00:31:46,680 Speaker 3: all we have to show. The Chinese leadership is not 560 00:31:46,760 --> 00:31:49,360 Speaker 3: like that. It's had real gains I think it can 561 00:31:49,400 --> 00:31:52,000 Speaker 3: point to, and presumably it makes sense for them to 562 00:31:52,160 --> 00:31:55,200 Speaker 3: want that to continue. Now the question is can the 563 00:31:55,280 --> 00:32:00,400 Speaker 3: leadership deliver on those things? And to what extent are 564 00:32:00,440 --> 00:32:03,840 Speaker 3: the forces are powers that be within China that are 565 00:32:03,840 --> 00:32:06,760 Speaker 3: not the leadership that kind of intermediate level, to what 566 00:32:06,800 --> 00:32:08,560 Speaker 3: extent are they against that. The one thing I can 567 00:32:08,640 --> 00:32:12,080 Speaker 3: actually think of which seems to be a concrete issue 568 00:32:12,920 --> 00:32:22,040 Speaker 3: is changing HOOKU registration requirements. Affects the relatively privileged status 569 00:32:22,080 --> 00:32:23,840 Speaker 3: that people who have that in the ability to live 570 00:32:23,840 --> 00:32:24,280 Speaker 3: in cities. 571 00:32:24,480 --> 00:32:26,719 Speaker 2: This is allowing people from the country to move more 572 00:32:26,760 --> 00:32:29,640 Speaker 2: freely into cities and vice versa, although no one ever 573 00:32:29,680 --> 00:32:31,240 Speaker 2: really does the first part. 574 00:32:31,880 --> 00:32:35,480 Speaker 3: And then the other one, which is more obvious, is 575 00:32:35,480 --> 00:32:39,240 Speaker 3: issuing some kind of tax on residential real estate, so 576 00:32:39,400 --> 00:32:41,680 Speaker 3: you kind of increase the cost of carry on housing 577 00:32:43,080 --> 00:32:46,959 Speaker 3: on housing, which is otherwise basically considered a pure appreciation asset. 578 00:32:47,760 --> 00:32:52,240 Speaker 3: I can see those two being concrete disincentives to people 579 00:32:52,320 --> 00:32:55,800 Speaker 3: that I can distinctly identify. But as to why you 580 00:32:55,880 --> 00:33:01,760 Speaker 3: shouldn't why China doesn't have a larger a larger healthcare, 581 00:33:02,840 --> 00:33:06,240 Speaker 3: better social provision of healthcare, for instance, they only spend 582 00:33:06,240 --> 00:33:08,880 Speaker 3: I think six percent of GDP on healthcare at one 583 00:33:08,880 --> 00:33:11,400 Speaker 3: third of the United States, and France is kind of 584 00:33:11,400 --> 00:33:14,840 Speaker 3: the sweet spot at twelve according to me. But I 585 00:33:14,920 --> 00:33:17,600 Speaker 3: don't really see where the actual maybe I don't have 586 00:33:17,720 --> 00:33:21,320 Speaker 3: enough granular understanding of the social structures as to why 587 00:33:21,320 --> 00:33:22,480 Speaker 3: people might be opposed to that. 588 00:33:23,240 --> 00:33:25,440 Speaker 2: Well, I mean, I guess in the US we have 589 00:33:25,480 --> 00:33:27,320 Speaker 2: the same argument all the time about well, why don't 590 00:33:27,320 --> 00:33:30,840 Speaker 2: we just reform the healthcare industry, stud it's so easy, 591 00:33:30,880 --> 00:33:34,680 Speaker 2: and like, clearly there are major issues with doing that. 592 00:33:34,720 --> 00:33:37,680 Speaker 2: But Karthink, just to go back to the original premise 593 00:33:37,840 --> 00:33:41,800 Speaker 2: of this conversation, I don't expect you necessarily to come 594 00:33:41,880 --> 00:33:46,080 Speaker 2: up with a ten step Genghis Khan style plan on 595 00:33:46,120 --> 00:33:49,040 Speaker 2: the fly, but like, what would be the steps or 596 00:33:49,040 --> 00:33:52,920 Speaker 2: the prerequisites that you would look out for in order 597 00:33:53,000 --> 00:33:57,320 Speaker 2: for the renmen B to achieve some degree of internationalization. 