WEBVTT - Why the Desire to Move Away From the Dollar Is Getting Real 0:00:10.200 --> 0:00:13.520 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:13.600 --> 0:00:15.040 I'm Tracy Alloway. 0:00:14.760 --> 0:00:16.760 And I'm Joe. Isn't thal Joe? 0:00:16.800 --> 0:00:19.239 Do you remember what we were doing this time last year? 0:00:22.600 --> 0:00:23.200 No? 0:00:23.280 --> 0:00:26.640 Oh no, no, I have no idea, And that feels 0:00:26.640 --> 0:00:28.680 like ages ago, So no, I have no idea. 0:00:28.800 --> 0:00:32.560 We were actually talking to Sultan Posar about his vision 0:00:33.000 --> 0:00:35.559 of a Breton three. Do you remember that? 0:00:35.760 --> 0:00:41.800 Okay, yes, yes, absolutely, I do remember that conversation very specifically, 0:00:42.400 --> 0:00:47.080 setting aside that sort of Bretton Wood's three framework specifically, 0:00:47.560 --> 0:00:50.599 I do think like overall, like he sort of anticipated 0:00:50.680 --> 0:00:54.160 extremely well a lot of the discussions that people are having, 0:00:54.240 --> 0:00:56.520 like over the course of the next year, and then 0:00:56.640 --> 0:00:59.000 so it's some respects, I think that's held up well. 0:00:59.320 --> 0:00:59.520 Right. 0:00:59.600 --> 0:01:02.360 So, there were a lot of different themes in that note, 0:01:02.520 --> 0:01:05.240 including this idea of more of an emphasis on real 0:01:05.280 --> 0:01:08.920 assets or commodities. But one of the big ideas that 0:01:09.080 --> 0:01:12.400 was in there was this theme of a more multi 0:01:12.440 --> 0:01:17.160 polar world and possible challenges to US hegemony in the 0:01:17.200 --> 0:01:22.480 financial system, including the dollars very unique role in that system. 0:01:23.080 --> 0:01:25.680 And while it is true that the dollars spent most 0:01:25.680 --> 0:01:29.280 of the past year being really strong, and we put 0:01:29.319 --> 0:01:32.039 out a couple episodes on that. I think we have 0:01:32.319 --> 0:01:36.720 seen efforts at de dollarization, or at least we've seen 0:01:36.760 --> 0:01:41.840 a lot of discussion of dedollarization that has really increased 0:01:41.880 --> 0:01:42.959 in the same time period. 0:01:43.480 --> 0:01:46.400 Yeah, there's sort of a few interesting dimensions here. So 0:01:46.440 --> 0:01:48.960 for one, of course, like price does what it's going 0:01:49.000 --> 0:01:51.360 to do in the short term, and ultimately I don't 0:01:51.400 --> 0:01:54.559 think like prices the ultimate orbitter, but you know, late 0:01:54.640 --> 0:01:58.280 last year or middle of last year, the dollar rallied 0:01:58.280 --> 0:02:00.520 a lot. The other thing is, you know, you get 0:02:00.520 --> 0:02:04.400 these headlines about dedollarization or the rise of the un 0:02:04.520 --> 0:02:07.320 or some barrel of oil somewhere in the world was 0:02:07.360 --> 0:02:10.200 not priced in dollars, and everyone starts to flip out 0:02:10.240 --> 0:02:14.120 about whatever that means. And on the one hand, okay, 0:02:14.160 --> 0:02:16.960 that's interesting. But on the other hand, like again you 0:02:17.080 --> 0:02:19.760 and I, like how many times have we heard this story? 0:02:20.240 --> 0:02:22.840 People love talking about this possibility. 0:02:23.000 --> 0:02:27.400 Yeah yeah, Oh suddenly some benchmark barrel of oil somewhere 0:02:27.480 --> 0:02:29.359 is gonna be priced at something and that's the end 0:02:29.400 --> 0:02:33.320 of dollar hedgemony. But I will say, like there's a 0:02:33.360 --> 0:02:35.400 couple things like I don't want to say it's different 0:02:35.520 --> 0:02:38.840 this well, why I think it's still worth having this 0:02:38.960 --> 0:02:41.960 conversation because obviously a lot of things have changed. You know, 0:02:42.040 --> 0:02:44.240 one of my theses that I talk a lot about 0:02:44.440 --> 0:02:46.920 all the time is how like the twenty twenties are 0:02:46.960 --> 0:02:50.240 sort of the inverse twenty tens, And so I do 0:02:50.360 --> 0:02:52.639 think to some extent it's a good time to revisit 0:02:52.680 --> 0:02:55.680 our assumptions. And when you do start to see you know, 0:02:55.800 --> 0:02:59.720 expanding China trade and so forth, and talk of decoupling 0:02:59.800 --> 0:03:02.200 and rising role of the UN, I think it is 0:03:02.240 --> 0:03:06.440 worth having that conversation again, even if sometimes it seems 0:03:06.480 --> 0:03:09.000 like some of these end of the dollar stories are 0:03:09.000 --> 0:03:10.679 a little bit overcooked. 