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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: You haven't heard an expression. Dollar is king.

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Speaker 3: The dollar is king.

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Speaker 2: We're going to keep it that way.

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Speaker 1: Okay.

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Speaker 4: I'm Stephanie Flanders, head of Government and Economics at Bloomberg,

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Speaker 4: and this is Trumpnomics, the podcast that looks at the

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Speaker 4: economic world of Donald Trump, how he's already shaped the

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Speaker 4: global economy, and what on earth is going to happen next.

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Speaker 4: This week, we're asking does the rise of trump Andomics

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Speaker 4: mark the beginning of the end for the dollar. The

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Speaker 4: US has faced serious competition on a number of fronts

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Speaker 4: in recent decades, but its currency has not. Roughly nine

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Speaker 4: out of ten foreign exchange transactions are conducted in dollars

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Speaker 4: and almost half of all merchandise trade. The greenback also

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Speaker 4: makes up nearly sixty percent of the reserves held by

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Speaker 4: governments around the world, and that unrivaled position for the

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Speaker 4: dollar as the world's dominant reserve currency has brought some

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Speaker 4: big advantages to US policymakers and consumers over the years.

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Speaker 4: We'll get into some of those in this show, and

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Speaker 4: as President Trump likes to point out, it has also

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Speaker 4: tended to make US exports a bit less competitive. That

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Speaker 4: might explain why the administration doesn't seem very bothered by

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Speaker 4: the nearly ten percent fall in the value of the

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Speaker 4: dollar in the first six months of this year. That's

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Speaker 4: the worst decline in the first half of any year

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Speaker 4: since nineteen seventy three. But if that fall marks not

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Speaker 4: a market adjustment but the beginning of a much deeper

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Speaker 4: loss of confidence in the US currency in America's unique

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Speaker 4: role in the global order, then potentially this administration, future administrations,

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Speaker 4: and Americans more broadly, well they might start to care

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Speaker 4: quite a lot. So how did the greenback become and

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Speaker 4: stay the dominant reserve currency for so long? Have Donald

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Speaker 4: Trump's policies seriously put it under threat? And what are

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Speaker 4: the consequences for all of us if the dollar is

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Speaker 4: no longer global top dog. Well, that's what's on my

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Speaker 4: list for this episode, and I have investment grade guests

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Speaker 4: to help me with the assignment. Our own. Seleia mosen Bloomberg,

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Speaker 4: senior Washington correspondent, an author of the book paper Soldiers,

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Speaker 4: How the Weaponization of the Dollar Changed the World Order,

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Speaker 4: and dialing in from California, an academic whose work you

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Speaker 4: could say is the reserve currency of global debate, on

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Speaker 4: this topic. Doctor Barry eichen Green, Professor of economics and

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Speaker 4: political science at the University of California, Berkeley, and doctor

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Speaker 4: I Confu is also the author of a new book,

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Speaker 4: Money Beyond Borders. I quite want to go back to basics,

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Speaker 4: fors eichen Green, you suggested in a column for Vox

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Speaker 4: eu that an understanding of Roman mythology can shed light

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Speaker 4: on the way the world decides on a go to

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Speaker 4: reserve currency. Explain to us how Roman gods Mars and

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Speaker 4: Mercury can help explain how reserve currencies get to be

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Speaker 4: reserve currencies, and how the dollar has been so dominant

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Speaker 4: for so long.

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Speaker 2: So the Mars and Mercury reference is designed to alert

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Speaker 2: listeners to the fact that there are really two sets

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Speaker 2: of factors that influence the attractions of a currency globally

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Speaker 2: the economic importance of an economy. So the dollar rose

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Speaker 2: to prominence after World War Two, when the US became

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Speaker 2: the largest economy in the world. The leading crater have

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Speaker 2: the largest financial markets, but at the same time cure

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Speaker 2: political factors international relations, alliance politics for the tendency of

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Speaker 2: central banks and governments to hold and use currencies. So

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Speaker 2: in the nineteen sixties, the West Chairman government and the

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Speaker 2: Japanese government, which relied on the United States for their defense.