598 00:33:58,720 --> 00:34:00,960 Speaker 3: I think the most logical place to look for it, 599 00:34:01,120 --> 00:34:09,360 Speaker 3: given capital controls and so on, is slow incremental remenbiization 600 00:34:10,120 --> 00:34:12,720 Speaker 3: of bridge and road lending. That's the most logical place 601 00:34:12,760 --> 00:34:16,359 Speaker 3: to look for it because you have all these other 602 00:34:16,480 --> 00:34:21,000 Speaker 3: issues I think at capital controls just in the structure 603 00:34:21,000 --> 00:34:24,239 Speaker 3: and nature of Chinese financial markets that makes it much 604 00:34:24,280 --> 00:34:27,400 Speaker 3: harder to achieve more on that front. But bridge and 605 00:34:27,480 --> 00:34:30,520 Speaker 3: road lending in particular seems to be a place where 606 00:34:30,680 --> 00:34:34,560 Speaker 3: you know, you have a very large stock of debt 607 00:34:34,680 --> 00:34:37,480 Speaker 3: out to China. Almost all of it is in dollars, 608 00:34:37,520 --> 00:34:42,800 Speaker 3: not in remenby, which is interesting in love itself, And 609 00:34:42,880 --> 00:34:46,120 Speaker 3: the question is why is that? It's because they're just 610 00:34:46,400 --> 00:34:48,680 Speaker 3: long a ton of dollars. Some of it is because 611 00:34:48,719 --> 00:34:53,480 Speaker 3: of shadow, kind of shadow intervention by other entities that 612 00:34:53,520 --> 00:34:57,240 Speaker 3: then pass those dollars, that passed those dollars along. Now, 613 00:34:58,120 --> 00:35:00,719 Speaker 3: what you're doing in many of these distances opening up 614 00:35:00,760 --> 00:35:04,880 Speaker 3: exactly those kinds of kind of real financial cycle mismatches 615 00:35:05,239 --> 00:35:08,880 Speaker 3: stock flow mismatches that I talked about more broadly. So 616 00:35:09,040 --> 00:35:14,799 Speaker 3: could there be a way to change that stock of 617 00:35:15,000 --> 00:35:19,520 Speaker 3: dollar denominated debt in bri I that's basically owed to 618 00:35:19,600 --> 00:35:21,840 Speaker 3: Chinese development banks, is that it would change that a 619 00:35:21,920 --> 00:35:24,920 Speaker 3: way to change that gradually into remmen be I mean, 620 00:35:25,000 --> 00:35:27,440 Speaker 3: I mean that seems like the most the most immediate 621 00:35:27,600 --> 00:35:31,520 Speaker 3: likely prospect right now. One interesting thing here is this 622 00:35:31,719 --> 00:35:35,600 Speaker 3: idea that you know, Argentina is going to denominate all 623 00:35:35,680 --> 00:35:39,160 Speaker 3: its trade with China and remmenby and obviously you know 624 00:35:39,200 --> 00:35:42,200 Speaker 3: that trade is small. There's you know, Argentina's problems that 625 00:35:42,280 --> 00:35:45,799 Speaker 3: has I think two hundred billion dollars of debt, one 626 00:35:45,880 --> 00:35:48,320 Speaker 3: hundred and twenty billion dollars of which are Oden dollars. 