WEBVTT - Here's Why Dollar Dominance Is In Question 0:00:02.440 --> 0:00:09.280 Bloomberg Audio Studios, Podcasts, radio News. I'm Stephen Carroll, and 0:00:09.400 --> 0:00:11.840 this is Here's Why, where we take one news story 0:00:11.880 --> 0:00:13.960 and explain it in just a few minutes with our 0:00:13.960 --> 0:00:24.120 experts here at Bloomberg. In the global economy, the dollar 0:00:24.560 --> 0:00:25.080 is king. 0:00:25.920 --> 0:00:28.280 We said that the king dollar is back. King dollar 0:00:28.400 --> 0:00:31.600 is back for European currencies. Right so now the European 0:00:31.640 --> 0:00:33.840 currencies that you can central bags are more or less 0:00:33.840 --> 0:00:36.199 done with rate hikes. We think that it's time for 0:00:36.240 --> 0:00:39.160 the markets to think about rip cuts for the currencies, 0:00:39.159 --> 0:00:40.400 which will undermine them. 0:00:40.960 --> 0:00:43.800 I still think it is king dollar. I mean right now, Wait, yeah, 0:00:43.800 --> 0:00:46.160 I mean the bottom line is we're high. We're high 0:00:46.200 --> 0:00:49.600 already relative these other currencies and going higher. So I 0:00:50.280 --> 0:00:52.239 don't see the big drag on the dollar. Let's put 0:00:52.280 --> 0:00:52.680 it that way. 0:00:53.840 --> 0:00:56.040 The US dollar is the closest thing there is to 0:00:56.080 --> 0:00:59.080 a global currency. It's the most commonly used unit in 0:00:59.080 --> 0:01:02.880 international transacts, the main reserve for central banks around the world, 0:01:03.000 --> 0:01:06.600 and it's a safe haven in troubled times. But there 0:01:06.680 --> 0:01:09.200 is a gradual move away from the green back happening 0:01:09.280 --> 0:01:13.240 in some parts of the world, and it's slowly gaining traction. 0:01:14.040 --> 0:01:17.000 People have to understand people and policy have to understand 0:01:17.000 --> 0:01:19.240 that position the dollar enjoys. 0:01:19.640 --> 0:01:24.200 There's no entitlement to that. It's not like a guarantee, 0:01:24.319 --> 0:01:27.520 and you can't you don't want to test people's confidence 0:01:27.560 --> 0:01:27.760 in that. 0:01:28.200 --> 0:01:33.200 Here's why the dollar's dominance is in question. Our senior 0:01:33.240 --> 0:01:36.640 Washington correspondent Salamosen, who's written a book on this subject, 0:01:36.680 --> 0:01:39.040 joins me now for more, Hayzally, great to have you 0:01:39.080 --> 0:01:42.399 with us. Has the dollar always been such a key 0:01:42.440 --> 0:01:44.000 part of the global economy? 0:01:44.480 --> 0:01:47.560 Not forever. It's been a key part of the economy 0:01:47.720 --> 0:01:51.200 since about nineteen forty four. So as the Second World 0:01:51.240 --> 0:01:55.160 War ended, forty four nations came together and they decided, 0:01:55.400 --> 0:01:58.280 we can't let these wars happen again, and if our 0:01:58.280 --> 0:02:01.760 economies are deeply connected, it'll be that much harder for 0:02:01.840 --> 0:02:03.760 us to go to war with each other. So the 0:02:03.840 --> 0:02:06.800 dollar became the anchor to that. That was the Breton 0:02:06.840 --> 0:02:09.960 Woods meeting in nineteen forty four, and since then, the 0:02:10.080 --> 0:02:12.680 dollar and the US has been on a journey gaining 0:02:12.760 --> 0:02:14.760 the cloud that it has now and then testing the 0:02:14.800 --> 0:02:15.640 power that it's got. 0:02:16.080 --> 0:02:19.200 So fast forward to twenty twenty four. Who's trying to 0:02:19.560 --> 0:02:21.919 move away from the dollar now and what sort of 0:02:22.000 --> 0:02:23.000 success are they having. 0:02:23.760 --> 0:02:29.520 It's a China led coalition known as the Bricks plus Brazil, Russia, India, China, 0:02:29.680 --> 0:02:33.320 South Africa and a lot of other countries from the 0:02:33.320 --> 0:02:37.560 Gulf States and others are starting to join the Bricks group. 0:02:38.160 --> 0:02:41.480 They have a very clear objective that we want to dedollarize. 