WEBVTT - What Needs to Happen for the Renminbi to Seriously Compete With the Dollar 0:00:10.160 --> 0:00:13.880 Hello, and welcome to another episode of the Odd Locks podcast. 0:00:13.920 --> 0:00:16.200 I'm Joe Wisenthal and I'm Tracy Alloway. 0:00:16.680 --> 0:00:22.560 Tracy Dollar strength, dollar dominance conversation is not going away. 0:00:23.079 --> 0:00:26.120 No, I mean it's never really gone away. 0:00:26.400 --> 0:00:26.759 Is that? 0:00:26.840 --> 0:00:26.960 Like? 0:00:27.040 --> 0:00:29.400 That was our intro for the last episode we did 0:00:29.400 --> 0:00:32.240 on this topic, which is it seems like every couple 0:00:32.240 --> 0:00:34.920 of years you get this resurgence about oh, the end 0:00:34.960 --> 0:00:37.960 of the dollar. The dollar's going to lose its exorbitant privilege. 0:00:38.120 --> 0:00:40.639 I remember my dad sending me articles about like, oh, 0:00:40.680 --> 0:00:43.879 a Rack is invoicing oil in euros like in nineteen 0:00:44.360 --> 0:00:48.280 ninety eight or something. Lots of conspiracy theories around that one. 0:00:48.760 --> 0:00:53.000 But I will say we had that conversation with Paul McNamara. 0:00:53.159 --> 0:00:55.440 It was a really good overview of some of the 0:00:55.560 --> 0:01:00.440 talk that's happening right now and why certain countries scifically 0:01:00.480 --> 0:01:03.639 emerging markets like China might want to get away from 0:01:03.720 --> 0:01:06.080 the dollar. But I feel like there's more to say. 0:01:06.160 --> 0:01:08.000 All right, I'm going to make a confession, which is 0:01:08.040 --> 0:01:10.600 that in all of these conversations, there are certain things 0:01:10.600 --> 0:01:12.040 that people say and I just sort of like nod 0:01:12.080 --> 0:01:14.080 in my head to like, M that's right. That's right, 0:01:14.200 --> 0:01:16.400 but I don't totally get them. And one of them 0:01:16.720 --> 0:01:18.520 and it can it's not even so much about the 0:01:18.560 --> 0:01:21.480 dollar per se, but about dollar alternatives, right, And the 0:01:21.520 --> 0:01:24.319 big one is like, well, the redmon B cannot be 0:01:24.360 --> 0:01:27.520 a real dollar alternative until China runs a current account deficit. 0:01:28.200 --> 0:01:31.560 That's right, that's right, But like beyond that, like I actually, 0:01:31.600 --> 0:01:33.920 like do not totally get what that means or what 0:01:33.920 --> 0:01:37.600 what actual constraint China's trade position with the rest of 0:01:37.640 --> 0:01:41.080 the world means for the future of renman B internationalization. 0:01:41.360 --> 0:01:43.679 Well, I think the way I would frame it is, 0:01:43.720 --> 0:01:46.600 one thing we hear is that there isn't a viable 0:01:46.640 --> 0:01:49.840 alternative to the dollar. There are no other currencies slash 0:01:49.920 --> 0:01:53.040 country economies that are at the level the US's that 0:01:53.080 --> 0:01:55.520 could possibly replace the dollar. And so I think we 0:01:55.560 --> 0:01:59.920 need to talk about why that is, what exactly that means? 0:02:00.080 --> 0:02:02.440 What does it mean? So I get the idea that, Okay, 0:02:02.440 --> 0:02:07.640 maybe a country doesn't have enough financial assets for savers 0:02:07.680 --> 0:02:10.280 to buy to put their excess money in. I get that, 0:02:10.680 --> 0:02:14.160 But what does it mean that it's not a viable alternative? 0:02:14.639 --> 0:02:16.200 And I guess the question is like, okay, but what 0:02:16.240 --> 0:02:18.639 would it take yeah, right, Like it's like, I guess 0:02:18.760 --> 0:02:21.079 we could sort of agree this basic premise. Maybe there's 0:02:21.080 --> 0:02:24.600 some impulse for some countries to move away from the dollar. Also, 0:02:24.680 --> 0:02:27.959 there are no real alternatives at this point, but maybe 0:02:28.040 --> 0:02:30.600 at one point there will be. But actually, what would 0:02:30.600 --> 0:02:34.160 it take for another currency, maybe the renmand be, maybe 0:02:34.200 --> 0:02:38.239 the euro, to actually become a meaningful global reserve Now, if. 0:02:38.160 --> 0:02:40.720 China woke up tomorrow and put this like at the 0:02:40.760 --> 0:02:42.720 top of its agenda, I don't think it's going to, 0:02:43.200 --> 0:02:46.000 but what would that sort of ten step plan actually 0:02:46.040 --> 0:02:46.360 look like. 0:02:46.520 --> 0:02:49.080 That's a great way to sort of frame the conversation. 