1 00:00:02,440 --> 00:00:09,280 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. I'm Stephen Carroll, and 2 00:00:09,400 --> 00:00:11,840 Speaker 1: this is Here's Why, where we take one news story 3 00:00:11,880 --> 00:00:13,960 Speaker 1: and explain it in just a few minutes with our 4 00:00:13,960 --> 00:00:24,120 Speaker 1: experts here at Bloomberg. In the global economy, the dollar 5 00:00:24,560 --> 00:00:25,080 Speaker 1: is king. 6 00:00:25,920 --> 00:00:28,280 Speaker 2: We said that the king dollar is back. King dollar 7 00:00:28,400 --> 00:00:31,600 Speaker 2: is back for European currencies. Right so now the European 8 00:00:31,640 --> 00:00:33,840 Speaker 2: currencies that you can central bags are more or less 9 00:00:33,840 --> 00:00:36,199 Speaker 2: done with rate hikes. We think that it's time for 10 00:00:36,240 --> 00:00:39,160 Speaker 2: the markets to think about rip cuts for the currencies, 11 00:00:39,159 --> 00:00:40,400 Speaker 2: which will undermine them. 12 00:00:40,960 --> 00:00:43,800 Speaker 3: I still think it is king dollar. I mean right now, Wait, yeah, 13 00:00:43,800 --> 00:00:46,160 Speaker 3: I mean the bottom line is we're high. We're high 14 00:00:46,200 --> 00:00:49,600 Speaker 3: already relative these other currencies and going higher. So I 15 00:00:50,280 --> 00:00:52,239 Speaker 3: don't see the big drag on the dollar. Let's put 16 00:00:52,280 --> 00:00:52,680 Speaker 3: it that way. 17 00:00:53,840 --> 00:00:56,040 Speaker 1: The US dollar is the closest thing there is to 18 00:00:56,080 --> 00:00:59,080 Speaker 1: a global currency. It's the most commonly used unit in 19 00:00:59,080 --> 00:01:02,880 Speaker 1: international transacts, the main reserve for central banks around the world, 20 00:01:03,000 --> 00:01:06,600 Speaker 1: and it's a safe haven in troubled times. But there 21 00:01:06,680 --> 00:01:09,200 Speaker 1: is a gradual move away from the green back happening 22 00:01:09,280 --> 00:01:13,240 Speaker 1: in some parts of the world, and it's slowly gaining traction. 23 00:01:14,040 --> 00:01:17,000 Speaker 3: People have to understand people and policy have to understand 24 00:01:17,000 --> 00:01:19,240 Speaker 3: that position the dollar enjoys. 25 00:01:19,640 --> 00:01:24,200 Speaker 2: There's no entitlement to that. It's not like a guarantee, 26 00:01:24,319 --> 00:01:27,520 Speaker 2: and you can't you don't want to test people's confidence 27 00:01:27,560 --> 00:01:27,760 Speaker 2: in that. 28 00:01:28,200 --> 00:01:33,200 Speaker 1: Here's why the dollar's dominance is in question. Our senior 29 00:01:33,240 --> 00:01:36,640 Speaker 1: Washington correspondent Salamosen, who's written a book on this subject, 30 00:01:36,680 --> 00:01:39,040 Speaker 1: joins me now for more, Hayzally, great to have you 31 00:01:39,080 --> 00:01:42,399 Speaker 1: with us. Has the dollar always been such a key 32 00:01:42,440 --> 00:01:44,000 Speaker 1: part of the global economy? 33 00:01:44,480 --> 00:01:47,560 Speaker 3: Not forever. It's been a key part of the economy 34 00:01:47,720 --> 00:01:51,200 Speaker 3: since about nineteen forty four. So as the Second World 35 00:01:51,240 --> 00:01:55,160 Speaker 3: War ended, forty four nations came together and they decided, 36 00:01:55,400 --> 00:01:58,280 Speaker 3: we can't let these wars happen again, and if our 37 00:01:58,280 --> 00:02:01,760 Speaker 3: economies are deeply connected, it'll be that much harder for 38 00:02:01,840 --> 00:02:03,760 Speaker 3: us to go to war with each other. So the 39 00:02:03,840 --> 00:02:06,800 Speaker 3: dollar