WEBVTT - Here's Why a Weaker Dollar Matters 

0:00:02.560 --> 0:00:10.119
<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. I'm Stephen Carroll, and

0:00:10.160 --> 0:00:12.639
<v Speaker 1>this is Here's Why, where we take one news story

0:00:12.680 --> 0:00:14.880
<v Speaker 1>and explain it in just a few minutes with our

0:00:14.920 --> 0:00:16.600
<v Speaker 1>experts here at Bloomberg.

0:00:20.160 --> 0:00:22.760
<v Speaker 2>I think on the long term, it is important that

0:00:22.800 --> 0:00:25.320
<v Speaker 2>we have a strong dollar. The dollar is the reserve

0:00:25.400 --> 0:00:28.800
<v Speaker 2>currency of the world, and a strong dollar refracts a

0:00:28.880 --> 0:00:33.040
<v Speaker 2>strong economy. In the short term, particularly because of trade.

0:00:33.120 --> 0:00:36.879
<v Speaker 2>You know, the strength of the dollar can can have

0:00:37.000 --> 0:00:38.080
<v Speaker 2>a negative impact.

0:00:38.280 --> 0:00:41.520
<v Speaker 1>These days, everyone has an opinion on the dollar. That's

0:00:41.600 --> 0:00:45.440
<v Speaker 1>former US Treasury Secretary Stephen Manusan speaking to Bloomberg recently.

0:00:45.680 --> 0:00:49.040
<v Speaker 1>The dollar is a key part of America's economic strength

0:00:49.040 --> 0:00:53.600
<v Speaker 1>that underpins global finance and trade. But since Donald Trump

0:00:53.720 --> 0:00:56.640
<v Speaker 1>unleashed his global trade war, there are cracks in the

0:00:56.680 --> 0:01:01.120
<v Speaker 1>greenback's image. Bloomberg's Dollar Index, which measure its strength against

0:01:01.280 --> 0:01:04.760
<v Speaker 1>ten leading global currencies, has had its worst start of

0:01:04.800 --> 0:01:07.560
<v Speaker 1>the year since it was created in two thousand and five.

0:01:07.959 --> 0:01:08.720
<v Speaker 1>I think there's.

0:01:08.640 --> 0:01:12.120
<v Speaker 3>One thing where there's a sea change the dollar.

0:01:12.400 --> 0:01:15.039
<v Speaker 1>I don't think you can can overstate the importance of

0:01:15.080 --> 0:01:16.400
<v Speaker 1>this dollar shift.

0:01:16.760 --> 0:01:19.760
<v Speaker 2>What the dollar is doing is particularly critical, namely to

0:01:19.840 --> 0:01:23.080
<v Speaker 2>watch whether is this foreigner silling, is this domestic invester silling.

0:01:23.120 --> 0:01:24.720
<v Speaker 3>If you're not a dollar based economy, you have to

0:01:24.800 --> 0:01:27.600
<v Speaker 3>understand how that's going to impact your investments.

0:01:27.880 --> 0:01:30.160
<v Speaker 1>This isn't just a big deal for the US. The

0:01:30.200 --> 0:01:33.920
<v Speaker 1>dollar's central role in the global economy means the consequences

0:01:33.959 --> 0:01:38.520
<v Speaker 1>are felt just about everywhere. So here's why a weaker

0:01:38.640 --> 0:01:44.920
<v Speaker 1>dollar matters for the world. Our resident dollar expert Celemoson

0:01:45.040 --> 0:01:46.840
<v Speaker 1>is back with us to explain. Seleia, you are our

0:01:46.920 --> 0:01:50.320
<v Speaker 1>senior Washington correspondent but also author of the book paper Soldiers,

0:01:50.600 --> 0:01:53.880
<v Speaker 1>How the weaponization of the dollar changed the world order.

0:01:53.920 --> 0:01:56.200
<v Speaker 1>Great to have you back with us. Can you put

0:01:56.240 --> 0:01:58.880
<v Speaker 1>in context the drop that we've seen in the dollar

0:01:58.960 --> 0:01:59.400
<v Speaker 1>this year?