0:03:10.200 --> 0:03:13.400 Or premature or premature. On that note, one of the 0:03:13.520 --> 0:03:15.480 things that has been happening is we've heard a lot 0:03:15.560 --> 0:03:21.000 of noise from the Bricks group of countries, so that's Brazil, Russia, India, China, 0:03:21.080 --> 0:03:26.560 and South Africa about possibly creating some sort of alternative 0:03:26.680 --> 0:03:30.000 to the dollar. So we really need to dive into 0:03:30.080 --> 0:03:34.040 the de dollarization story from an emerging markets perspective, and 0:03:34.080 --> 0:03:37.240 who better to do that with than with Paul McNamara. 0:03:37.320 --> 0:03:40.400 He's an investment director over at GAM. We've had him 0:03:40.440 --> 0:03:42.720 on the show before and we are going to do 0:03:42.800 --> 0:03:44.400 another deep dive with him now. 0:03:44.560 --> 0:03:44.760 Yeah. 0:03:44.760 --> 0:03:47.640 Wait, Paul, thanks so much for coming back on all thoughts. 0:03:48.040 --> 0:03:49.160 Thanks very much for having me. 0:03:49.880 --> 0:03:52.480 So maybe just to begin with give us the state 0:03:52.520 --> 0:03:56.360 of play when it comes to de dollarization talks, because 0:03:56.360 --> 0:03:58.160 I know there have been all these little bits and 0:03:58.200 --> 0:04:01.720 pieces over the past year or so, but what has 0:04:02.040 --> 0:04:03.480 jumped out at you the most. 0:04:03.760 --> 0:04:06.920 I think the thing that we're focused on is we've 0:04:06.960 --> 0:04:10.720 seen very big current account surpluses, especially in the oil exporters, 0:04:10.720 --> 0:04:14.280 so Saudi Arabian particular. I mean, Russia is obviously another story. 0:04:14.600 --> 0:04:16.400 I mean, the surpluces in China are not as big 0:04:16.400 --> 0:04:18.960 as they've been. But what's been interesting is that the 0:04:19.560 --> 0:04:22.640 Saudis in particular, and I think that some evidence that 0:04:22.920 --> 0:04:26.679 Abu Dhabi as well have not been pushing money straight 0:04:26.720 --> 0:04:30.560 into US treasuries or well U S securities markets in particular, 0:04:30.920 --> 0:04:34.160 but sort of treasury treasuries. I mean, there's there's been 0:04:34.200 --> 0:04:36.640 a lot of talk in terms of China for a 0:04:36.680 --> 0:04:39.560 long time. You know, China has run the Belton Road 0:04:39.640 --> 0:04:43.599 program has clearly been that there is a general drive 0:04:43.760 --> 0:04:46.880 for those companies which continue to run these big external 0:04:46.920 --> 0:04:51.960 surpluses they're clearly trying to branch out significantly away from well, 0:04:52.080 --> 0:04:55.040 let's just stick it in medium duration treasuries, you know, 0:04:55.120 --> 0:04:59.600 and if they're really adventurous into listed US equities into 0:04:59.640 --> 0:05:04.520 a all globally diversified basket. It's not just about sanctions 0:05:04.760 --> 0:05:08.240 and what happened to Russia's reserves in the aftermath of 0:05:08.240 --> 0:05:11.640 the attack on Ukraine, but clearly that's given it fresh impetus. 0:05:12.160 --> 0:05:14.080 So okay, so this is interesting. 