0:02:49.200 --> 0:02:50.799 What would it actually look like. So we're going to 0:02:50.880 --> 0:02:53.720 sort of be having part two to our recent conversation 0:02:53.880 --> 0:02:56.600 with Paul actually a long time a friend of Paul's, 0:02:57.360 --> 0:02:59.800 so maybe a similar, different perspective, but sort of like 0:03:00.600 --> 0:03:03.040 of what would it take for some other currency to 0:03:03.120 --> 0:03:06.560 be a meaningful global reserve currency. I'm very excited we're 0:03:06.560 --> 0:03:09.440 gonna be speaking with karthik sonchron a true FX veteran, 0:03:09.639 --> 0:03:13.760 recently at Corpe, He's been at Eurrasier Group, multiple banks, 0:03:14.000 --> 0:03:17.520 an avid maker of dad jokes and puns on Twitter. 0:03:17.600 --> 0:03:21.320 So just to actually cover Paul when he was trading right. 0:03:21.280 --> 0:03:24.480 So a perfect guest for this conversation in many respects, 0:03:24.520 --> 0:03:27.079 and someone who I feel like I've wanted to have 0:03:27.120 --> 0:03:29.280 on the show for like years and is like, in 0:03:29.280 --> 0:03:31.440 my mind, an odd lot's guest even though he hasn't 0:03:31.440 --> 0:03:33.800 been on the show before. Karthik sonchron thank you so 0:03:33.880 --> 0:03:35.480 much for finally joining us here. 0:03:36.200 --> 0:03:37.760 Thank you very much for having me. So that's a 0:03:37.800 --> 0:03:38.400 pleasure to be here. 0:03:38.440 --> 0:03:40.640 And what does that mean? 0:03:40.800 --> 0:03:43.240 Actually before I want to get to the alternatives just 0:03:43.320 --> 0:03:46.480 before we do, though, real quickly. I mean, you listen 0:03:46.480 --> 0:03:49.400 to our recent episode with your long time friend and 0:03:49.440 --> 0:03:52.200 colleague Paul McNamara, in which he said there is some 0:03:52.280 --> 0:03:55.960 global impulse for countries to stop using dollars, but there 0:03:55.960 --> 0:03:59.400 really aren't many alternatives. Do you basically agree with that premise? 0:04:00.200 --> 0:04:04.360 Yeah, I mean there are. I'd say two things about that. 0:04:04.440 --> 0:04:09.400 One is I think going to replacement, and that's how 0:04:09.400 --> 0:04:12.600 this usually gets framed as replacements. I think that's silly. 0:04:12.640 --> 0:04:15.960 And the way I think about it is, would it 0:04:16.040 --> 0:04:20.880 makes sense to see creeping regional displacement rather than replacement? 0:04:21.000 --> 0:04:24.839 And I think that's that's that's that's the possibility, and 0:04:24.880 --> 0:04:27.800 I would argue that the Euro has already done that 0:04:27.880 --> 0:04:31.440 to some extent in you know, not just in the 0:04:31.480 --> 0:04:34.360 Euro area, but also in Central and Eastern Europe, you know, 0:04:34.400 --> 0:04:36.320 And I remember when I started my career. You know, 0:04:36.320 --> 0:04:39.559 if you wanted to trade there's lotty, you traded dollar 0:04:39.560 --> 0:04:41.800 Polish and if someone asked for a price in Marx Lotti, 0:04:41.920 --> 0:04:44.799 you traded through the legs. Now it's the other way around. 0:04:45.240 --> 0:04:47.359 You know, if someone asked for a price in dollar Polish, 0:04:47.640 --> 0:04:50.240 you trade. You're Polish and you're a dollar. So it's 0:04:50.279 --> 0:04:54.080 taken a long time, but I think that's this regional 0:04:54.120 --> 0:04:58.240 displacement idea. But what this also brings out to me 0:04:58.320 --> 0:05:01.360 at least is everyone is so excited about the re 0:05:01.440 --> 0:05:06.839 memby kind of this bricks currency and so on. And 0:05:06.920 --> 0:05:09.600 one way to frame why I think, you know, there 0:05:09.680 --> 0:05:12.240 is a desire but it's a