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Speaker 2: We're willing to support the dollar through tough times. If

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Speaker 2: you look today, you find that the central banks of

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Speaker 2: South Korea and Japan hold more dollars as reserves than

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Speaker 2: their trade relations and financial relations with the United States

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Speaker 2: would lead you to expect. So there are worries about

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Speaker 2: the fact that the US share in the global economy

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Speaker 2: has been declining gradually over time. But now there are

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Speaker 2: also worries about fraying US alliances, whether Donald Trump will

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Speaker 2: turn his back on NATO, whether he's making friends or

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Speaker 2: enemies abroad, and how that will affect the attractions of

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Speaker 2: the dollar.

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Speaker 4: I guess some people listening will still be curious about

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Speaker 4: where Miles and Mercury come.

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Speaker 2: In, Beyon, The reference came from my classically trained co.

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Speaker 4: Authors, but it's Mercury is the.

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Speaker 2: God of commerce and Mars the god of war.

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Speaker 4: Indeed, you did some estimates which I think you kind

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Speaker 4: of referred us back to more recently, because it seems

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Speaker 4: even more relevant than when you first wrote the paper

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Speaker 4: a few years back, to the impact on things like

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Speaker 4: the cost of borrowing for the US government and holdings

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Speaker 4: of reserves. If you think those two roles of the

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Speaker 4: US economy are somewhat ebbing.

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Speaker 2: Our back of the envelope estimates, or that the cost

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Speaker 2: of borrowing for the US Treasury would go up by

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Speaker 2: fifty sixty seventy basis points a bit less than one

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Speaker 2: percentage point from its present what four percent on the

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Speaker 2: ten year treasury? Were these alliance incentives to disappear?

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Speaker 4: And that's the security that's just from the fact that

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Speaker 4: these allies are not sort of over investing in dollars,

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Speaker 4: if you like, because they are receiving this sort of

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Speaker 4: other support from the US.

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Speaker 2: Exactly, and that this would have an impact on the

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Speaker 2: dollar exchange rate as well.

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Speaker 4: And Celia, I guess you should sort of updates briefly.

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Speaker 4: I mean I mentioned some of the headline numbers at

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Speaker 4: the start, but what have we seen in foreign exchange

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Speaker 4: markets since the start of the year and what do

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Speaker 4: you think might be driving it?

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Speaker 1: Well, there's hard data that is a drop in the

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Speaker 1: dollar compared to the global basket of currencies that we

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Speaker 1: look at Bloomberg.

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Speaker 3: There's also the narrative.

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Speaker 1: There's a narrative of a sell America trend that has

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Speaker 1: picked up and is almost taken a hold as the

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Speaker 1: market tries to adjust and then readjust to shifting tariff policies.

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Speaker 1: We're seeing for the first time in a long time

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Speaker 1: the sell in America narrative coming while there's concerns about

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Speaker 1: America's ability to manage its public finances. So the US

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Speaker 1: debt trajectory fiscal outlook is really really bad with no

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Speaker 1: fix on the horizon. It doesn't seem that there is

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Speaker 1: any party in Washington that actually cares about doing anything

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Speaker 1: and making the difficult trade offs that would be required,

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Speaker 1: and that in turn starts as vortex of Okay, people

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Speaker 1: are selling out of American assets. That means American power

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Speaker 1: to sort of outsource its geopolitical objectives by imposing economic

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Speaker 1: sanctions that's going to be less potent. And if nations

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Speaker 1: and companies in multinational corporations are using fewer dollars, then

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Speaker 1: American policymakers have less visibility into how the global financial

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Speaker 1: system is being used for malign activities.

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Speaker 2: And after what Saliah said, I think global investors are

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Speaker 2: watching very carefully what's happening in terms of federal reserve independence.

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Speaker 2: That is a very important factor in how they regard

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Speaker 2: the dollar, and.

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Speaker 4: I guess we could also add the integrity of US

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Speaker 4: economic statistics insofar as that's also had a few shadows

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Speaker 4: potentially cast over the last few weeks with the firing

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Speaker 4: of the head of the Bureau of Labor Statistics. I

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Speaker 4: mean today, I know you've talked to these senior policymakers

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Speaker 4: a lot off the record, but we tended to have

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Speaker 4: pretty mixed messages on this, haven't we. I saw that

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Speaker 4: the President recently said he wanted a strong dollar, but

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Speaker 4: he also didn't like that that made it harder to

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Speaker 4: sell exports that kind of inflated the value of the dollar.