0:05:14.200 --> 0:05:16.600 There is something going on, like I think it sounds 0:05:16.640 --> 0:05:19.479 like from your answer, and as Tracy and I said 0:05:19.480 --> 0:05:22.400 in the beginning, and I'm sure you've heard it for 0:05:22.760 --> 0:05:26.000 many years and year long in the illustrious career, this 0:05:26.360 --> 0:05:29.000 l of the dollars over, the dollars over, and usually 0:05:29.040 --> 0:05:32.320 it is sort of overcooked. But just based on even 0:05:32.440 --> 0:05:35.440 just your preliminary answer, it sounds like there is something 0:05:35.520 --> 0:05:38.520 going on that maybe there is some impulse to try 0:05:38.560 --> 0:05:39.120 something new. 0:05:40.200 --> 0:05:44.240 I think there is, and I think you mentioned salten Poza, 0:05:44.440 --> 0:05:46.560 this idea of a multipolar world. I mean, we have 0:05:46.720 --> 0:05:49.120 moved away from you know, the US being by far 0:05:49.279 --> 0:05:52.600 the globally dominant economy to China. You know, the Chinese 0:05:52.640 --> 0:05:56.080 economy is now about the same size as the US. 0:05:56.200 --> 0:05:59.040 So I mean, clearly there's got to be some sort 0:05:59.080 --> 0:06:02.719 of rebalancing in terms of finance to match the economic 0:06:02.760 --> 0:06:06.000 dominance and the political movement that goes with it. 0:06:06.040 --> 0:06:06.680 Absolutely. 0:06:07.120 --> 0:06:11.320 I mean the two people you always hear spoken about 0:06:11.320 --> 0:06:14.280 in this context is well, obviously number one is Sultan. 0:06:14.640 --> 0:06:18.520 Number two would be Michael Pettis and co author Matthew Klein, 0:06:19.000 --> 0:06:21.440 who would make the point that, Okay, if you've got 0:06:21.440 --> 0:06:24.720 these big surpluses being generated, then they have to end 0:06:24.800 --> 0:06:27.480 up somewhere else, and the only place they can end 0:06:27.560 --> 0:06:29.360 up is the US, because the US is the only 0:06:29.400 --> 0:06:33.080 economic block which is generating these big deficits to soak 0:06:33.200 --> 0:06:38.320 up the surpluses. Historically, I think it's not clear that 0:06:38.440 --> 0:06:40.680 it's as simple as that, but I think as long 0:06:40.720 --> 0:06:44.719 as the policy in China relies, the whole framework of 0:06:44.880 --> 0:06:49.520 economic policy in China relies on running very big external surpluses, 0:06:49.720 --> 0:06:52.400 they invest a lot, but they save even more. Those 0:06:52.480 --> 0:06:55.880 excess savings, you know, they have to end up somewhere, 0:06:56.080 --> 0:06:58.160 and it is going to be very difficult to put 0:06:58.160 --> 0:07:01.800 them somewhere else. The question that is historically, you know, 0:07:01.880 --> 0:07:04.560 difficult is not the same as impossible. You know that 0:07:04.600 --> 0:07:07.800 before the US dollar, you know, you had the sterling zone, 0:07:07.839 --> 0:07:10.760 and ok, it was linked to gold, but you did 0:07:10.760 --> 0:07:15.040 have a reserve currency, which wasn't the dissavor of last resort, 0:07:15.520 --> 0:07:17.840 you know. So I mean there are two things which 0:07:17.840 --> 0:07:19.640 are not the same, which I think are being confused. 0:07:19.680 --> 0:07:22.240 Which is one the rise of China being an economy 0:07:22.280 --> 0:07:25.400 of similar importance to the US, which I think is indisputable. 0:07:25.920 --> 0:07:29.480 And two, you know, does China or the global none 0:07:29.520 --> 0:07:33.000 Western bloc have as many options if they don't want 0:07:33.040 --> 0:07:35.960 to change the policy mix which has been very reliant 0:07:36.560 --> 0:07:39.280 on running very large external surfaces. 0:07:39.520 --> 0:07:41.600 So I definitely want to get into more of the 0:07:41.680 --> 0:07:44.600 challenges of you know, moving away from treasuries and into 0:07:44.640 --> 0:07:47.440 other assets. But before we do that, you mentioned the 0:07:47.480 --> 0:07:51.000 idea that there are some emerging market economies that have 0:07:51.160 --> 0:07:55.280 been buying fewer treasuries recently, and I guess my question 0:07:55.400 --> 0:07:58.600 is like what is driving that and is it the 0:07:58.640 --> 0:08:03.480 case that there definitely trying to move away from US 0:08:03.640 --> 0:08:06.920 exposure or is it the case that maybe in an 0:08:07.000 --> 0:08:11.160 environment of high rates and inflation and general uncertainty, maybe 0:08:11.160 --> 0:08:12.800 it doesn't make a lot of sense to buy US 0:08:12.840 --> 0:08:14.920 treasuries at that particular moment. 