very long way from 0:05:12.279 --> 0:05:16.000 being fulfilled, is that look at what the euro has, 0:05:16.040 --> 0:05:19.000 which is kind of a solid number two pretty you know, 0:05:19.040 --> 0:05:21.920 kind of like avis to the dollars hurts. At least 0:05:21.920 --> 0:05:25.080 that's the way the old commercials used to go. But 0:05:26.880 --> 0:05:31.280 the re memb is really really really far behind. And 0:05:31.480 --> 0:05:33.800 one thing, just because I've been introduced as an avid 0:05:33.800 --> 0:05:34.600 maker of dad joke. 0:05:35.320 --> 0:05:37.080 First one to the first one here. 0:05:37.000 --> 0:05:41.400 It is is that or whenever this is played? But 0:05:41.839 --> 0:05:45.960 you know, you mentioned a ten step program for re 0:05:46.000 --> 0:05:49.440 memb internationalization, and I was reminded that the last person 0:05:49.440 --> 0:05:51.400 who had a ten step program that really worked with 0:05:51.480 --> 0:05:52.039 gengis Khan. 0:05:54.200 --> 0:05:56.679 Okay, let's not go anywhere. 0:05:57.400 --> 0:06:01.800 Okay, sorry, I'm gonna at the dad jokes. Just to 0:06:01.839 --> 0:06:02.880 back up a second. 0:06:03.360 --> 0:06:05.919 Oh, it took me a second to get that one. Actually, sorry, 0:06:05.920 --> 0:06:07.840 I it took me a second to get that. 0:06:07.839 --> 0:06:09.400 That's a good life. Okay, we're gonna have a fun 0:06:09.440 --> 0:06:09.840 time here. 0:06:11.120 --> 0:06:13.520 Just to backup and ask this question in a different way. 0:06:13.560 --> 0:06:16.880 But I mean, there is there is this assumption that 0:06:17.000 --> 0:06:23.400 China would want to have renman be internationalization. Should they 0:06:23.440 --> 0:06:26.520 want that? You know, if you consider China as an 0:06:26.520 --> 0:06:31.840 export driven economy that exchanges goods in return for US dollars, 0:06:31.839 --> 0:06:35.880 which are a relatively stable currency, does it make sense 0:06:35.960 --> 0:06:39.440 that it would want to have a different economic model. 0:06:39.480 --> 0:06:41.279 What are the benefits that it gets out of that? 0:06:42.440 --> 0:06:44.640 I mean, I disagree with this, you know, and the 0:06:44.640 --> 0:06:47.720 stuff that Joe mentioned in the beginning, does the country 0:06:47.760 --> 0:06:50.440 at the center of the international monetary system need to 0:06:50.520 --> 0:06:54.680 run deficits, and I don't think that's necessarily in fact, 0:06:56.440 --> 0:06:59.839 because you have a model written under the gold standard 0:07:00.120 --> 0:07:03.280 with a huge exporter of capital. The US, until the 0:07:03.320 --> 0:07:05.920 mid nineteen sixties was the center of the Bretonwood system 0:07:06.000 --> 0:07:08.840 and was also a huge exporter of capital. So what 0:07:08.839 --> 0:07:13.720 that suggests is that it is possible for a surplus 0:07:13.760 --> 0:07:19.880 country to run to be the center of the monetary system. 0:07:20.240 --> 0:07:21.960 You just have to find a way to get that 0:07:22.000 --> 0:07:26.240 currency out the door in size, in massive size. And 0:07:26.320 --> 0:07:31.400 you can do that either through the trade account by 0:07:31.480 --> 0:07:34.240 running very large external deficits, or you can do it 0:07:34.280 --> 0:07:37.960 by externing great jobs of capital either in your currency 0:07:38.480 --> 0:07:43.600 or that other countries are denominating your currency. So I 0:07:43.600 --> 0:07:46.840 think that's one way to think about it. But clearly 0:07:47.600 --> 0:07:50.520 China is not there, and they'll have a very long 0:07:50.600 --> 0:07:56.960 time getting there, not just because of the issues with 0:07:57.000 --> 0:08:00.320 capital con convertibility, but there's a lot of things in 0:08:00.360 --> 0:08:05.480 the basic way that Chinese financial markets operate that make 0:08:05.520 --> 0:08:08.400 it difficult even for other people to issue in REMN 0:08:08.440 --> 0:08:09.240 and BA size. 0:08:09.320 --> 0:08:11.280 So let's jump into this because I think this is 0:08:11.320 --> 0:08:15.920 