became the anchor to that. That was the Breton 40 00:02:06,840 --> 00:02:09,960 Speaker 3: Woods meeting in nineteen forty four, and since then, the 41 00:02:10,080 --> 00:02:12,680 Speaker 3: dollar and the US has been on a journey gaining 42 00:02:12,760 --> 00:02:14,760 Speaker 3: the cloud that it has now and then testing the 43 00:02:14,800 --> 00:02:15,640 Speaker 3: power that it's got. 44 00:02:16,080 --> 00:02:19,200 Speaker 1: So fast forward to twenty twenty four. Who's trying to 45 00:02:19,560 --> 00:02:21,919 Speaker 1: move away from the dollar now and what sort of 46 00:02:22,000 --> 00:02:23,000 Speaker 1: success are they having. 47 00:02:23,760 --> 00:02:29,520 Speaker 3: It's a China led coalition known as the Bricks plus Brazil, Russia, India, China, 48 00:02:29,680 --> 00:02:33,320 Speaker 3: South Africa and a lot of other countries from the 49 00:02:33,320 --> 00:02:37,560 Speaker 3: Gulf States and others are starting to join the Bricks group. 50 00:02:38,160 --> 00:02:41,480 Speaker 3: They have a very clear objective that we want to dedollarize. 51 00:02:41,560 --> 00:02:44,519 Speaker 3: The brass tacks though, are that no country has actually 52 00:02:44,680 --> 00:02:48,000 Speaker 3: abandoned the dollar right now. There's a lot of rhetoric, 53 00:02:48,320 --> 00:02:50,840 Speaker 3: not as much talk, but still this is something worth 54 00:02:50,880 --> 00:02:55,040 Speaker 3: paying attention to because the pipelines in the global financial 55 00:02:55,160 --> 00:02:59,000 Speaker 3: plumbing system, those pipes to work around the dollar are 56 00:02:59,040 --> 00:03:01,560 Speaker 3: being created, and that is pretty key to be watching. 57 00:03:02,040 --> 00:03:04,359 Speaker 1: So what are the alternatives then that these countries are 58 00:03:04,360 --> 00:03:07,400 Speaker 1: looking at to replace the dollar in its global role. 59 00:03:08,000 --> 00:03:10,800 Speaker 3: The most obvious two that come up are China and 60 00:03:10,840 --> 00:03:14,000 Speaker 3: the Euro. Both of them are missing key attributes to 61 00:03:14,040 --> 00:03:16,799 Speaker 3: become the leader and replace the dollar. The Euro does 62 00:03:16,840 --> 00:03:20,080 Speaker 3: not have the depth of debt instruments, China does not 63 00:03:20,120 --> 00:03:22,960 Speaker 3: have the transparency and I do have to mention people 64 00:03:23,000 --> 00:03:26,360 Speaker 3: love to talk about bitcoin or crypto, but unless something 65 00:03:26,560 --> 00:03:29,080 Speaker 3: is backed by the government, investors are not going to 66 00:03:29,080 --> 00:03:30,840 Speaker 3: give it. The reserve asset status. 67 00:03:31,360 --> 00:03:34,000 Speaker 1: Okay, so those are some of the other options. This 68 00:03:34,080 --> 00:03:36,440 Speaker 1: is an issue though, dedollarization that's come up in the 69 00:03:36,520 --> 00:03:40,560 Speaker 1: US presidential election campaign. Does the United States need to 70 00:03:40,720 --> 00:03:43,280 Speaker 1: worry about the dollar falling out of favor? 71 00:03:44,200 --> 00:03:47,360 Speaker 3: It does. The dollar and its status gives the US 72 00:03:47,560 --> 00:03:51,280 Speaker 3: so much power that complacency is not a good thing. 73 00:03:51,960 --> 00:03:54,680 Speaker 3: Our low interest rates on our debt, whether we are 74 00:03:54,720 --> 00:03:59,800 Speaker 3: financing debt to finance public spending or just credit card 75 00:03:59,840 --> 00:04:02,680 Speaker 3: debt and mortgage loans, all of that debt is way 76 00:04:02,720 --> 00:04:05,080 Speaker 3: lower than it actually would be in a country with 77 00:04:05,120 --> 00:04:07,440 Speaker 3: our fiscal profile. Because we are the owner of the 78 00:04:07,480 --> 00:04:11,440 Speaker 3: world's reserve asset, and it gives us economic and geopolitical prowess. 