627 00:35:49,160 --> 00:35:53,280 Speaker 3: But there's a very interesting thing from Brad from Bradcester 628 00:35:53,320 --> 00:35:55,880 Speaker 3: and Daniel McDonald this morning talking about how this is 629 00:35:55,920 --> 00:35:58,920 Speaker 3: really about Argentina really wants to hang on to its dollars. 630 00:36:00,320 --> 00:36:03,279 Speaker 3: So what they're doing is changing the invoicing of their 631 00:36:03,360 --> 00:36:08,480 Speaker 3: trade with China into to rememby. But over a very 632 00:36:08,760 --> 00:36:13,799 Speaker 3: very long time, what this allows is a replacement of 633 00:36:13,840 --> 00:36:15,960 Speaker 3: a stock of dollar debt owed to the rest of 634 00:36:16,000 --> 00:36:22,880 Speaker 3: the world with owing rememby to China. Because of the 635 00:36:22,880 --> 00:36:25,719 Speaker 3: swamp line, they run a deficit, which they run a 636 00:36:25,719 --> 00:36:30,279 Speaker 3: deficit with China, so you're gradually changing liability structure, but 637 00:36:30,360 --> 00:36:32,960 Speaker 3: an incredibly slow paced My joke is, you know this 638 00:36:33,120 --> 00:36:36,840 Speaker 3: is like the Ron Paul It's happening gift, only you 639 00:36:36,920 --> 00:36:38,720 Speaker 3: played at the slowest possible speed. 640 00:36:39,880 --> 00:36:43,680 Speaker 1: It's imagining that like a very slow that it is, 641 00:36:43,760 --> 00:36:44,520 Speaker 1: so it's happening. 642 00:36:44,680 --> 00:36:48,200 Speaker 3: Yeah, you know, how do you replace a stock with 643 00:36:48,400 --> 00:36:52,680 Speaker 3: flows very very slowly? Right? And it may happen. You know, 644 00:36:52,719 --> 00:36:55,000 Speaker 3: they're probably not end up having a restruction before then. 645 00:36:56,080 --> 00:36:58,160 Speaker 3: I mean the other places people have talked about with this, 646 00:36:58,360 --> 00:37:01,880 Speaker 3: allows and Cambodia, which gives me an opportunity's sake, you know, 647 00:37:01,960 --> 00:37:04,480 Speaker 3: Cambodia might find a new nominal anchor, but. 648 00:37:06,520 --> 00:37:13,239 Speaker 2: Anchor of what? Sorry? Sorry, can I just ask what? 649 00:37:13,320 --> 00:37:17,640 Speaker 2: One quick? Sorry? Can I ask one quick follow up question, 650 00:37:17,680 --> 00:37:22,279 Speaker 2: which is why didn't China denominate built in road loans. 651 00:37:21,920 --> 00:37:25,719 Speaker 3: In rem and B And that's a complete mystery to 652 00:37:25,800 --> 00:37:30,760 Speaker 3: me and someone who knows immeasurably more about this, Brad, 653 00:37:30,920 --> 00:37:34,680 Speaker 3: I've asked him and he's like, he's not really sure 654 00:37:34,680 --> 00:37:36,319 Speaker 3: about it either. I think it's just because they had 655 00:37:36,320 --> 00:37:38,560 Speaker 3: a ton of dollars. And one of the things that 656 00:37:38,560 --> 00:37:40,400 Speaker 3: we're seeing around the world this reminds me of the 657 00:37:40,400 --> 00:37:44,680 Speaker 3: conversation with Paul on this economist story, is that as 658 00:37:44,800 --> 00:37:49,440 Speaker 3: reserve accumulation goes up, then countries find you know, if 659 00:37:49,440 --> 00:37:53,080 Speaker 3: you're above precautionary reserves, you can find other things to 660 00:37:53,160 --> 00:37:59,400 Speaker 3: do with those excess reserves for a sheet of you know, political, 661 00:37:59,480 --> 00:38:04,200 Speaker 3: geopolitical gains or influence. Right. So it's not and that's 662 00:38:04,239 --> 00:38:07,360 Speaker 3: not just China doing that by bri it's what the 663 00:38:07,440 --> 00:38:10,400 Speaker 3: GCC is doing with Turkey and Egypt for instance. 