0:02:41.560 --> 0:02:44.519 The brass tacks though, are that no country has actually 0:02:44.680 --> 0:02:48.000 abandoned the dollar right now. There's a lot of rhetoric, 0:02:48.320 --> 0:02:50.840 not as much talk, but still this is something worth 0:02:50.880 --> 0:02:55.040 paying attention to because the pipelines in the global financial 0:02:55.160 --> 0:02:59.000 plumbing system, those pipes to work around the dollar are 0:02:59.040 --> 0:03:01.560 being created, and that is pretty key to be watching. 0:03:02.040 --> 0:03:04.359 So what are the alternatives then that these countries are 0:03:04.360 --> 0:03:07.400 looking at to replace the dollar in its global role. 0:03:08.000 --> 0:03:10.800 The most obvious two that come up are China and 0:03:10.840 --> 0:03:14.000 the Euro. Both of them are missing key attributes to 0:03:14.040 --> 0:03:16.799 become the leader and replace the dollar. The Euro does 0:03:16.840 --> 0:03:20.080 not have the depth of debt instruments, China does not 0:03:20.120 --> 0:03:22.960 have the transparency and I do have to mention people 0:03:23.000 --> 0:03:26.360 love to talk about bitcoin or crypto, but unless something 0:03:26.560 --> 0:03:29.080 is backed by the government, investors are not going to 0:03:29.080 --> 0:03:30.840 give it. The reserve asset status. 0:03:31.360 --> 0:03:34.000 Okay, so those are some of the other options. This 0:03:34.080 --> 0:03:36.440 is an issue though, dedollarization that's come up in the 0:03:36.520 --> 0:03:40.560 US presidential election campaign. Does the United States need to 0:03:40.720 --> 0:03:43.280 worry about the dollar falling out of favor? 0:03:44.200 --> 0:03:47.360 It does. The dollar and its status gives the US 0:03:47.560 --> 0:03:51.280 so much power that complacency is not a good thing. 0:03:51.960 --> 0:03:54.680 Our low interest rates on our debt, whether we are 0:03:54.720 --> 0:03:59.800 financing debt to finance public spending or just credit card 0:03:59.840 --> 0:04:02.680 debt and mortgage loans, all of that debt is way 0:04:02.720 --> 0:04:05.080 lower than it actually would be in a country with 0:04:05.120 --> 0:04:07.440 our fiscal profile. Because we are the owner of the 0:04:07.480 --> 0:04:11.440 world's reserve asset, and it gives us economic and geopolitical prowess. 0:04:11.480 --> 0:04:14.040 So we have to be judicious and how it's weaponized 0:04:14.160 --> 0:04:18.240 and always be protective. The US also seems worried. Treasury 0:04:18.279 --> 0:04:21.760 officials and even Fed officials have gone into a defensive 0:04:21.839 --> 0:04:25.159 posture when talking about the dollar, and we hear former 0:04:25.200 --> 0:04:28.680 President Donald Trump talking about it more and more. And 0:04:28.680 --> 0:04:31.359 that's because we stand to lose a lot if the 0:04:31.440 --> 0:04:33.920 dollar loses its power overseas. 0:04:34.480 --> 0:04:37.920 Okay, so there's a potential risk there, but the process, 0:04:37.960 --> 0:04:40.400 it sounds like it is still quite a long way 0:04:40.480 --> 0:04:44.120 from having any meaningful effect. What could change that? What 0:04:44.200 --> 0:04:45.200 could speed it up? 0:04:45.560 --> 0:04:48.040 Yeah? Right now, Like I said earlier, no country has 0:04:48.040 --> 0:04:51.400 actually abandoned the dollar. But for the first time in many, 0:04:51.440 --> 0:04:55.240 many decades, the conversation is happening. There's papers flying, there's 0:04:55.839 --> 0:04:58.279 you know, summits around the world happening around should we 0:04:58.360 --> 0:05:00.120 move away from the dollar? How do we do it? 0:05:00.680 --> 0:05:04.360 And I've always said that while people think that anything 0:05:04.400 --> 0:05:08.039 happening overseas outside of the US could move the de 0:05:08.120 --> 0:05:11.800 dollarization bid faster, like China creating a new currency, a 0:05:11.920 --> 0:05:14.760 joint currency for the bricks Nations or something like that, 0:05:14.839 --> 0:05:18.440 I actually think that the process would be sped up 0:05:18.480 --> 0:05:21.880 by something that