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Speaker 4: So how much do you feel the administration cares about

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Speaker 4: this global role for the dollar.

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Speaker 3: I think they do care.

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Speaker 1: I think Trump really does like the idea of the

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Speaker 1: dollar being a strong man kind of like him, that

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Speaker 1: can survive a lot. They're really putting it to the test.

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Speaker 1: But like any politician, the Trump team wants the benefits

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Speaker 1: of a strong dollar and then the benefits of a

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Speaker 1: week dollar all to happen at the same time, which

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Speaker 1: is kind of not possible. And they're also sending mixed

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Speaker 1: messages around the key pillars of what makes the dollar

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Speaker 1: the reserve asset and so trusted by foreign investors. As

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Speaker 1: very alluded to, that is the rule of law, the

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Speaker 1: free and fair elections, that we have, the strong democracy,

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Speaker 1: that we have independent agencies, and an independent central bank.

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Speaker 1: Each of these pillars, every tenant is now being a.

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Speaker 4: We touched on this a little bit in an earlier

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Speaker 4: episode this year when we were talking about the potential

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Speaker 4: for a so called Mara Lago accord. You know, Stephen Myron,

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Speaker 4: who's now a senior economic advisor to the administration, had

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Speaker 4: sort of sketched out a potential sort of deal that

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Speaker 4: could be done between the US and its trading partners

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Speaker 4: where somehow the rest of the world would pay for

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Speaker 4: more of the burden of having this global reserve currency.

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Speaker 4: Whether or not we think there's anything in that, or

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Speaker 4: whether there's going to ultimately be any negotiations along those lines,

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Speaker 4: I mean, Barry Eckingreen, you could argue that it's been

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Speaker 4: a public good for the world to have a global

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Speaker 4: reserve currency. In most times in global history we haven't

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Speaker 4: had one, and maybe it's not unreasonable for the US

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Speaker 4: to want countries to kind of pay in one way

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Speaker 4: or another to continue to have a global reserve currency.

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Speaker 2: I think it's important to recognize also that the United

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Speaker 2: States derives very significant benefits from the dollars international role.

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Speaker 2: So people in the Trump administration would say there are costs.

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Speaker 2: US exporters find it a little bit more difficult to

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Speaker 2: do international business because the dollar is stronger than otherwise.

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Speaker 2: Although I would put the value of the dollar way

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Speaker 2: down on the list of determinants of US export competitiveness,

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Speaker 2: below the skills and training of American workers, the up

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Speaker 2: to datedness of our technology and our capital stock, and

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Speaker 2: so forth, and then whether the dollar is a few

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Speaker 2: percentage points higher or lower enters the list. On the

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Speaker 2: other side of the balance sheet, US banks and firms

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Speaker 2: have the convenience of being able to do cross border

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Speaker 2: business in their own currency. They don't have to pay

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Speaker 2: to purchase insurance hedges if you will, The Treasury can

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Speaker 2: borrow at a lower cost than otherwise. We discussed that earlier,

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Speaker 2: and the US gets another form of insurance from the

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Speaker 2: dollars international role. The dollar is a safe haven some

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Speaker 2: when a bad thing happens, everybody rushes into dollars and

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Speaker 2: into US financial markets, and that's what has been different

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Speaker 2: it appears about the spring of twenty twenty five that

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Speaker 2: when this reciprocal care of upheaval occurred, people rushed out

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Speaker 2: of dollars.

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Speaker 3: Not in yes, so Lea.

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Speaker 4: I mean that's something I think you mentioned in the

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Speaker 4: piece that you wrote. There has always been that very

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Speaker 4: striking safe haven quality to US markets and the dollar

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Speaker 4: in particular, where you can have, in the extreme example,

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Speaker 4: you can have a shock involving the possibility of the

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Speaker 4: US defaulting. You know, when there's been a sort of

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Speaker 4: standoff over the debt ceiling in Washington and investors are

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Speaker 4: worried about, you, the US defaulting. Well, that's a scary

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Speaker 4: thing happening. So then people go into US treasuries even

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Speaker 4: though the US treasuries are the asset that might be

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Speaker 4: defaulted on. That is clearly something has changed this year

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Speaker 4: when it comes to things like that.