664 00:38:10,480 --> 00:38:13,360 Speaker 1: So and so, in your view, like in a world 665 00:38:13,600 --> 00:38:19,040 Speaker 1: in which Brazil maybe we're doing renmon B denominated debt, 666 00:38:19,160 --> 00:38:22,680 Speaker 1: or Cambodia or someone else, some of these countries that 667 00:38:22,800 --> 00:38:25,520 Speaker 1: have a lot of dollars and we talked about this 668 00:38:25,600 --> 00:38:28,880 Speaker 1: with Paul, that maybe have some political tension with the US, 669 00:38:29,080 --> 00:38:31,719 Speaker 1: and Saudi Arabia comes to mind, is a country that 670 00:38:31,760 --> 00:38:34,960 Speaker 1: accumulates tons of dollars and you know, depending on the 671 00:38:35,000 --> 00:38:38,640 Speaker 1: administration at a given point, the political tension, ebbs and 672 00:38:38,719 --> 00:38:44,080 Speaker 1: flows may want to acquire Brazilian issued R and B 673 00:38:44,200 --> 00:38:47,920 Speaker 1: denominated debt as a way to diversify. It's big, you know, 674 00:38:48,080 --> 00:38:49,640 Speaker 1: it's money, it's portfolio. 675 00:38:49,640 --> 00:38:51,879 Speaker 3: I mean, it's it's it's certainly possible, And I would 676 00:38:51,960 --> 00:38:55,080 Speaker 3: argue that. I mean, for me, the argument to do 677 00:38:55,160 --> 00:39:00,239 Speaker 3: that is that if what you know about the way 678 00:39:00,239 --> 00:39:05,399 Speaker 3: the global financial cycle works is that countries with dollar 679 00:39:05,440 --> 00:39:08,560 Speaker 3: denominated debt that are commodity exported get into a lot 680 00:39:08,600 --> 00:39:11,480 Speaker 3: of trouble, and this happens to them repeatedly, then it 681 00:39:11,600 --> 00:39:14,839 Speaker 3: might make sense for you to look at buying their 682 00:39:14,960 --> 00:39:20,640 Speaker 3: debt in a currency that more closely corresponds their real cycles. 683 00:39:20,680 --> 00:39:23,000 Speaker 3: Just you know, it's like asking from the point from 684 00:39:23,000 --> 00:39:26,360 Speaker 3: a financial stability point of view, would you rather buy 685 00:39:26,680 --> 00:39:31,080 Speaker 3: Polish debt in zlati, in euros or in dollar? And 686 00:39:31,160 --> 00:39:34,880 Speaker 3: I would put it precisely in that order by Biden 687 00:39:34,920 --> 00:39:37,560 Speaker 3: Slotti first that in euros than in dollars. 688 00:39:37,480 --> 00:39:39,560 Speaker 1: Because every once in a while you hear those stories 689 00:39:39,560 --> 00:39:43,360 Speaker 1: about like in some European country and people have mortgages 690 00:39:43,640 --> 00:39:47,320 Speaker 1: dollars or something like that and then it's cheaper until 691 00:39:47,320 --> 00:39:50,200 Speaker 1: one day then they can't print them domestically and there's 692 00:39:50,239 --> 00:39:52,840 Speaker 1: a huge shock, and so it's like a macro version 693 00:39:52,880 --> 00:39:55,359 Speaker 1: of that story that you hear about from time to time. 694 00:39:55,760 --> 00:39:59,080 Speaker 3: Yeah, I think dollar centrality. I'm kind of mixed on 695 00:39:59,160 --> 00:40:00,759 Speaker 3: that for the US. And one thing I do want 696 00:40:00,760 --> 00:40:04,840 Speaker 3: to mention about dollar centrality as an advantage. Yes'm I 697 00:40:06,200 --> 00:40:10,920 Speaker 3: have no faith in these kind of