0:01:59.400 --> 0:02:02.920
<v Speaker 3>For US, it's a huge drop and itself inflicted. It

0:02:02.960 --> 0:02:05.240
<v Speaker 3>wasn't because there was an attack on the country or

0:02:05.240 --> 0:02:08.400
<v Speaker 3>that there was an economic collapse. It was because the

0:02:08.440 --> 0:02:14.400
<v Speaker 3>president imposed economic and fiscal policy that has shocked the world.

0:02:14.720 --> 0:02:17.919
<v Speaker 3>Traders weren't ready for investors, foreign allies, and also puts

0:02:18.000 --> 0:02:22.440
<v Speaker 3>future growth into uncertainty. The other reason the drop is

0:02:22.480 --> 0:02:27.040
<v Speaker 3>interesting is because usually the economic theory predicts that if

0:02:27.200 --> 0:02:29.440
<v Speaker 3>tariffs are announced, you would think that the dollar would

0:02:29.480 --> 0:02:33.160
<v Speaker 3>actually trend higher and stronger because it is a safe haven,

0:02:33.240 --> 0:02:35.680
<v Speaker 3>and so everyone would think, oh, there is uncertainty, there

0:02:35.720 --> 0:02:38.240
<v Speaker 3>is risk coming down the pike, let's go to the

0:02:38.280 --> 0:02:40.679
<v Speaker 3>safest asset in the world. But actually there was a

0:02:40.720 --> 0:02:44.280
<v Speaker 3>flight of capital from the US and US based assets,

0:02:44.280 --> 0:02:45.280
<v Speaker 3>and that included the dollar.

0:02:46.120 --> 0:02:48.320
<v Speaker 1>So who are the big winners and losers than from

0:02:48.360 --> 0:02:49.120
<v Speaker 1>a weaker dollar.

0:02:49.560 --> 0:02:52.960
<v Speaker 3>Foreign tourists coming into the country are benefiting from this

0:02:53.120 --> 0:02:57.040
<v Speaker 3>because their foreign currencies are able to get more for

0:02:57.120 --> 0:02:59.960
<v Speaker 3>their buck. Of course, we have other considerations that are

0:03:00.040 --> 0:03:02.840
<v Speaker 3>damaging tourism to American like some of the visa and

0:03:02.880 --> 0:03:06.799
<v Speaker 3>travel and use citizenship issues. But for American consumers or

0:03:06.840 --> 0:03:10.680
<v Speaker 3>Americans traveling abroad, that means that their dollar stretches not

0:03:10.919 --> 0:03:13.160
<v Speaker 3>quite as far as it used to. So if you're

0:03:13.200 --> 0:03:15.560
<v Speaker 3>in Europe, your burger at McDonald's is going to cost

0:03:15.560 --> 0:03:17.720
<v Speaker 3>more than it used to because your dollar is weaker.

0:03:18.440 --> 0:03:22.000
<v Speaker 3>It is somewhat good, you would think in theory for

0:03:22.200 --> 0:03:26.440
<v Speaker 3>American manufacturers, because they're able to export more goods because

0:03:26.520 --> 0:03:31.160
<v Speaker 3>foreign countries can purchase more afford more American goods. But

0:03:31.400 --> 0:03:35.600
<v Speaker 3>the tensions, the geopolitical tensions, the economic ties between trade

0:03:35.600 --> 0:03:39.800
<v Speaker 3>partners and allies have become strained from Donald Trump's manner

0:03:39.880 --> 0:03:42.880
<v Speaker 3>and methods and applying these tariffs, and so there isn't

0:03:42.960 --> 0:03:45.800
<v Speaker 3>that much political will to purchase from the United States.

0:03:46.120 --> 0:03:49.600
<v Speaker 1>What about for companies elsewhere in the world that might

0:03:49.680 --> 0:03:53.400
<v Speaker 1>be considering, I suppose broader impacts on their businesses, like

0:03:53.480 --> 0:03:55.080
<v Speaker 1>for example, here in Europe.