0:08:15.280 --> 0:08:16.120 There's a bunch of things. 0:08:16.280 --> 0:08:19.640 I mean, we have more assertive politics in pretty much 0:08:19.720 --> 0:08:23.120 every large country. We talk about a lot about the bricks, 0:08:23.120 --> 0:08:27.160 which I think is problematic in this context because sort 0:08:27.200 --> 0:08:31.840 of Russia and South Africa and Brazil really don't matter 0:08:31.920 --> 0:08:35.160 that much in a global context, whereas, for example, Saudi Arabia, 0:08:35.559 --> 0:08:38.400 which has you know, very nearly a trillion dollars of 0:08:39.000 --> 0:08:42.720 assets abroad, clearly does you know, and they have different reasons, 0:08:42.760 --> 0:08:45.200 but you know, if it's NBS in Saudi Arabia, if 0:08:45.240 --> 0:08:47.480 it's Mody in India, you know, as you go to 0:08:47.520 --> 0:08:50.280 the countries, you know there is more and more pushback 0:08:50.800 --> 0:08:54.960 against you know, US hegemony. However you want to describe it, 0:08:55.000 --> 0:08:57.400 and I think politics is part of it. The other is, 0:08:57.480 --> 0:08:59.840 you know one you probably want to diversify a bit 0:08:59.880 --> 0:09:04.880 more generally too. You know, you're very dependent on FED policy. 0:09:04.880 --> 0:09:07.320 I mean last year was a horrible year for pretty 0:09:07.400 --> 0:09:09.640 much any asset. I mean, clearly you might want to 0:09:09.679 --> 0:09:12.160 look a bit beyond that, you know, so that you 0:09:12.200 --> 0:09:14.360 know that there's I wouldn't say it's just one reason, 0:09:14.400 --> 0:09:17.079 but it really is striking, you know that for example, 0:09:17.200 --> 0:09:19.240 just how big the surplus is, especially in the OPEC 0:09:19.280 --> 0:09:22.120 countries have been over the last year, and how little 0:09:22.520 --> 0:09:24.680 we've seen a tick up, you know, not just in 0:09:24.720 --> 0:09:30.040 holdings some treasuries, but in you know, specifically US securities themselves, 0:09:30.040 --> 0:09:32.320 you know, I mean part of the problem is that 0:09:32.720 --> 0:09:34.840 it really hits quite hard to put large amounts of money. 0:09:34.880 --> 0:09:36.720 You end up putting it in stuff like the Vision 0:09:36.760 --> 0:09:40.560 fund or credit sweee or you know, or stuff like that. 0:09:40.679 --> 0:09:44.600 Is oh, you already said vision fund. Yeah. 0:09:44.679 --> 0:09:48.040 Yeah, I mean there's a whole rabbit hole here and 0:09:49.600 --> 0:09:52.480 it's always tricky, but you know, it's very difficult. There 0:09:52.520 --> 0:09:54.920 aren't a lot of places to put large chunks of 0:09:54.920 --> 0:09:58.960 money like this, and especially where you could expect you 0:09:59.000 --> 0:10:01.160 won't be the dominant in yes, which yeah, yes, it 0:10:01.160 --> 0:10:03.679 brings some perks, but it also brings some you know, 0:10:03.800 --> 0:10:06.240 some very significant problems with it as well. 0:10:06.720 --> 0:10:08.960 You could build like what is it, like, a two 0:10:09.080 --> 0:10:12.120 hundred mile long city in the middle of the desert 0:10:12.200 --> 0:10:15.200 and have it be a blockchain capital at the universe. Anyway, 0:10:15.360 --> 0:10:17.720 I'm digressing a little bit. I want to actually go 0:10:17.880 --> 0:10:21.720 back to the comment you made about a sort of politics, 0:10:21.920 --> 0:10:24.320 because we could talk economics, we could talk about the 0:10:24.400 --> 0:10:27.559 rise of trade with China, but obviously a lot of 0:10:27.600 --> 0:10:31.559 some of these impulses are going to come from domestic 0:10:31.800 --> 0:10:34.760 political choices. What is going on, like, what are you 0:10:34.800 --> 0:10:38.240 seeing specifically, and what is the sort of common thread 0:10:38.320 --> 0:10:41.920 across multiple countries that you say is driving this sort 0:10:41.960 --> 0:10:45.160 of like shift in political or global political consideration. 