happens internally in the US. It's volatility 0:05:21.960 --> 0:05:26.160 in US policymaking and the pillars of our democracy that 0:05:26.200 --> 0:05:28.599 could actually put a real dent in the dollar. The 0:05:28.680 --> 0:05:31.720 dollar is the rule's reserve asset because investors see that 0:05:31.839 --> 0:05:36.080 the US is a free and fair democracy. We have 0:05:36.520 --> 0:05:40.760 independent institutions, a press, free and fair elections, a court 0:05:40.800 --> 0:05:43.520 system that's fair. If those pillars start to come down 0:05:43.680 --> 0:05:47.960 and the US cannot be trusted to uphold democracy and predictability, 0:05:48.360 --> 0:05:50.480 then that is going to slowly start to put it 0:05:50.520 --> 0:05:52.320 more and more chinks in the armor. 0:05:52.040 --> 0:05:54.600 Of the dollar. But this would be something that would 0:05:54.640 --> 0:05:58.279 need a fairly major event, surely to change an attitude 0:05:58.279 --> 0:06:00.520 that's been in place, and as you say, the plumbing 0:06:00.560 --> 0:06:03.000 of the global financial system that had been in place 0:06:03.040 --> 0:06:04.560 for so many decades. 0:06:05.200 --> 0:06:08.320 Yeah. If you look at history the last two worlds 0:06:08.320 --> 0:06:11.160 reserve asset, it was the Dutch florin and after that 0:06:11.200 --> 0:06:14.080 it was the British pound, And for both of those 0:06:14.160 --> 0:06:18.120 it was a major economic event that triggered the shift 0:06:18.279 --> 0:06:21.880 away from those currencies being the world's reserve asset. So 0:06:22.560 --> 0:06:24.800 that pattern tells us that it would take a major 0:06:24.880 --> 0:06:27.000 event to start that cascade. 0:06:27.600 --> 0:06:29.640 Now, you spent a lot of time researching the dollar 0:06:29.680 --> 0:06:33.400 for your book, Paper Soldiers. Are there any fun facts 0:06:33.400 --> 0:06:35.719 about the dollar that we might not know about already? 0:06:36.040 --> 0:06:38.800 I covered the Treasure department for six years be where 0:06:38.800 --> 0:06:40.640 I wrote that book, and one thing I learned was 0:06:40.680 --> 0:06:43.760 that reporters will ask a treasure secretary about the dollar 0:06:43.880 --> 0:06:47.119 what their view of it is at any given point. 0:06:47.200 --> 0:06:51.240 My favorite two moments are one when one secretary was 0:06:51.360 --> 0:06:53.919 in a high school gym in Ohio. This was I 0:06:53.920 --> 0:06:55.960 believe it was John Snow who was in a high 0:06:55.960 --> 0:06:58.560 school gym in Ohio taking questions and a high school 0:06:58.600 --> 0:07:00.920 student asked him, and he pointed, looked over to his 0:07:01.040 --> 0:07:03.480 reporters and said, you put this high school student up 0:07:03.520 --> 0:07:07.440 to this. And another Chasure secretary was buying build a 0:07:07.480 --> 0:07:11.320 Bears for his grandchildren. And while he's holding these two 0:07:11.360 --> 0:07:14.280 boxes those little houses with bears in them, someone lobbed 0:07:14.280 --> 0:07:14.640 a dollar. 0:07:14.760 --> 0:07:15.040 Question. 0:07:15.080 --> 0:07:17.280 Adam, I love it. We SHU need to find that 0:07:17.360 --> 0:07:19.320 high school student now and see how they ended up 0:07:19.560 --> 0:07:22.920 doing a fascinating story. Thanks so much for joining us. 0:07:22.920 --> 0:07:26.160 Our senior Washington correspondent Salia Mosen joining us there. And 0:07:26.160 --> 0:07:28.000 if you'd like to read Salay's book on the subject, 0:07:28.120 --> 0:07:30.920 it's called Paper Soldiers. How the weaponization of the Dollar 0:07:31.160 --> 0:07:35.080 changed the world. Order for more explanations like this from 0:07:35.120 --> 0:07:37.880 our team of twenty seven hundred journalists and analysts around 0:07:37.920 --> 0:07:40.360 the world. Search for Quick Take on the Bloomberg website 0:07:40.480 --> 0:07:45.640 or Bloomberg Business app. I'm Stephen Caroll. This is Here's why. 0:07:45.960 --> 0:07:48.440 I'll be back next week with more. Thanks for listening.