a point that I have not really heard many people make. 0:08:16.000 --> 0:08:18.280 So people make the point that it's like, Okay, one 0:08:18.280 --> 0:08:21.080 way to get your currency out there into the world 0:08:21.200 --> 0:08:24.560 is to run a big trade deficit. But as we know, 0:08:25.440 --> 0:08:28.080 and I'm even thinking back to some of our conversations 0:08:28.120 --> 0:08:30.120 with like lev men and about the rise of the 0:08:30.160 --> 0:08:33.000 shadow banking system in euro dollars, the other pot way 0:08:33.240 --> 0:08:36.959 is just for other entities to start issuing your currency 0:08:37.800 --> 0:08:41.760 or assets that are denominated in your currency. And theoretically 0:08:41.880 --> 0:08:46.319 I could issue a renmon b denominated loan and off 0:08:46.480 --> 0:08:48.319 tell someone I'm going to pay them back in renman b. 0:08:48.679 --> 0:08:50.360 But you made this point with respect. 0:08:50.960 --> 0:08:53.200 It's a great thread with respect to Brazil, which is 0:08:53.200 --> 0:08:55.439 that actually like what we need to see as countries 0:08:55.520 --> 0:08:59.000 like Brazil being willing to take out renmon be denominated debt. 0:08:59.040 --> 0:09:01.880 Can you talk a little bit about the importance of that, Like, 0:09:02.400 --> 0:09:03.600 I think that's a very powerful thing. 0:09:03.679 --> 0:09:05.840 Not many people have talked about like this element of it. 0:09:06.000 --> 0:09:07.640 Yeah, And I think they are actually two issues in 0:09:07.679 --> 0:09:10.920 some ways. It might actually be a good idea for 0:09:10.960 --> 0:09:15.040 Bristol to issue remimbi debt, right because you have and 0:09:15.120 --> 0:09:18.200 I think this is one of the arguments for a 0:09:18.280 --> 0:09:22.920 multipolar system. More broadly is if you're a country whose 0:09:23.640 --> 0:09:27.360 terms of trade are driven by what's happening in China, 0:09:27.360 --> 0:09:30.240 if your business cycle is much more responsive to China, 0:09:30.760 --> 0:09:33.040 that it makes sense to be able to issue in 0:09:33.080 --> 0:09:36.160 the Chinese currency, because what you don't want to be 0:09:36.160 --> 0:09:38.200 in the situation that you see emerging markets end up 0:09:38.200 --> 0:09:42.720 in all the time they issued in dollars, the commodity exporters, 0:09:42.720 --> 0:09:47.640 commodities are priced in dollars, the world slows Chinas, commodity 0:09:47.640 --> 0:09:51.120 prices tank, the dollar goes up, and their host I 0:09:51.120 --> 0:09:53.200 mean this is like, you know, this is like this 0:09:53.800 --> 0:09:57.440 rinse and repeat cycle in the international financial system. So 0:09:57.480 --> 0:10:01.080 it might actually make sense for you know, that thread 0:10:01.160 --> 0:10:03.240 for you know, I was saying, like I'll get excited 0:10:03.240 --> 0:10:07.760 when cbr D issues like a huge amount in pandemonds. 0:10:08.640 --> 0:10:13.440 But that's difficult, that's really difficult, and there's so many 0:10:13.440 --> 0:10:16.560 different reasons for that related to the way Chinese financial 0:10:16.600 --> 0:10:21.440 markets work. One is, if you issue in REDMENB, which 0:10:21.559 --> 0:10:24.040 remenbe do you want to issue in do you want 0:10:24.080 --> 0:10:28.120 to issue in the onhore market which is deeper, or 0:10:28.160 --> 0:10:31.320 do you want to issue in the offshore market, which 0:10:31.559 --> 0:10:34.120 you know, which where you might have more people able 0:10:34.160 --> 0:10:38.280 to transact, but it's a much sellower market. If you 0:10:38.280 --> 0:10:41.439 do end up issuing the entre market, obviously they're you know, 0:10:42.000 --> 0:10:46.480 and you may not want to. The reputation that Chinese 0:10:46.559 --> 0:10:50.400 investors have is of being somewhat more excitable. I think 0:10:50.400 --> 0:10:54.240 we've seen that in via in the equity markets. On 0:10:54.280 --> 0:10:58.680 the other hand, if you issue offshore, the problem is 0:10:58.720 --> 0:11:02.480 that China not only have as to currency