0:10:45.880 --> 0:10:49.640 I think the sanctions applied to Russia, you know, after 0:10:49.640 --> 0:10:53.319 the invasion of Ukraine stand out because I mean it's 0:10:53.400 --> 0:10:55.720 usually spoken about in the context of a possible Chinese 0:10:55.760 --> 0:10:59.120 attack on Taiwan, but you go around pretty much every 0:10:59.160 --> 0:11:04.400 country has reasonably severe disagreements with the US, with the 0:11:04.400 --> 0:11:08.600 West in various ways. There is you know, a huge 0:11:08.640 --> 0:11:12.800 amount of resentment, which really is not something I should 0:11:12.800 --> 0:11:16.000 be trying, you know, trying to diagnose the politics. But 0:11:16.080 --> 0:11:18.520 I think, you know, it just ensure practical terms that 0:11:18.920 --> 0:11:21.560 at least three hundred billion and we think probably a 0:11:21.559 --> 0:11:25.240 decent chunk more of Russian money was put beyond the 0:11:25.360 --> 0:11:28.439 use of the Russians simply because it was placed within the. 0:11:28.480 --> 0:11:29.760 US financial system. 0:11:30.200 --> 0:11:32.200 I think that's given a lot of urgency, you know, 0:11:32.280 --> 0:11:35.560 even to countries you know, who might not expect to 0:11:35.679 --> 0:11:38.240 have a major dispute with the US the way that 0:11:38.240 --> 0:11:41.960 the Russians have it really does become then a question 0:11:42.040 --> 0:12:01.480 of well, you know, how do we protect this savings pot. 0:12:02.000 --> 0:12:03.960 You know, there is that argument, and you touched on 0:12:04.040 --> 0:12:06.320 it already a little bit, but there is an argument 0:12:06.360 --> 0:12:10.760 to be made that maybe for reasons of financial stability, 0:12:10.800 --> 0:12:13.880 this would make sense. So you know, if you're an 0:12:13.920 --> 0:12:17.320 emerging market economy, maybe you don't want your country to 0:12:17.480 --> 0:12:20.720 be tied too closely to what the US is doing, 0:12:20.760 --> 0:12:23.280 because maybe the US is raising rates at a time 0:12:23.440 --> 0:12:27.200 when you really need financial conditions to loosen. And we've 0:12:27.240 --> 0:12:29.880 spoken with Jun Sung Shin at the Bank for International 0:12:29.920 --> 0:12:32.120 Settlements a lot about this. He's done a lot of 0:12:32.120 --> 0:12:37.160 research on the topic. How valid are those concerns and 0:12:37.200 --> 0:12:41.599 how do you disaggregate the sort of financial conditions diversification 0:12:41.880 --> 0:12:48.720 argument versus the political sanctions concerns about future financial control 0:12:48.840 --> 0:12:49.360 type thing. 0:12:50.320 --> 0:12:52.280 I mean it comes back to the old quote. 0:12:52.320 --> 0:12:54.319 I mean, I think this is from the seventies that 0:12:54.640 --> 0:12:56.640 you know, a US policy make has said, you know, 0:12:56.679 --> 0:13:00.320 it's our currency and your problem. That you know, we've 0:13:00.360 --> 0:13:03.640 seen that US financial conditions just affect anywhere else if 0:13:03.679 --> 0:13:06.320 you look at I mean you have to disaggregate that 0:13:06.320 --> 0:13:08.400 we've had a big burst of inflation everywhere, and interest 0:13:08.480 --> 0:13:10.360 rates would have gone up everywhere. This has not been 0:13:10.400 --> 0:13:13.480 the Fed chasing everybody else's interest rates around the last 0:13:13.600 --> 0:13:16.880 year or so. But high US rates have led to 0:13:16.920 --> 0:13:20.600 a stronger dollar, and a stronger dollar does mean significantly 0:13:20.679 --> 0:13:23.440 tight of financial conditions for anyone who borrows in dollars, 0:13:23.640 --> 0:13:26.199 you know, the cost of repaying that debt. And this 0:13:26.360 --> 0:13:28.000 is I think a lot of what people are talking 0:13:28.000 --> 0:13:31.000 about when they say that, you know that they want 0:13:31.080 --> 0:13:32.160 independence from the dollar. 0:13:32.200 --> 0:13:34.120 I mean whether you necessarily want. 0:13:33.960 --> 0:13:35.679 The renmn b instead, and if you think the renmen 0:13:35.720 --> 0:13:38.600 mimi is going to be much easier, that's another question. 