79 00:04:11,480 --> 00:04:14,040 Speaker 3: So we have to be judicious and how it's weaponized 80 00:04:14,160 --> 00:04:18,240 Speaker 3: and always be protective. The US also seems worried. Treasury 81 00:04:18,279 --> 00:04:21,760 Speaker 3: officials and even Fed officials have gone into a defensive 82 00:04:21,839 --> 00:04:25,159 Speaker 3: posture when talking about the dollar, and we hear former 83 00:04:25,200 --> 00:04:28,680 Speaker 3: President Donald Trump talking about it more and more. And 84 00:04:28,680 --> 00:04:31,359 Speaker 3: that's because we stand to lose a lot if the 85 00:04:31,440 --> 00:04:33,920 Speaker 3: dollar loses its power overseas. 86 00:04:34,480 --> 00:04:37,920 Speaker 1: Okay, so there's a potential risk there, but the process, 87 00:04:37,960 --> 00:04:40,400 Speaker 1: it sounds like it is still quite a long way 88 00:04:40,480 --> 00:04:44,120 Speaker 1: from having any meaningful effect. What could change that? What 89 00:04:44,200 --> 00:04:45,200 Speaker 1: could speed it up? 90 00:04:45,560 --> 00:04:48,040 Speaker 3: Yeah? Right now, Like I said earlier, no country has 91 00:04:48,040 --> 00:04:51,400 Speaker 3: actually abandoned the dollar. But for the first time in many, 92 00:04:51,440 --> 00:04:55,240 Speaker 3: many decades, the conversation is happening. There's papers flying, there's 93 00:04:55,839 --> 00:04:58,279 Speaker 3: you know, summits around the world happening around should we 94 00:04:58,360 --> 00:05:00,120 Speaker 3: move away from the dollar? How do we do it? 95 00:05:00,680 --> 00:05:04,360 Speaker 3: And I've always said that while people think that anything 96 00:05:04,400 --> 00:05:08,039 Speaker 3: happening overseas outside of the US could move the de 97 00:05:08,120 --> 00:05:11,800 Speaker 3: dollarization bid faster, like China creating a new currency, a 98 00:05:11,920 --> 00:05:14,760 Speaker 3: joint currency for the bricks Nations or something like that, 99 00:05:14,839 --> 00:05:18,440 Speaker 3: I actually think that the process would be sped up 100 00:05:18,480 --> 00:05:21,880 Speaker 3: by something that happens internally in the US. It's volatility 101 00:05:21,960 --> 00:05:26,160 Speaker 3: in US policymaking and the pillars of our democracy that 102 00:05:26,200 --> 00:05:28,599 Speaker 3: could actually put a real dent in the dollar. The 103 00:05:28,680 --> 00:05:31,720 Speaker 3: dollar is the rule's reserve asset because investors see that 104 00:05:31,839 --> 00:05:36,080 Speaker 3: the US is a free and fair democracy. We have 105 00:05:36,520 --> 00:05:40,760 Speaker 3: independent institutions, a press, free and fair elections, a court 106 00:05:40,800 --> 00:05:43,520 Speaker 3: system that's fair. If those pillars start to come down 107 00:05:43,680 --> 00:05:47,960 Speaker 3: and the US cannot be trusted to uphold democracy and predictability, 108 00:05:48,360 --> 00:05:50,480 Speaker 3: then that is going to slowly start to put it 109 00:05:50,520 --> 00:05:52,320 Speaker 3: more and more chinks in the armor. 110 00:05:52,040 --> 00:05:54,600 Speaker 1: Of the dollar. But this would be something that would 111 00:05:54,640 --> 00:05:58,279 Speaker 1: need a fairly major event, surely to change an attitude 112 00:05:58,279 --> 00:06:00,520 Speaker 1: that's been in place, and as you say, the plumbing 113 00:06:00,560 --> 00:06:03,000 Speaker 1: of the global financial system that had been in place 114 00:06:03,040 --> 00:06:04,560 Speaker 1: for so many decades. 