Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. I'm Stephen Carroll, and
Speaker 1: this is Here's Why, where we take one news story
Speaker 1: and explain it in just a few minutes with our
Speaker 1: experts here at Bloomberg. In the global economy, the dollar
Speaker 1: is king.
Speaker 2: We said that the king dollar is back. King dollar
Speaker 2: is back for European currencies. Right so now the European
Speaker 2: currencies that you can central bags are more or less
Speaker 2: done with rate hikes. We think that it's time for
Speaker 2: the markets to think about rip cuts for the currencies,
Speaker 2: which will undermine them.
Speaker 3: I still think it is king dollar. I mean right now, Wait, yeah,
Speaker 3: I mean the bottom line is we're high. We're high
Speaker 3: already relative these other currencies and going higher. So I
Speaker 3: don't see the big drag on the dollar. Let's put
Speaker 3: it that way.
Speaker 1: The US dollar is the closest thing there is to
Speaker 1: a global currency. It's the most commonly used unit in
Speaker 1: international transacts, the main reserve for central banks around the world,
Speaker 1: and it's a safe haven in troubled times. But there
Speaker 1: is a gradual move away from the green back happening
Speaker 1: in some parts of the world, and it's slowly gaining traction.
Speaker 3: People have to understand people and policy have to understand
Speaker 3: that position the dollar enjoys.
Speaker 2: There's no entitlement to that. It's not like a guarantee,
Speaker 2: and you can't you don't want to test people's confidence
Speaker 2: in that.
Speaker 1: Here's why the dollar's dominance is in question. Our senior
Speaker 1: Washington correspondent Salamosen, who's written a book on this subject,
Speaker 1: joins me now for more, Hayzally, great to have you
Speaker 1: with us. Has the dollar always been such a key
Speaker 1: part of the global economy?
Speaker 3: Not forever. It's been a key part of the economy
Speaker 3: since about nineteen forty four. So as the Second World
Speaker 3: War ended, forty four nations came together and they decided,
Speaker 3: we can't let these wars happen again, and if our
Speaker 3: economies are deeply connected, it'll be that much harder for
Speaker 3: us to go to war with each other. So the
Speaker 3: dollar became the anchor to that. That was the Breton
Speaker 3: Woods meeting in nineteen forty four, and since then, the
Speaker 3: dollar and the US has been on a journey gaining
Speaker 3: the cloud that it has now and then testing the
Speaker 3: power that it's got.
Speaker 1: So fast forward to twenty twenty four. Who's trying to
Speaker 1: move away from the dollar now and what sort of
Speaker 1: success are they having.
Speaker 3: It's a China led coalition known as the Bricks plus Brazil, Russia, India, China,
Speaker 3: South Africa and a lot of other countries from the
Speaker 3: Gulf States and others are starting to join the Bricks group.
Speaker 3: They have a very clear objective that we want to dedollarize.
Speaker 3: The brass tacks though, are that no country has actually
Speaker 3: abandoned the dollar right now. There's a lot of rhetoric,
Speaker 3: not as much talk, but still this is something worth
Speaker 3: paying attention to because the pipelines in the global financial
Speaker 3: plumbing system, those pipes to work around the dollar are
Speaker 3: being created, and that is pretty key to be watching.
Speaker 1: So what are the alternatives then that these countries are
Speaker 1: looking at to replace the dollar in its global role.
Speaker 3: The most obvious two that come up are China and
Speaker 3: the Euro. Both of them are missing key attributes to
Speaker 3: become the leader and replace the dollar. The Euro does
Speaker 3: not have the depth of debt instruments, China does not
Speaker 3: have the transparency and I do have to mention people
Speaker 3: love to talk about bitcoin or crypto, but unless something
Speaker 3: is backed by the government, investors are not going to
Speaker 3: give it. The reserve asset status.
Speaker 1: Okay, so those are some of the other options. This
Speaker 1: is an issue though, dedollarization that's come up in the
Speaker 1: US presidential election campaign. Does the United States need to
Speaker 1: worry about the dollar falling out of favor?
Speaker 3: It does. The dollar and its status gives the US
Speaker 3: so much power that complacency is not a good thing.
Speaker 3: Our low interest rates on our debt, whether we are
Speaker 3: financing debt to finance public spending or just credit card
Speaker 3: debt and mortgage loans, all of that debt is way
Speaker 3: lower than it actually would be in a country with
Speaker 3: our fiscal profile. Because we are the owner of the
Speaker 3: world's reserve asset, and it gives us economic and geopolitical prowess.