0:03:55.280 --> 0:03:57.520
<v Speaker 3>The big problem for them right now is that there's

0:03:57.560 --> 0:04:01.200
<v Speaker 3>so much uncertainty. It's really unclear exactly how this is

0:04:01.240 --> 0:04:04.760
<v Speaker 3>going to impact economic growth. Now. A lot of predictions

0:04:04.800 --> 0:04:07.680
<v Speaker 3>are out there of a recession in the United States

0:04:07.720 --> 0:04:10.680
<v Speaker 3>for one or two quarters. It depends on how some

0:04:10.720 --> 0:04:13.520
<v Speaker 3>of these trade deals shake out, and so the uncertainty

0:04:14.040 --> 0:04:17.839
<v Speaker 3>is making it hard for all businesses to make plans

0:04:17.880 --> 0:04:21.520
<v Speaker 3>for the future, including European businesses. Also, the supply chain

0:04:21.640 --> 0:04:25.680
<v Speaker 3>shock is really syncing in for people. It's confusing to

0:04:25.800 --> 0:04:28.840
<v Speaker 3>know when the terraffs will be applied, which terrafts will

0:04:28.839 --> 0:04:31.599
<v Speaker 3>really hold once this ninety day pause and all the

0:04:31.640 --> 0:04:34.640
<v Speaker 3>trade deals have been struck, So businesses are scrambling and

0:04:34.720 --> 0:04:36.359
<v Speaker 3>either trying to get goods in and out of the

0:04:36.360 --> 0:04:39.839
<v Speaker 3>country fastered before the deadlines, or they've already faced some

0:04:39.880 --> 0:04:41.680
<v Speaker 3>of these tariffs, and they're struggling to figure out how

0:04:41.720 --> 0:04:43.640
<v Speaker 3>to get around things and get products that they need.

0:04:43.960 --> 0:04:45.640
<v Speaker 1>The dollar is also a key part of a lot

0:04:45.680 --> 0:04:49.400
<v Speaker 1>of investment strategies. How has a weaker dollar changed the

0:04:49.480 --> 0:04:50.960
<v Speaker 1>approach of money managers?

0:04:51.240 --> 0:04:53.599
<v Speaker 3>Well, it's a broader picture, right, So there there's a

0:04:53.600 --> 0:04:58.240
<v Speaker 3>weaker dollar for confusing reasons. It's unclear whether the US

0:04:58.320 --> 0:05:01.080
<v Speaker 3>economy is going to be able to weather this storm

0:05:01.160 --> 0:05:04.800
<v Speaker 3>of tariffs, and so if there's uncertainty about where the

0:05:04.839 --> 0:05:07.200
<v Speaker 3>economic growth is going, and which means where is the

0:05:07.240 --> 0:05:10.799
<v Speaker 3>dollar going, investors don't know where to place their money

0:05:10.839 --> 0:05:14.799
<v Speaker 3>for a surefire bet, right, so they don't know whether

0:05:14.839 --> 0:05:17.719
<v Speaker 3>we should just sell out of our investments and just

0:05:17.800 --> 0:05:20.520
<v Speaker 3>keep cash. We saw that Mobius has ninety five percent

0:05:20.520 --> 0:05:22.920
<v Speaker 3>of its and its money in cash right now because

0:05:22.920 --> 0:05:24.440
<v Speaker 3>they just don't know where to put their money.

0:05:24.960 --> 0:05:27.719
<v Speaker 1>The weakening of the dollar has consequences everywhere, and this

0:05:27.839 --> 0:05:30.560
<v Speaker 1>is something that you examine in your book as well.

0:05:31.279 --> 0:05:33.719
<v Speaker 1>When you think about all of the different effects that

0:05:33.720 --> 0:05:36.440
<v Speaker 1>we've seen around the world from this, what's been most

0:05:36.520 --> 0:05:38.400
<v Speaker 1>unexpected or stood out for you.

0:05:38.680 --> 0:05:41.440
<v Speaker 3>There's a lot of talk about the dollar's demise as

0:05:41.440 --> 0:05:44.080
<v Speaker 3>the world's reserve asset. When we talk about a stronger

0:05:44.120 --> 0:05:46.440
<v Speaker 3>a week dollar, there's two definitions to that. There's the

0:05:46.480 --> 0:05:49.640
<v Speaker 3>first one that we've already discussed, which is its strength

0:05:49.720 --> 0:05:53.320
<v Speaker 3>or weakness by foreign exchange rate against any other currency

0:05:53.360 --> 0:05:55.919
<v Speaker 3>at a day to day trading level. The second is

0:05:56.120 --> 0:06:00.480
<v Speaker 3>just the dollar's global dominance. The dollar is one end