CNY and 0:11:02.559 --> 0:11:05.920 CNH and not your currency and off shore currency that 0:11:06.200 --> 0:11:11.640 trade reasonably closely together a lot of the time. But 0:11:11.800 --> 0:11:14.120 one of the ways they do that is by having 0:11:14.160 --> 0:11:19.160 different interest rates. And one of the things that Chinese 0:11:19.280 --> 0:11:23.360 do periodically is when their worried about the speculative pressure 0:11:23.559 --> 0:11:28.400 on their MMB, which they think is coming from offshore players, 0:11:29.200 --> 0:11:31.720 is they will jack up interest rates on CNH. They 0:11:31.720 --> 0:11:33.240 will take it to the moon. They've seen it a 0:11:33.240 --> 0:11:39.040 few times, which might work in deterring the speculators, bring 0:11:39.920 --> 0:11:43.760 you know, speculative pressure back down again, get CNY and 0:11:43.800 --> 0:11:47.760 CNH to converge, but that's really not that comfortable if 0:11:47.760 --> 0:11:52.040 you've issued in you know, in the you know, in 0:11:52.080 --> 0:11:55.000 the off shore currency. So you know, and one of 0:11:55.040 --> 0:11:57.160 the things that the US has the dollar has is 0:11:57.280 --> 0:12:00.200 incredibly deep derivative markets or instance, so if you want 0:12:00.240 --> 0:12:02.800 to issue, if you if you issue in dollars and 0:12:02.880 --> 0:12:06.000 you want to head your interest rate risk, you can 0:12:06.080 --> 0:12:08.360 do it by trading your dollars. Probably the most liquid, 0:12:08.440 --> 0:12:12.040 one of the most liquid financial futures contracts in the world, 0:12:12.280 --> 0:12:15.560 I would remember financial futures. Interest rate futures are just 0:12:15.600 --> 0:12:18.680 a are like a very very very small fraction of that. 0:12:19.360 --> 0:12:21.960 The other issue with issuing on shore is you know 0:12:22.000 --> 0:12:27.120 what's your and I'm China has this huge domestic debt market. 0:12:27.120 --> 0:12:32.200 It's the world's second largest debt domestic debt market, but 0:12:33.520 --> 0:12:37.800 to a very significant extent, it's composed of entities with 0:12:37.920 --> 0:12:41.360 opaque finances. Right the CGB market, the Chinese government bond 0:12:41.360 --> 0:12:44.760 market is a relatively small fraction of the onshore market. 0:12:44.880 --> 0:12:47.600 Just true, you know which and treasuries are not the 0:12:47.679 --> 0:12:51.840 entirety of the US market either, but the opacity of 0:12:52.040 --> 0:12:56.319 entities issuing domestically is significantly hard. You know. My one 0:12:56.360 --> 0:12:58.840 liner on this is everyone talks about China not having 0:12:58.840 --> 0:13:01.040 a rule of law. My view is that the real 0:13:01.040 --> 0:13:03.080 problem the China doesn't have rule of accounting. That's the 0:13:03.120 --> 0:13:06.480 real issue here, so expect that. 0:13:06.760 --> 0:13:10.600 Yeah, I was expected I was stealing myself karthk So 0:13:10.920 --> 0:13:12.600 I guess this brings me to the big question, which 0:13:12.640 --> 0:13:16.280 is how much of this boils down to just capital 0:13:16.320 --> 0:13:18.800 controls and the fact that China does not have an 0:13:18.840 --> 0:13:21.640 open economy, and you might expect that one of the 0:13:21.720 --> 0:13:25.439 requisites for having an international currency would be to have 0:13:25.559 --> 0:13:28.160 relatively free movement of that currency. 0:13:29.080 --> 0:13:33.839 Absolutely, I mean that's I think capital controls are a 0:13:33.920 --> 0:13:36.480 you know, and that's the obvious that's the obvious one, 0:13:37.000 --> 0:13:39.160 and they're trying to tinker with it at the edges, 0:13:39.840 --> 0:13:43.800 allowing in flows and outflows. But even at those edges, 0:13:44.280 --> 0:13:45.520 you know, what I was trying to get at was 0:13:45.559 --> 0:13:48.640 this idea that you know, you have in offshore rem MEMB. 0:13:48.800 --> 0:13:52.640 That's much that's more freely tradeable than the onshore REMMB, 0:13:53.280 --> 0:13:57.679 But there are very sizable disincentives to issuing in size 0:13:57.679 --> 0:14:02.800 in the offshore REMMB because these things like a smaller market. 