Speaker 1: Welcome to brain Stuff production of iHeart Radio. Hey brain Stuff,
Speaker 1: Lauren Vogel Bomb here. When economic times are uncertain, people
Speaker 1: want to put their money in something solid. That helps
Speaker 1: explain why of all one dollar bills in circulation are
Speaker 1: now held outside of the United States. That's up from
Speaker 1: only thirty percent back in The steep rise in the
Speaker 1: number of one hundred dollar bills held overseas close to
Speaker 1: two c notes for every person on the planet is
Speaker 1: a signal that people around the world recognize the US
Speaker 1: dollar as the de facto global currency. They have confidence
Speaker 1: that if their local currency goes belly up, the dollar
Speaker 1: will hold steady. And it's not only individuals who are
Speaker 1: saving American currency for a rainy day, it's foreign governments
Speaker 1: to the governments don't stockpile physical dollars in their central banks,
Speaker 1: but they do buy up loads of U S Treasury
Speaker 1: bonds and T bills, which are valued in dollars. As
Speaker 1: of January twenty, Japan and China each owned more than
Speaker 1: one trillion dollars in US Treasury securities, followed by the
Speaker 1: United Kingdom with three d and seventy two billion dollars
Speaker 1: and Brazil with two hundred and eighty three billion. According
Speaker 1: to the International Monetary Fund, more than sixty of the
Speaker 1: world's cash reserves are held in dollars. The Bureau is
Speaker 1: in far second place. At when even an economic powerhouse
Speaker 1: like China holds a trillion U S. Dollars in reserve,
Speaker 1: that's a good sign that the dollar is still considered
Speaker 1: the mightiest of the global currencies. But the dollar wasn't
Speaker 1: always the world's de facto currency. So what changed? Before
Speaker 1: World War Two? All global currencies were backed by gold,
Speaker 1: and each government guaranteed that its money was good for
Speaker 1: a certain amount of gold. Then came the Breton Woods
Speaker 1: Agreement of ninety four, which created the World Bank and
Speaker 1: the International Monetary Fund, and also established the U. S.
Speaker 1: Dollar as the new gold Because the US held most
Speaker 1: of the world's gold supply, the dollar continued to dominate
Speaker 1: during the post World War two boom years. But we
Speaker 1: spoke with Jonathan David Kirshner, a professor of political science
Speaker 1: and international studies at Boston College who co edited a
Speaker 1: book called The Future of the Dollar. He explained that
Speaker 1: the rise of the dollar order was built on four pillars.
Speaker 1: The robustness of the U. S. Economy, the widespread belief
Speaker 1: in the American model of finance, the wealth of US
Speaker 1: financial institutions, and America's leading role in international affairs. Kirshner
Speaker 1: said most of the world's monetary relations were orchestrated between
Speaker 1: the US and its political allies and military dependencies, it
Speaker 1: was natural to be conducted in dollars. The Breton Woods
Speaker 1: fixed exchange rate scheme collapsed in the nineteen seventies when
Speaker 1: Richard Nixon took the dollar off the gold standard during
Speaker 1: a period of domestic inflation, and many industrialized economies chose
Speaker 1: to float their currencies on the open market. It At
Speaker 1: that time, some economists began to predict the downfall of
Speaker 1: the dollar, not that it would lose value, but that
Speaker 1: it would lose its dominance as the world's de facto currency.
Speaker 1: Over the decades, most of those pillars that made the
Speaker 1: dollar king of the postwar economy have been toppled. Recessions,
Speaker 1: stock market bubbles, and the global financial crisis have revealed
Speaker 1: cracks in the American financial model, and the US has
Speaker 1: lost some of its political dominance, with many governments and
Speaker 1: corporations choosing to do business with China or Europe instead.
Speaker 1: Yet the numbers show that the dollar is still the
Speaker 1: currency that nations and individuals turned to as a safe
Speaker 1: harbor in economic storms. The Kirshner said, the ultimate reason
Speaker 1: is a simple one, the lack of a plausible alternative.
Speaker 1: If not the dollar, then what. There have been periodic
Speaker 1: calls to shift more reserve holdings to the Euro, the
Speaker 1: Chinese R and B, or even back to gold, but
Speaker 1: the dollars still reigns supreme. When countries shop for a
Speaker 1: reserve currency that stay bill secure and liquid, that is
Speaker 1: easy to convert back to local money, the dollar is
Speaker 1: still the default. In fact, some countries such as Panama
Speaker 1: and El Salvador use the US dollar as their own
Speaker 1: legal tender. The US government doesn't have to give approval
Speaker 1: for another country to use the dollar as its official currency.
Speaker 1: So what about a one world currency. I'm not going
Speaker 1: to happen, Kirschner says. The first reason is political. There's
Speaker 1: simply no political will to have one world government or
Speaker 1: one world currency. The second reason we won't see an
Speaker 1: Earth dollar anytime soon, or the whole world using the
Speaker 1: US dollar for their official currency for that matter, has
Speaker 1: to do with an economic theory called optimal currency area
Speaker 1: that states that a single currency only operates effectively over
Speaker 1: a relatively small geographic area of the size of a country,
Speaker 1: for example, not a continent or the world. That's because
Speaker 1: different regions might be experiencing very different economic conditions at
Speaker 1: the same time. One country might be in recession while
Speaker 1: another there is booming. Kirshner said, if you only have
Speaker 1: one money in the whole world, then you only have
Speaker 1: one monetary authority, which means you only have one monetary policy.
Speaker 1: In reality, different regions or countries would need monetary policies
Speaker 1: more tailored to their individual needs. That's one of the
Speaker 1: reasons why the Euro hasn't supplanted the dollar as the
Speaker 1: de facto global currency. The European Union itself is not
Speaker 1: an optimal currency area. It's too spread out, which means
Speaker 1: that EU authorities have to enact monetary policies that somehow
Speaker 1: serve economies in very different financial conditions, like Germany and Greece.
Speaker 1: Today's episode was written by Dave Ruse and produced by
Speaker 1: Tyler Clang. For more on this and lots of other
Speaker 1: viable topics, visit House to Works dot com. Brain Stuff
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