0:13:38.960 --> 0:13:42.080 But yeah, I mean, as long as the borrowing currency 0:13:42.080 --> 0:13:44.920 of choice. And you know, I kind of agree with 0:13:45.000 --> 0:13:48.360 Joe that, you know, just because somebody invoices a barrel 0:13:48.400 --> 0:13:50.840 of you know, awesome gas that they bought from Abu 0:13:50.880 --> 0:13:52.680 Dhabi for dollars and then they sell it to somebody 0:13:52.679 --> 0:13:55.880 else for renmen b, I'm not sure that's quite the 0:13:55.920 --> 0:13:58.560 game changer it's being pitched to be. I mean, you 0:13:58.600 --> 0:14:02.040 can send me a gas bill in bitcoin and I 0:14:02.080 --> 0:14:05.320 will turn my pounds into bitcoin, and I will pay 0:14:05.320 --> 0:14:07.600 the gas bill and whoever is you know, and whoever 0:14:07.640 --> 0:14:09.840 sells me that gas will sell the bitcoin for sterling. 0:14:09.880 --> 0:14:11.679 And I'm not really sure that's quite the game changer 0:14:11.720 --> 0:14:14.880 it's being pitched at. What does matter is, you know, 0:14:15.120 --> 0:14:17.800 especially these surplus countries, One, are they going to continue 0:14:17.800 --> 0:14:22.080 to run these surpluses? And to what extent can they 0:14:22.160 --> 0:14:26.520 immunize themselves from US political influence, to the extent that 0:14:26.560 --> 0:14:28.640 they're still holding a lot of their assets in dollars. 0:14:29.080 --> 0:14:31.560 My view is, and the impact on markets will be 0:14:31.680 --> 0:14:35.400 is it's very, very difficult because you know, the surpluses 0:14:35.440 --> 0:14:37.600 coming out of China are a fraction of what they 0:14:37.640 --> 0:14:39.640 were in I mean, they're down to about two and 0:14:39.640 --> 0:14:42.120 a half percent of GDP now when they were up 0:14:42.160 --> 0:14:45.920 at ten around the time of the financial crisis. But 0:14:46.160 --> 0:14:48.720 if you know, if the renminb is going to become 0:14:48.760 --> 0:14:52.680 a reserve currency, then effectively it becomes impossible for China 0:14:52.720 --> 0:14:55.840 to run surpluces. You know, so at a minimum, you're 0:14:55.840 --> 0:15:00.960 closing off possible policy options in the future. And really, 0:15:01.080 --> 0:15:02.720 i mean, does the rest of the world really, you know, 0:15:02.920 --> 0:15:06.240 want to start denominating its debt in that of a 0:15:06.280 --> 0:15:09.800 currency where they might suddenly start, you know, moving to 0:15:10.120 --> 0:15:13.120 moving to huge surpluses versus the rest of the world, 0:15:13.560 --> 0:15:16.400 and then that's going to impact the monetary policy everywhere 0:15:16.440 --> 0:15:19.240 everywhere else on Earth. Yeah, I mean, it's it's not 0:15:19.960 --> 0:15:23.000 it's not simple as never a satisfactory answer, but I think, 0:15:23.120 --> 0:15:25.440 you know, the problems are. It's very easy to say 0:15:25.680 --> 0:15:29.359 that these countries want to be independent of US agnominia 0:15:29.680 --> 0:15:32.560 of the US dollar, but in almost every case that's 0:15:32.560 --> 0:15:35.760 going to involve policy choices which are going to have 0:15:35.840 --> 0:15:40.120 difficult policy ramifications. I mean, we got here for a reason, you. 0:15:40.040 --> 0:15:43.560 Know, speaking of policy choices. However, and you talk about 0:15:43.560 --> 0:15:47.600 the sort of assertiveness of some various nations, there's also 0:15:48.160 --> 0:15:51.840 policy choices happening in the US. It appears, I mean 0:15:52.000 --> 0:15:55.680 you arguably the US itself is becoming more inward looking, 0:15:55.880 --> 0:15:58.720 and arguably it started under Trunk. But there seems to 0:15:58.760 --> 0:16:02.720 be a lot of content with Biden in terms of 0:16:02.760 --> 0:16:07.080 some of these domestic investments, whether it's semiconductors, whether it's energy. 