0:14:03.160 --> 0:14:05.240 How do you head? So capital controls are a huge 0:14:05.240 --> 0:14:06.600 part of it, But if you dig deeper into the 0:14:06.600 --> 0:14:11.040 capital controls issue, I think it raises more questions. 0:14:11.559 --> 0:14:14.080 Well, then I would sort of want to maybe just 0:14:14.120 --> 0:14:17.080 go back to a question Tracy asked, which is, like, 0:14:17.800 --> 0:14:21.120 is there a reason China should pursue the internationalization of 0:14:21.120 --> 0:14:24.880 the renmen b or should pursue having more global central 0:14:24.920 --> 0:14:29.200 banks hold renmon be as part of their reserve stock, Like, 0:14:29.360 --> 0:14:32.120 is there some obvious reason why you know, it's not 0:14:32.160 --> 0:14:34.120 going to be number one on the agenda, but is 0:14:34.160 --> 0:14:35.800 there a reason why it should be in the top 0:14:35.840 --> 0:14:37.640 ten or top twenty of the agenda. 0:14:38.600 --> 0:14:40.720 I mean, one of the things that they've said for 0:14:40.880 --> 0:14:47.440 years is that they want to see a more internationalizedrum, 0:14:47.480 --> 0:14:49.080 and but I think when they look at the trade 0:14:49.080 --> 0:14:51.680 offs that they might need to make, I don't think 0:14:51.680 --> 0:14:55.520 they're ready to, you know, take a to take a 0:14:55.600 --> 0:14:58.800 huge jump. And I think the the other issue is 0:14:58.800 --> 0:15:01.320 that we've seen this before, right Japan didn't want to. 0:15:01.640 --> 0:15:04.320 Japan didn't want to either, And about thirty years ago 0:15:04.760 --> 0:15:08.680 people were talking about the extent to which Japan and 0:15:08.760 --> 0:15:11.600 the end could act as another reserve currency, and the 0:15:11.680 --> 0:15:15.160 Japanese just decided they simply didn't want to because of 0:15:15.200 --> 0:15:17.880 the pressure it would put on the profitability of their 0:15:17.880 --> 0:15:21.040 industrial base. Things are somewhat different from China in the 0:15:21.120 --> 0:15:24.800 sense that they seem to have a hankering for kind 0:15:24.800 --> 0:15:27.240 of broad spectrum global power in a way that the 0:15:27.320 --> 0:15:31.120 Japanese did not have, and maybe having an international currency 0:15:32.000 --> 0:15:34.960 is part of that, but to the extent that it happens, 0:15:35.000 --> 0:15:37.280 it would likely be much more halting. But they've got 0:15:37.280 --> 0:15:39.760 a really, really long way though regard. 0:15:56.600 --> 0:16:00.800 So Karthik, just going back to the deficit, I and 0:16:00.880 --> 0:16:02.720 I know you kind of spoke to this already, but 0:16:02.840 --> 0:16:05.880 what if instead of telling China to run like a 0:16:05.920 --> 0:16:09.960 massive deficit, what if China was able to retool its 0:16:10.000 --> 0:16:12.640 economy in some way where I mean, the reason it 0:16:12.760 --> 0:16:17.080 runs this big ball of savings that tends to roll 0:16:17.120 --> 0:16:19.920 around internally is because there isn't that much of a 0:16:20.000 --> 0:16:22.600 social safety net. There isn't that much of a you know, 0:16:22.960 --> 0:16:25.760 social welfare in the state, and so people tend to 0:16:25.920 --> 0:16:29.640 accumulate a lot of savings or maybe rely on their children. 0:16:29.720 --> 0:16:32.040 But given the one child policy that's been in effect 0:16:32.120 --> 0:16:35.360 for a long time until recently, that wasn't really viable. 0:16:35.600 --> 0:16:38.840 What if China just built a social safety net to 0:16:38.960 --> 0:16:42.800 reduce the excess savings. Would that go some way towards 0:16:42.840 --> 0:16:46.160 retooling the economy in such a way that you could 0:16:46.600 --> 0:16:48.840 have r and b internationalization. 0:16:50.280 --> 0:16:52.120 Yeah, I mean I think so. I mean, to my mind, 0:16:52.160 --> 0:16:54.600 it would actually take care of two or three different issues. 