beliefs that you know, 698 00:40:11,560 --> 00:40:14,040 Speaker 3: the loss of dollar centrality will lead to it crash 699 00:40:14,080 --> 00:40:17,040 Speaker 3: the US economy in the whole treasuries. I mean, that's 700 00:40:17,560 --> 00:40:20,279 Speaker 3: that's crap, right, because I mean, you know, the UK, 701 00:40:20,400 --> 00:40:22,560 Speaker 3: Australia and use it. When you have all these countries 702 00:40:22,719 --> 00:40:25,799 Speaker 3: that kind of printing their own currency, currencies go up 703 00:40:25,840 --> 00:40:29,239 Speaker 3: and down investors hold them. I think the one more 704 00:40:29,320 --> 00:40:33,920 Speaker 3: concrete benefit to the US is the US as much 705 00:40:33,920 --> 00:40:38,560 Speaker 3: lower inflation passed through when the currency weakens. Basically what 706 00:40:38,680 --> 00:40:42,120 Speaker 3: ends up happening is that the combination of invoice currency 707 00:40:42,120 --> 00:40:45,000 Speaker 3: effects is inertia there. And the sheer size of the 708 00:40:45,120 --> 00:40:51,120 Speaker 3: US economy means that when the dollar weakens, prices are 709 00:40:51,120 --> 00:40:55,200 Speaker 3: slow to change and wanting access to the US market, 710 00:40:56,120 --> 00:40:58,080 Speaker 3: which is the biggest market in the world, means that 711 00:40:58,160 --> 00:41:01,040 Speaker 3: exports to the US will mostly just eat it their margins, right. 712 00:41:01,080 --> 00:41:04,360 Speaker 3: And that's something that you know who's now who she 713 00:41:04,440 --> 00:41:06,520 Speaker 3: was the ex chief Economists not first Deputy MD of 714 00:41:06,520 --> 00:41:08,560 Speaker 3: the IMF. She's written a lot about. So that's kind 715 00:41:08,600 --> 00:41:11,319 Speaker 3: of a very concrete benefit which kind of brings us 716 00:41:11,360 --> 00:41:14,720 Speaker 3: to another point, which is China is the world's largest 717 00:41:14,760 --> 00:41:19,680 Speaker 3: manufacturing exporter. They're paying their workers in remenb. There's gotta 718 00:41:19,719 --> 00:41:22,040 Speaker 3: be someone somewhere who wants these remenb. It can't be, 719 00:41:22,080 --> 00:41:26,520 Speaker 3: you know, even taking into account the peculiarities of its 720 00:41:26,520 --> 00:41:29,880 Speaker 3: financial system. But I think this is where something The 721 00:41:29,960 --> 00:41:32,359 Speaker 3: people who are buying the most from China are the US, 722 00:41:33,120 --> 00:41:35,840 Speaker 3: right because that's the largest bilodal trade deficit, and there's 723 00:41:35,880 --> 00:41:39,920 Speaker 3: no way that the US is going to rednominate. It's 724 00:41:39,960 --> 00:41:44,040 Speaker 3: created with China into remybe, which kind of means that 725 00:41:44,120 --> 00:41:47,320 Speaker 3: this idea that you know, being the world's largest exporter 726 00:41:47,520 --> 00:41:49,600 Speaker 3: means someone is going to want your currency. I think 727 00:41:49,600 --> 00:41:52,960 Speaker 3: that runs into that runs into a problem. 