0:16:07.360 --> 0:16:13.240 Some of these investments particularly antagonizing allies or friends in 0:16:13.440 --> 0:16:16.280 Europe who feel we're sort of like pulling away the 0:16:16.320 --> 0:16:19.360 supply chain from them. Like, how much of this is also, 0:16:19.640 --> 0:16:23.320 like now just a story about US trading partners turning 0:16:23.320 --> 0:16:25.640 away from the US or turning away from sort of 0:16:25.760 --> 0:16:29.720 dollar assets, but a US decision to sort of focus 0:16:29.800 --> 0:16:32.600 more inward and you know, rely less on the rest 0:16:32.600 --> 0:16:33.080 of the world. 0:16:34.000 --> 0:16:36.440 I yeah, I don't really see that. 0:16:36.520 --> 0:16:39.640 I mean, whatever your objections to the US as a hegemon, 0:16:40.120 --> 0:16:44.000 you know, try somebody else. I mean, the specific example 0:16:44.040 --> 0:16:45.920 that sticks with me is the is the dollar swap 0:16:45.960 --> 0:16:49.120 lines which were extended to you know, the big Western 0:16:49.160 --> 0:16:51.600 ally central you know, and specifically the Western allies that 0:16:51.680 --> 0:16:54.160 you know, they weren't extended to certain other countries which 0:16:54.200 --> 0:16:58.120 could have benefited from them. While the US does make 0:16:58.160 --> 0:17:01.360 it clear that in monetary policy is not run for 0:17:01.400 --> 0:17:04.320 the benefit of anybody but Americans. You know that we 0:17:04.359 --> 0:17:07.280 had a big push in the ninety seven Asian crisis, 0:17:07.280 --> 0:17:09.439 and then ninety eight everybody was saying, well, you know, 0:17:09.720 --> 0:17:12.480 you can't keep hiking, because that's going to screw things 0:17:12.520 --> 0:17:14.720 up for everybody else, to which the u s response 0:17:14.840 --> 0:17:17.760 was rightly, well, too bad. You know, US monetary policy, 0:17:17.880 --> 0:17:19.960 you know, the FED has no mandate to look after 0:17:19.960 --> 0:17:23.040 anybody who isn't an American but you know, these the 0:17:23.080 --> 0:17:27.000 swap lines were absolutely critical in protecting the rest of 0:17:27.040 --> 0:17:29.800 the world, especially during two thousand and eight, you know, 0:17:29.800 --> 0:17:33.000 but also during COVID we saw the lines rolled out 0:17:33.080 --> 0:17:36.680 in the past that you know, however much you know 0:17:37.280 --> 0:17:40.879 the rest of US might you know, complain or be 0:17:40.960 --> 0:17:44.200 unkind about, you know, about Donald Trump or anybody else. 0:17:44.720 --> 0:17:48.480 The US has always, you know, go back to the 0:17:48.480 --> 0:17:51.679 Marshall Plan or whatever, you know, the US has always 0:17:52.080 --> 0:17:55.480 at a minimum had a defensible case that of enlightened 0:17:55.480 --> 0:17:58.600 self interest. And you know, and I think there are 0:17:58.720 --> 0:18:02.560 question marks about whether you know the alternatives, whether it's gold, 0:18:02.640 --> 0:18:03.720 whether it's the RENMN be. 0:18:04.359 --> 0:18:06.160 Mean, let's be honest, those are the only two. 0:18:06.320 --> 0:18:08.560 You know, The rubles no use to anyone, you know, 0:18:08.960 --> 0:18:11.840 or bitcoin or whatever mad scheme you have. That you 0:18:11.840 --> 0:18:15.879 know that there are policymakers in the US who are 0:18:15.880 --> 0:18:18.760 making choices which I think benefit the rest of the world, 0:18:18.960 --> 0:18:22.760 and it's not clear that the alternatives would be adequate 0:18:22.760 --> 0:18:23.359 for the rest of us. 0:18:24.240 --> 0:18:28.160 So just to kind of crystallize this idea in our minds, 0:18:28.200 --> 0:18:31.560 like walk us through what would need to happen in 0:18:31.760 --> 0:18:37.240 order to make some other types of reserve assets more 0:18:37.320 --> 0:18:41.600 viable options than US treasuries, Like what would make a 0:18:41.720 --> 0:18:47.440 South African bond a proper replacement for a US tenure 0:18:47.680 --> 0:18:50.760 or what would make I don't know, a Brazilian bond 0:18:51.200 --> 0:18:51.959 of replacement. 0:18:52.520 --> 0:18:55.680 Well, I mean those two countries, I think, are you're 0:18:55.720 --> 0:18:58.560 making absolute maximum difficulty because. 0:18:58.600 --> 0:18:59.840 I ask the hard question. 0:19:00.920 --> 0:19:03.800 Both of those economies rise and fall with commodity prices. 