115 00:06:05,200 --> 00:06:08,320 Speaker 3: Yeah. If you look at history the last two worlds 116 00:06:08,320 --> 00:06:11,160 Speaker 3: reserve asset, it was the Dutch florin and after that 117 00:06:11,200 --> 00:06:14,080 Speaker 3: it was the British pound, And for both of those 118 00:06:14,160 --> 00:06:18,120 Speaker 3: it was a major economic event that triggered the shift 119 00:06:18,279 --> 00:06:21,880 Speaker 3: away from those currencies being the world's reserve asset. So 120 00:06:22,560 --> 00:06:24,800 Speaker 3: that pattern tells us that it would take a major 121 00:06:24,880 --> 00:06:27,000 Speaker 3: event to start that cascade. 122 00:06:27,600 --> 00:06:29,640 Speaker 1: Now, you spent a lot of time researching the dollar 123 00:06:29,680 --> 00:06:33,400 Speaker 1: for your book, Paper Soldiers. Are there any fun facts 124 00:06:33,400 --> 00:06:35,719 Speaker 1: about the dollar that we might not know about already? 125 00:06:36,040 --> 00:06:38,800 Speaker 3: I covered the Treasure department for six years be where 126 00:06:38,800 --> 00:06:40,640 Speaker 3: I wrote that book, and one thing I learned was 127 00:06:40,680 --> 00:06:43,760 Speaker 3: that reporters will ask a treasure secretary about the dollar 128 00:06:43,880 --> 00:06:47,119 Speaker 3: what their view of it is at any given point. 129 00:06:47,200 --> 00:06:51,240 Speaker 3: My favorite two moments are one when one secretary was 130 00:06:51,360 --> 00:06:53,919 Speaker 3: in a high school gym in Ohio. This was I 131 00:06:53,920 --> 00:06:55,960 Speaker 3: believe it was John Snow who was in a high 132 00:06:55,960 --> 00:06:58,560 Speaker 3: school gym in Ohio taking questions and a high school 133 00:06:58,600 --> 00:07:00,920 Speaker 3: student asked him, and he pointed, looked over to his 134 00:07:01,040 --> 00:07:03,480 Speaker 3: reporters and said, you put this high school student up 135 00:07:03,520 --> 00:07:07,440 Speaker 3: to this. And another Chasure secretary was buying build a 136 00:07:07,480 --> 00:07:11,320 Speaker 3: Bears for his grandchildren. And while he's holding these two 137 00:07:11,360 --> 00:07:14,280 Speaker 3: boxes those little houses with bears in them, someone lobbed 138 00:07:14,280 --> 00:07:14,640 Speaker 3: a dollar. 139 00:07:14,760 --> 00:07:15,040 Speaker 2: Question. 140 00:07:15,080 --> 00:07:17,280 Speaker 1: Adam, I love it. We SHU need to find that 141 00:07:17,360 --> 00:07:19,320 Speaker 1: high school student now and see how they ended up 142 00:07:19,560 --> 00:07:22,920 Speaker 1: doing a fascinating story. Thanks so much for joining us. 143 00:07:22,920 --> 00:07:26,160 Speaker 1: Our senior Washington correspondent Salia Mosen joining us there. And 144 00:07:26,160 --> 00:07:28,000 Speaker 1: if you'd like to read Salay's book on the subject, 145 00:07:28,120 --> 00:07:30,920 Speaker 1: it's called Paper Soldiers. How the weaponization of the Dollar 146 00:07:31,160 --> 00:07:35,080 Speaker 1: changed the world. Order for more explanations like this from 147 00:07:35,120 --> 00:07:37,880 Speaker 1: our team of twenty seven hundred journalists and analysts around 148 00:07:37,920 --> 00:07:40,360 Speaker 1: the world. Search for Quick Take on the Bloomberg website 149 00:07:40,480 --> 00:07:45,640 Speaker 1: or Bloomberg Business app. I'm Stephen Caroll. This is Here's why. 150 00:07:45,960 --> 00:07:48,440 Speaker 1: I'll be back next week with more. Thanks for listening.