728 00:41:53,160 --> 00:41:56,440 Speaker 1: Karthik, this is such a great conversation. I feel like 729 00:41:56,719 --> 00:41:59,040 Speaker 1: in the in like that spend of time, so many 730 00:41:59,239 --> 00:42:02,040 Speaker 1: like these long standing things were like tied up and 731 00:42:02,080 --> 00:42:05,480 Speaker 1: like several light bulbs went off. So really appreciate you 732 00:42:05,760 --> 00:42:07,919 Speaker 1: coming on Odd Lots for the first time. 733 00:42:08,000 --> 00:42:10,120 Speaker 4: It's been too long, but definitely won't be the last time. 734 00:42:10,960 --> 00:42:12,960 Speaker 3: That great. I really love being there. Thanks very much, 735 00:42:13,000 --> 00:42:13,279 Speaker 3: Thank you. 736 00:42:13,600 --> 00:42:15,799 Speaker 4: Thanks so much. So that was a lot of fun. 737 00:42:16,880 --> 00:42:21,279 Speaker 4: That was great. The anchor lot was a beautiful moment of. 738 00:42:21,200 --> 00:42:27,160 Speaker 1: Like too great, too great, a word play, a fishing 739 00:42:27,200 --> 00:42:44,120 Speaker 1: auto making magic happened live on air, Tracy. I loved 740 00:42:44,120 --> 00:42:46,879 Speaker 1: talking to Karthik, and the thing that like when I said, 741 00:42:46,920 --> 00:42:48,799 Speaker 1: you know, at the end the light bulb moments for 742 00:42:48,880 --> 00:42:51,640 Speaker 1: me was not even actually like the questions about the 743 00:42:51,640 --> 00:42:54,319 Speaker 1: future of the renmand B, but in this idea that 744 00:42:54,360 --> 00:42:56,320 Speaker 1: it would like solve some of these problems that we 745 00:42:56,360 --> 00:42:58,920 Speaker 1: talked about with human soungtion all these times that there 746 00:42:59,000 --> 00:43:01,880 Speaker 1: is there's like the economic cycle and the dollar cycle, 747 00:43:01,960 --> 00:43:04,120 Speaker 1: and we know that like that's a big problem all 748 00:43:04,120 --> 00:43:06,680 Speaker 1: around the world. And so maybe the story is like 749 00:43:06,719 --> 00:43:09,960 Speaker 1: in a more multipolar currency world, you just have fewer 750 00:43:10,000 --> 00:43:11,480 Speaker 1: those mismatches. 751 00:43:11,000 --> 00:43:14,320 Speaker 2: Right, and you have less pro syclicality in the system. 752 00:43:14,719 --> 00:43:18,239 Speaker 2: I mean, I thought his point about like is this 753 00:43:18,680 --> 00:43:22,880 Speaker 2: actually possible. Yeah, it feels like we're converging. I guess, 754 00:43:22,960 --> 00:43:27,080 Speaker 2: getting to a consensus where you know, we've switched from 755 00:43:27,280 --> 00:43:30,600 Speaker 2: never going to happen to it might happen, but it'll 756 00:43:30,640 --> 00:43:34,399 Speaker 2: take some time. But I think Karthik laid out there 757 00:43:34,400 --> 00:43:37,680 Speaker 2: reasons for that really clearly, which is the whole stock 758 00:43:37,760 --> 00:43:41,279 Speaker 2: versus flow are in it, like it takes time to 759 00:43:41,440 --> 00:43:45,720 Speaker 2: actually replace all those liabilities with something other than dollars. 760 00:43:45,920 --> 00:43:48,319 Speaker 1: Right, So you can have these announcements like you talked 761 00:43:48,320 --> 00:43:51,279 Speaker 1: about the recent announcement with Argentina, Like you can have 762 00:43:51,400 --> 00:43:54,439 Speaker 1: these announcements where you just improve the flow a little bit, 763 00:43:55,200 --> 00:43:57,000 Speaker 1: or you could or you could have like a big 764 00:43:57,080 --> 00:43:59,520 Speaker 1: change in stock. But if we're just going to do 765 00:43:59,560 --> 00:44:02,920 Speaker 1: it through like these sort of bilateral announcements, we're going 766 00:44:02,960 --> 00:44:05,120 Speaker 1: to denominate this and Redmon be we're going to denomince, 767 00:44:05,120 --> 00:44:08,000 Speaker 1: It'll happen just really slow. We'll just take a really 768 00:44:08,040 --> 00:44:10,640 Speaker 1: long time as opposed to something sort of big, which 769 00:44:10,680 --> 00:44:13,399 Speaker 1: is like okay, like China decides we're going to start 770 00:44:13,400 --> 00:44:16,200 Speaker 1: making all these loans in Redmon b which is really interesting. 