0:19:04.200 --> 0:19:07.120 You know, Brazil its iron ore and soybeans, South Africa 0:19:07.359 --> 0:19:11.080 sort of platinum, palladium in particular, also coal that you know, 0:19:11.119 --> 0:19:13.800 as commodity prices rise and fall, that dictates everything for 0:19:13.880 --> 0:19:17.439 those economies. It even dictates the credit cycle because Brazil 0:19:17.480 --> 0:19:19.280 and South Africa are in a much better position to 0:19:19.280 --> 0:19:22.800 cut interrast rates when the external balances are healthy and 0:19:22.880 --> 0:19:26.080 commodity prices are overwhelmingly driven by China, I mean, especially 0:19:26.080 --> 0:19:28.400 in Brazil. I think Brazil you know, comes second after 0:19:28.440 --> 0:19:33.399 Australia in terms of economies sort of most driven by 0:19:33.440 --> 0:19:34.840 the Chinese property cycle. 0:19:35.440 --> 0:19:37.240 So you know, I don't see scope there. 0:19:37.320 --> 0:19:40.480 I mean what you're looking at are well, one is 0:19:40.640 --> 0:19:44.200 alternatives to US treasuries sort of within US financial markets. 0:19:44.480 --> 0:19:47.479 But you know, a US investment grade corporate bond doesn't 0:19:47.640 --> 0:19:50.320 really trade that much. I mean, an investment grade emerging 0:19:50.359 --> 0:19:53.879 market debt bond in dollars, you know, does tend to 0:19:53.920 --> 0:19:56.600 trade very much off the treasury market, and the extent 0:19:56.640 --> 0:20:00.720 it doesn't very much of US dollar denominated credit. 0:20:00.800 --> 0:20:01.960 It's very, very difficult. 0:20:02.400 --> 0:20:06.560 I mean, the question is also is China, And again 0:20:06.680 --> 0:20:09.280 it's China, It's not anyone else. Maybe the Saudist to 0:20:09.280 --> 0:20:11.920 a certain extent, doing this in a context where they're 0:20:11.920 --> 0:20:15.520 continuing to use the external surplus, they're continuing to have 0:20:15.600 --> 0:20:20.200 massive excess savings for domestic policy means, because deploying ten 0:20:20.240 --> 0:20:23.720 percent of GDP is a colossally more difficult task than 0:20:23.800 --> 0:20:25.960 deploying you know, two percent of GDP. 0:20:25.720 --> 0:20:26.840 Which is where they are at the moment. 0:20:26.920 --> 0:20:30.320 You can probably slip two percent of GDP into emerging 0:20:30.400 --> 0:20:35.320 markets and venture capital and Europe and whatever else. You 0:20:35.400 --> 0:20:39.080 can't put ten percent of GDP. I mean, the problem 0:20:39.080 --> 0:20:42.240 with emerging markets is that they're allocated as a special 0:20:42.359 --> 0:20:44.960 asset class to people like me because they are different. 0:20:45.200 --> 0:20:48.520 You know, the legal rules are very difficult. You know, 0:20:48.760 --> 0:20:53.920 the idea that a minority shareholder should get some benefit 0:20:54.240 --> 0:20:56.680 from the success of a company in Russia is really 0:20:56.680 --> 0:21:00.000 regarded as ludicrous by most, you know, by most people 0:21:00.080 --> 0:21:03.360 of influence within Russia. It's you know, if you can 0:21:03.400 --> 0:21:05.120 go through the history, if you you know, you look 0:21:05.160 --> 0:21:10.119 at ucas, you look at the contact, you know, sort of. 0:21:10.280 --> 0:21:12.440 I mean, Russia is a particularly bad example, but it's 0:21:12.720 --> 0:21:14.240 not out there. You can look at what's going on 0:21:14.280 --> 0:21:17.360 with the Dani in India. You know, the the returns 0:21:17.359 --> 0:21:20.720 on a long horizon from emerging market investments have been 0:21:20.840 --> 0:21:23.600 absolutely dismal for a long time. And I think that 0:21:23.720 --> 0:21:27.320 institutional backdrop that you know, that does narrow the field 0:21:27.520 --> 0:21:32.080 for profitable investments. So is there a supply of you know, 0:21:32.200 --> 0:21:35.560 not necessarily liquid, because there's nothing remotely as liquid as treasuries, 0:21:35.560 --> 0:21:40.080 but you know, investible with a reasonable chance of positive 0:21:40.080 --> 0:21:43.600