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Speaker 3: Oh it has.

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Speaker 1: I mean global financial crisis is clear example of when

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Speaker 1: everyone should have been pouring out of American assets because

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Speaker 1: the US created and caused the subprime mortgage collapse that

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Speaker 1: led to the global financial crisis. But everybody piled in

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Speaker 1: just to as proof that the dollar is so resilient,

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Speaker 1: and it wasn't. The case in April. But one thing

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Speaker 1: to note is just the benefits that Barry pointed out

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Speaker 1: to the US for being the owner of the reserve asset.

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Speaker 1: It hits every single American consumer because if there is

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Speaker 1: just a few percentage point increase to the tenure and

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Speaker 1: what are borrowing costs are going to be, that is

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Speaker 1: going to affect credit card debt, mortgage rates, auto loans,

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Speaker 1: student loans, everything. That tiny number is not actually tiny

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Speaker 1: when it comes to the household accounts. And that's actually

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Speaker 1: the essence of Trumpanomics. It's economic populism. Trump does not

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Speaker 1: want that number to go up, and he talks about it.

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Speaker 1: He talks about borrowing costs going up and that the

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Speaker 1: Federal Reserve should do something about it. Again, cognitive dissonance,

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Speaker 1: not realizing that the fix that you're proposing is actually

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Speaker 1: going to damage it. And that goes with their views

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Speaker 1: of the dollar as well.

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Speaker 4: You mentioned the financial crisis, and I noticed that the

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Speaker 4: other time that we'd had a big fall in the

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Speaker 4: dollar was in I think twenty ten, when the Federal

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Speaker 4: Reserve was cutting interest rates, and that was possibly also

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Speaker 4: adjusting from the rise that you were just referenced. In

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Speaker 4: the middle of the crisis. Currencies can swing ten percent

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Speaker 4: either direction, even the world's reserve currency, and it doesn't

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Speaker 4: necessarily mean it's a paradigm shift in reserve currencies, which

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Speaker 4: obviously a subject to much more kind of long term trends.

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Speaker 4: Are we just kind of overreading this movement of the

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Speaker 4: last six months, I guess, Barrychngreen first.

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Speaker 2: It's possible. I'm reminded of the nineteen seventies when the

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Speaker 2: Bretton Woods system ended, the dollar was devalued, it began

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Speaker 2: to fall on the for and exchange market. In nineteen

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Speaker 2: seventy six, Charles Kindelberger, one of the most eminent monetary

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Speaker 2: and economic historians a stay said the dollar is quote

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Speaker 2: finished as an international currency, which obviously did not turn

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Speaker 2: out to be the case. When there is an incumbent

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Speaker 2: international currency, it takes a big, persistent shock to displace it,

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Speaker 2: and there has to be an alternative, and it's not

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Speaker 2: clear that those conditions are present.

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Speaker 4: Well, actually, I was just going to follow up on that,

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Speaker 4: and I know that Selio will to say something on

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Speaker 4: this as well, But I mean that has been always

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Speaker 4: been the answer that people have given, and goodness knows,

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Speaker 4: these discussions have been held over the decades, and I

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Speaker 4: suspect that Professor I agree, it has been involved in

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Speaker 4: a great many of them. But the answer that's always

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Speaker 4: given is, you know, these things take a really long time.

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Speaker 4: The UK sterling was the dominant globe reserve currency for

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Speaker 4: a long time, long after the US overtook the UK

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Speaker 4: in terms of its economy. There was something like seventy

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Speaker 4: years before the US dollar actually became the global reserve currency.

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Speaker 4: Those kind of shifts just take a really long time.

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Speaker 4: And crucially, if you're going to move out of the dollar,

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Speaker 4: you need an alternative, and it isn't clear yet that

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Speaker 4: there is an alternative to the dollar out there.