0:16:54.960 --> 0:16:59.120 And one is the underlying growth model in and of itself, right, 0:16:59.160 --> 0:17:02.840 because you've kind of, you know, all the low hanging 0:17:02.960 --> 0:17:08.760 fruit on investment, particularly real estate investment. You know, they're gone. 0:17:09.520 --> 0:17:13.200 And I've kind of tended to be an optimist about 0:17:13.480 --> 0:17:16.160 China because I think you kind of need two things. 0:17:16.880 --> 0:17:21.800 One is a kind of demonstrated capacity for technological convergence 0:17:21.840 --> 0:17:25.240 and income convergence for the rest of the world, which 0:17:25.240 --> 0:17:28.720 they've shown. But the other thing you really need is 0:17:28.880 --> 0:17:33.280 internal convergence between kind of the coast and the interior, more. 0:17:33.200 --> 0:17:36.040 Middle income in the Middle Kingdom. That's my dad joke. 0:17:36.800 --> 0:17:37.600 Thank you. 0:17:38.080 --> 0:17:41.560 I like that. Thanks, And you know, and you kind 0:17:41.560 --> 0:17:44.359 of look at you know works, you know works about 0:17:44.400 --> 0:17:47.440 what rural China is like. There's just there's a huge 0:17:47.680 --> 0:17:52.800 incentive both socially and economically to to do that. To 0:17:52.880 --> 0:17:55.920 do that, and think the other thing that lower precautionary 0:17:55.960 --> 0:18:01.200 savings would would achieve is that would be a contribution 0:18:01.320 --> 0:18:05.720 to ending this kind of like really horrible nexus of 0:18:06.000 --> 0:18:10.200 excess savings no place to put them, and underfunded mandates 0:18:10.240 --> 0:18:14.040 for local governments, which then end up having to sell 0:18:14.080 --> 0:18:19.919 real estate to developers in order to, you know, in 0:18:20.000 --> 0:18:21.760 order to get the money to provide the services the 0:18:21.760 --> 0:18:25.520 central government want. So there's this really nasty nexus right 0:18:25.640 --> 0:18:29.360 there that a larger social safety net would also help 0:18:29.400 --> 0:18:31.240 with it help with financial stability. 0:18:31.280 --> 0:18:34.000 I think, Joe, this is something that I've never really 0:18:34.080 --> 0:18:37.520 understood about China, that it's ostensibly a socialist country, but 0:18:37.600 --> 0:18:40.200 it actually doesn't have that big. 0:18:40.080 --> 0:18:40.480 Of a say. 0:18:41.640 --> 0:18:43.760 I think like anti unions and weren't there like some 0:18:43.880 --> 0:18:46.359 stories like they didn't want kids reading marks and stuff 0:18:46.400 --> 0:18:46.680 like that. 0:18:46.760 --> 0:18:47.919 I don't know, maybe I may have. 0:18:48.119 --> 0:18:51.040 I think I read something like that. Anyway, I don't 0:18:51.080 --> 0:18:51.960 want to expect it. 0:18:52.040 --> 0:18:53.760 I think that I don't Well, you know, this is 0:18:53.880 --> 0:18:57.920 the socialist The Chinese road to socialism is the Lendinis 0:18:57.960 --> 0:19:00.000 road to capitalism. Is kind of how you could think. 0:18:59.840 --> 0:19:02.480 Of there you go going back to the US real quickly. 0:19:02.520 --> 0:19:05.920 So you pointed out that like Japan decided in the end, 0:19:05.960 --> 0:19:07.760 it didn't want to make the trade offs that would 0:19:07.840 --> 0:19:11.080 have required for the for the end to be a 0:19:11.080 --> 0:19:14.720 big international currency, and maybe China will not anytime soon 0:19:15.400 --> 0:19:17.480 choose to make those trade offs. But that of course 0:19:17.520 --> 0:19:20.160 brings back to another sort of like other debate that 0:19:20.200 --> 0:19:23.040 people have and again Klein petests and some of these others, 0:19:23.080 --> 0:19:26.520 it's like, well, is the dollar strength of burden? And 0:19:26.720 --> 0:19:30.119 you know, should we reverse that basically try? Should we 0:19:30.160 --> 0:19:32.440 try on some level, at least at the margins to 0:19:32.520 --> 0:19:35.840 deinternationalize the US dollar that maybe is not so great. 0:19:35.880 --> 0:19:38.080 I'm curious, like where you stand on that question. 