0:06:00.520 --> 0:06:04.120
<v Speaker 3>of ninety two percent of transactions in the world. The

0:06:04.200 --> 0:06:07.240
<v Speaker 3>dollar is the lingua franca of global finance. And if

0:06:07.600 --> 0:06:11.640
<v Speaker 3>the world, if foreign central banks, foreign allies, investors are

0:06:11.720 --> 0:06:15.400
<v Speaker 3>wondering that the US policymakers are maybe behaving in a

0:06:15.480 --> 0:06:19.359
<v Speaker 3>less credible manner, then the dollar may not maintain some

0:06:19.520 --> 0:06:23.400
<v Speaker 3>of its dominant status because investors and foreign central banks

0:06:23.440 --> 0:06:25.680
<v Speaker 3>are going to think, maybe we need to diversify away

0:06:25.720 --> 0:06:29.680
<v Speaker 3>from US assets. And when you have that trend begin,

0:06:30.279 --> 0:06:34.960
<v Speaker 3>that means that American sanctions economic sanctions will become less potent.

0:06:35.440 --> 0:06:37.440
<v Speaker 3>It means that the US will have a little bit

0:06:37.480 --> 0:06:42.400
<v Speaker 3>of a less stronghold on the global economy and military prowess.

0:06:42.400 --> 0:06:44.600
<v Speaker 3>But also it's important to remember that nothing's going to

0:06:44.640 --> 0:06:48.440
<v Speaker 3>happen overnight. So the dollar gained its dominance over many,

0:06:48.480 --> 0:06:50.839
<v Speaker 3>many decades. It's going to take a decade plus for

0:06:50.920 --> 0:06:53.760
<v Speaker 3>it to actually come off of that very high perch,

0:06:53.800 --> 0:06:56.479
<v Speaker 3>and maybe we'll move more into a multi currency world

0:06:56.520 --> 0:07:00.000
<v Speaker 3>where the dollar remains dominant, maybe not quite as dominant

0:07:00.120 --> 0:07:02.960
<v Speaker 3>as it has been, with some other currencies also gaining

0:07:03.000 --> 0:07:03.839
<v Speaker 3>some of that strength.

0:07:04.600 --> 0:07:06.240
<v Speaker 1>For now, does it look like the trend of the

0:07:06.240 --> 0:07:08.320
<v Speaker 1>weaker dollar is set to continue?

0:07:08.800 --> 0:07:11.640
<v Speaker 3>If we're talking about foreign exchange rate in that week dollar,

0:07:11.760 --> 0:07:13.480
<v Speaker 3>then I'm really curious as to what we're going to

0:07:13.560 --> 0:07:16.600
<v Speaker 3>hear from the Federal Reserve in the next couple of weeks.

0:07:16.640 --> 0:07:18.600
<v Speaker 3>You know, they have an interest rate decision coming up.

0:07:18.640 --> 0:07:20.160
<v Speaker 3>Are they going to cut rates? Are they going to

0:07:20.600 --> 0:07:23.280
<v Speaker 3>signal that the rates could go lower depending on where

0:07:23.320 --> 0:07:26.080
<v Speaker 3>economic grows. I think right now the power for where

0:07:26.120 --> 0:07:28.360
<v Speaker 3>the dollar is headed in terms of foreign exchange rate

0:07:28.680 --> 0:07:30.800
<v Speaker 3>may lie with the Fed and interest rate paths.

0:07:31.200 --> 0:07:34.120
<v Speaker 1>Thanks to our senior Washington correspondent, Silia mosen And, you

0:07:34.120 --> 0:07:36.920
<v Speaker 1>could read more on this in Selaia's book paper Soldiers,

0:07:36.920 --> 0:07:40.440
<v Speaker 1>How the Weaponization of the Dollar Changed the World. Order

0:07:40.680 --> 0:07:42.920
<v Speaker 1>For more explanations like this from our team of three

0:07:42.920 --> 0:07:45.680
<v Speaker 1>thousand journalists and analysts around the world, go to Bloomberg

0:07:45.720 --> 0:07:50.440
<v Speaker 1>dot com slash Explainers I'm Stephen Carroll. This is here's why.

0:07:50.640 --> 0:07:52.920
<v Speaker 1>I'll be back next week with more Thanks for listening.