771 00:44:16,400 --> 00:44:18,000 Speaker 1: Kind of makes me feel good that like even Brad 772 00:44:18,000 --> 00:44:19,480 Speaker 1: sets Are doesn't know the answer to that one. 773 00:44:19,680 --> 00:44:22,440 Speaker 2: Yeah, well that was like the big question for me 774 00:44:22,480 --> 00:44:24,840 Speaker 2: because it would make sense in a lot of different ways. 775 00:44:24,880 --> 00:44:27,640 Speaker 2: But the other thing about that episode is I think 776 00:44:27,640 --> 00:44:29,720 Speaker 2: it's another one that's just going to lead to further 777 00:44:29,800 --> 00:44:32,160 Speaker 2: episodes because now we got to get Brad Setser on 778 00:44:32,360 --> 00:44:35,840 Speaker 2: to eat yes, And I know we've had Michael Pettis 779 00:44:35,840 --> 00:44:38,439 Speaker 2: one before, but I feel like we should maybe dive 780 00:44:38,480 --> 00:44:40,640 Speaker 2: in a little bit more to the China's social safety 781 00:44:40,640 --> 00:44:44,399 Speaker 2: Net question. Yes, she and Matt Klein have written about 782 00:44:44,440 --> 00:44:46,440 Speaker 2: in various ways, so we need to do that. 783 00:44:47,000 --> 00:44:48,319 Speaker 4: Many follow ups to come. 784 00:44:48,480 --> 00:44:49,520 Speaker 2: All right, shall we leave it there? For? 785 00:44:49,560 --> 00:44:49,600 Speaker 3: No? 786 00:44:49,920 --> 00:44:50,399 Speaker 4: Leave it there? 787 00:44:50,600 --> 00:44:53,320 Speaker 2: This has been another episode of the All Thoughts podcast. 788 00:44:53,400 --> 00:44:56,680 Speaker 2: I'm Tracy Alloway. You can follow me on Twitter at Tracy. 789 00:44:56,320 --> 00:44:58,080 Speaker 4: Alloway and I'm Jill Why Isn't Thal? 790 00:44:58,120 --> 00:45:01,240 Speaker 1: You can follow me on Twitter at the Stalwart. Follow 791 00:45:01,280 --> 00:45:05,480 Speaker 1: our guest Karthik soundchron all many many puns a day, 792 00:45:05,760 --> 00:45:09,480 Speaker 1: even beyond his wisdom, just absolute must follow in my view. 793 00:45:09,560 --> 00:45:13,960 Speaker 1: His handle is at Rajah Corman. Follow our producers Carmen 794 00:45:14,040 --> 00:45:18,440 Speaker 1: Rodriguez at Carmen Arman and Dashel Bennett at Dashbock. And 795 00:45:18,520 --> 00:45:21,960 Speaker 1: check out all of our podcasts under the handle at podcasts. 796 00:45:22,000 --> 00:45:24,640 Speaker 1: And for more odd loots content, go to Bloomberg dot 797 00:45:24,640 --> 00:45:27,560 Speaker 1: com slash odd lots, where we have transcripts, a blog, 798 00:45:27,640 --> 00:45:30,600 Speaker 1: and a newsletter, and check out the discord Discord dot 799 00:45:30,680 --> 00:45:32,320 Speaker 1: gg slash odd lots talk. 800 00:45:32,200 --> 00:45:33,440 Speaker 4: About all of these topics. 801 00:45:33,480 --> 00:45:36,760 Speaker 1: Twenty four to seven, Blue Fellow listeners and stream Bloomberg 802 00:45:36,800 --> 00:45:40,440 Speaker 1: originals on Apple TV, Roku, or Samsung TV. Tune in 803 00:45:40,440 --> 00:46:06,920 Speaker 1: at Bloomberg TV at ten pm Eastern