0:19:38.840 --> 0:19:42.920 My personal view is that the my response to the 0:19:43.040 --> 0:19:49.639 burden discourse is check your exorbitan privilege, because you know, 0:19:49.640 --> 0:19:53.000 I've been around, you know em long enough that I 0:19:53.000 --> 0:19:55.359 think that if you think being able to print dollars 0:19:55.359 --> 0:19:58.720 to pay your debt is a problem, try owing dollars 0:19:58.760 --> 0:20:02.480 without having any. So that's you know, that's that's extreme. 0:20:02.520 --> 0:20:05.439 But I guess more substantively, I would say that there 0:20:05.440 --> 0:20:07.840 are lots of reasons I don't think the dollar is 0:20:07.840 --> 0:20:11.560 is a burden. It certainly is a burden for certain 0:20:11.600 --> 0:20:16.640 sectors of the US economy that are very exchange rates 0:20:16.640 --> 0:20:21.160 sensitive and very exposed to kind of catch up growth 0:20:21.280 --> 0:20:25.800 in other countries, you know, and those regions also fall 0:20:25.880 --> 0:20:31.000 basically along America's political fulcrum, which is the upper Midwest 0:20:31.000 --> 0:20:33.880 and western pensivey, you know, so, so I think that 0:20:34.240 --> 0:20:39.080 adds a political urgency to this debate. That said, you know, 0:20:39.119 --> 0:20:43.920 the US in total, I think is a much more 0:20:43.960 --> 0:20:47.280 interest rate sensitive economy than it is an exchange rate 0:20:47.359 --> 0:20:49.480 sensitive economy. It's basically it's a much more closed to 0:20:49.480 --> 0:20:52.879 economy than either China or Europe. And if you think 0:20:52.960 --> 0:20:58.879 that the flip side of dollar centrality leading to dollar strength, 0:20:58.880 --> 0:21:02.320 which I'm also not convinced is always true, is lower 0:21:02.359 --> 0:21:06.560 interest rates and otherwise, then you have to ask the question, 0:21:07.359 --> 0:21:09.720 why are we not doing more with that windfall from 0:21:09.760 --> 0:21:12.199 low interest rates? Why why did we sink it all 0:21:12.240 --> 0:21:16.360 in countertops as opposed to doing things like you know, 0:21:16.840 --> 0:21:20.320 improving Laguardi you know, fifteen years ago, or building a 0:21:20.359 --> 0:21:23.239 better bque. I've only been here five years, so all 0:21:23.240 --> 0:21:28.000 my analogies is still East coast in egg. But you know, 0:21:28.600 --> 0:21:31.120 and I think there, I mean, I think finally we're 0:21:31.200 --> 0:21:33.959 moving that direction of having a more activist government that 0:21:34.280 --> 0:21:38.960 uses that potential windfall from issuing currency to do something 0:21:38.960 --> 0:21:42.080 more in terms of building out essential infrastructure, rather than 0:21:42.160 --> 0:21:44.320 being oh, the government always does stupid things, let's give 0:21:44.320 --> 0:21:46.600 it the households. So you know, then you end up 0:21:46.800 --> 0:21:49.680 what happened before two thousand and eight. But that's said. 0:21:49.760 --> 0:21:55.560 The evidence that dollar centrality, which has been true basically 0:21:55.600 --> 0:21:57.720 since nineteen forty five in one form and since nineteen 0:21:57.760 --> 0:22:00.920 seven to one another, always leads to dollars strength, I 0:22:00.960 --> 0:22:04.800 think is not really true because in the fifty years 0:22:04.840 --> 0:22:09.600 since nineteen seventy one and Betton was essentially ended, the dollar. 0:22:09.720 --> 0:22:14.840 You know, I'm an FX guy, the dollar has appreciated 0:22:14.880 --> 0:22:17.840 for fifty five percent of that time and depreciated for 0:22:17.840 --> 0:22:22.560 forty five percent of that time. The period of maximum 0:22:22.760 --> 0:22:26.679 current account deficits by the US, it's between two thousand 0:22:26.680 --> 0:22:29.640 and two and two thousand and eight. We're running currentcount 0:22:29.640 --> 0:22:31.760 deficit are close to six percent of GDP. In two 0:22:31.760 --> 0:22:34.879 thousand and six, the US current account death the largest 0:22:34.880 --> 0:22:36.560 in terms of the rest of the world GDP back 0:22:36.600 --> 0:22:39.560