Speaker 3: So we have to be judicious and how it's weaponized
Speaker 3: and always be protective. The US also seems worried. Treasury
Speaker 3: officials and even Fed officials have gone into a defensive
Speaker 3: posture when talking about the dollar, and we hear former
Speaker 3: President Donald Trump talking about it more and more. And
Speaker 3: that's because we stand to lose a lot if the
Speaker 3: dollar loses its power overseas.
Speaker 1: Okay, so there's a potential risk there, but the process,
Speaker 1: it sounds like it is still quite a long way
Speaker 1: from having any meaningful effect. What could change that? What
Speaker 1: could speed it up?
Speaker 3: Yeah? Right now, Like I said earlier, no country has
Speaker 3: actually abandoned the dollar. But for the first time in many,
Speaker 3: many decades, the conversation is happening. There's papers flying, there's
Speaker 3: you know, summits around the world happening around should we
Speaker 3: move away from the dollar? How do we do it?
Speaker 3: And I've always said that while people think that anything
Speaker 3: happening overseas outside of the US could move the de
Speaker 3: dollarization bid faster, like China creating a new currency, a
Speaker 3: joint currency for the bricks Nations or something like that,
Speaker 3: I actually think that the process would be sped up
Speaker 3: by something that happens internally in the US. It's volatility
Speaker 3: in US policymaking and the pillars of our democracy that
Speaker 3: could actually put a real dent in the dollar. The
Speaker 3: dollar is the rule's reserve asset because investors see that
Speaker 3: the US is a free and fair democracy. We have
Speaker 3: independent institutions, a press, free and fair elections, a court
Speaker 3: system that's fair. If those pillars start to come down
Speaker 3: and the US cannot be trusted to uphold democracy and predictability,
Speaker 3: then that is going to slowly start to put it
Speaker 3: more and more chinks in the armor.
Speaker 1: Of the dollar. But this would be something that would
Speaker 1: need a fairly major event, surely to change an attitude
Speaker 1: that's been in place, and as you say, the plumbing
Speaker 1: of the global financial system that had been in place
Speaker 1: for so many decades.
Speaker 3: Yeah. If you look at history the last two worlds
Speaker 3: reserve asset, it was the Dutch florin and after that
Speaker 3: it was the British pound, And for both of those
Speaker 3: it was a major economic event that triggered the shift
Speaker 3: away from those currencies being the world's reserve asset. So
Speaker 3: that pattern tells us that it would take a major
Speaker 3: event to start that cascade.
Speaker 1: Now, you spent a lot of time researching the dollar
Speaker 1: for your book, Paper Soldiers. Are there any fun facts
Speaker 1: about the dollar that we might not know about already?
Speaker 3: I covered the Treasure department for six years be where
Speaker 3: I wrote that book, and one thing I learned was
Speaker 3: that reporters will ask a treasure secretary about the dollar
Speaker 3: what their view of it is at any given point.
Speaker 3: My favorite two moments are one when one secretary was
Speaker 3: in a high school gym in Ohio. This was I
Speaker 3: believe it was John Snow who was in a high
Speaker 3: school gym in Ohio taking questions and a high school
Speaker 3: student asked him, and he pointed, looked over to his
Speaker 3: reporters and said, you put this high school student up
Speaker 3: to this. And another Chasure secretary was buying build a
Speaker 3: Bears for his grandchildren. And while he's holding these two
Speaker 3: boxes those little houses with bears in them, someone lobbed
Speaker 3: a dollar.
Speaker 2: Question.
Speaker 1: Adam, I love it. We SHU need to find that
Speaker 1: high school student now and see how they ended up
Speaker 1: doing a fascinating story. Thanks so much for joining us.
Speaker 1: Our senior Washington correspondent Salia Mosen joining us there. And
Speaker 1: if you'd like to read Salay's book on the subject,
Speaker 1: it's called Paper Soldiers. How the weaponization of the Dollar
Speaker 1: changed the world. Order for more explanations like this from
Speaker 1: our team of twenty seven hundred journalists and analysts around
Speaker 1: the world. Search for Quick Take on the Bloomberg website
Speaker 1: or Bloomberg Business app. I'm Stephen Caroll. This is Here's why.
Speaker 1: I'll be back next week with more. Thanks for listening.