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Speaker 2: It isn't clear because there aren't enough safe and liquid

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Speaker 2: euro denominated reserve assets available to the rest of the world,

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Speaker 2: and it's not clear that the European Union is in

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Speaker 2: a position to create them. China is moving as fast

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Speaker 2: as it can to promote international use of its currency,

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Speaker 2: but it is starting out way behind the dollar. So

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Speaker 2: even if use of its currency continues for cross border payments,

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Speaker 2: for example, continues to increase the double digit rates, it

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Speaker 2: will take a decade or longer before the Chinese renman

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Speaker 2: bee comes within haaling distance of the dollar. So you know,

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Speaker 2: these kind of events occur slowly until they occur quickly.

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Speaker 4: I mean, I guess the other alternatives. We talk a

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Speaker 4: lot about crypto these days. I mean, there's bitcoin, many

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Speaker 4: might say was a potential alternative, and also people talk

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Speaker 4: about stable coins, although I know that they have a

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Speaker 4: slightly different implication for the dollar. But are either of

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Speaker 4: those sort of likely alternatives.

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Speaker 1: I actually think the most likely alternative is going to

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Speaker 1: be a multi currency era rather than one currency taking over.

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Speaker 1: We may face decades where the dollar is still dominant,

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Speaker 1: but not quite as dominant.

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Speaker 3: Maybe it was never designed to or meant to, or

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Speaker 3: doesn't need.

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Speaker 1: To be quite as powerful as it is in today's

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Speaker 1: financial system, and we might see that the Euro rises

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Speaker 1: a little bit more, the yen, maybe the yuon, and

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Speaker 1: maybe some of these other currencies or other assets like

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Speaker 1: stable coins and maybe even bitcoin. But I think when

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Speaker 1: I think about alternatives, I don't think of one. I

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Speaker 1: think of many. And that's a shock. It feels incremental,

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Speaker 1: but it will be a shock to the system because

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Speaker 1: then you might have things like runs on currencies with

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Speaker 1: investors trying to figure out where is the safest place

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Speaker 1: to go.

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Speaker 4: Possibly, we don't care so much about a gradual decline

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Speaker 4: of a dollar, or at least if one is just

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Speaker 4: thinking about the sort of stability of global system, we'd

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Speaker 4: be much less worried about that than we would a

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Speaker 4: sudden questioning of the US government's credit worthiness and a

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Speaker 4: dash for the exits from the dollar. I mean, I

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Speaker 4: can green, how much do you think the probability of

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Speaker 4: that kind of dollar route has gone up in the

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Speaker 4: last year or so.

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Speaker 2: It has certainly gone up. If you're asking me for

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Speaker 2: a number, not provide. But I would have been dismissive

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Speaker 2: of those stories of a route until this year. I

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Speaker 2: would have agreed with Salia that the most likely scenario

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Speaker 2: is a gradual transition to a more multipolar system. But

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Speaker 2: I think we now need to entertain the possibility of

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Speaker 2: a route as well, simply because of the level of

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Speaker 2: noise and chaos in terms of US policy. And I

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Speaker 2: do worry that if there is a sudden big move

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Speaker 2: in the value of the dollar, because foreign official and

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Speaker 2: private investors row significantly more reluctant to hold and use it,

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Speaker 2: that could destabilize the US treasury market. That could destabilize

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Speaker 2: important financial institutions that hold dollar denominated assets that are

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Speaker 2: suddenly losing value on the foreign exchange market. That could

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Speaker 2: have quite dire consequences were to occur.

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Speaker 4: We don't want to put numbers on the probability, but

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Speaker 4: when does a decline become a route what kind of

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Speaker 4: numbers would be talking I mean, we've seen a ten

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Speaker 4: percent decline, We've seen that investors have more and more

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Speaker 4: reason potentially to put their sort of marginal dollar in

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Speaker 4: other countries. But when would you start worrying about a

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Speaker 4: sort of self fueling spiral? Is does it need to

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Speaker 4: be another ten percent when you're modeling these things, what

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Speaker 4: kind of numbers are you thinking?

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Speaker 2: Well, I think you have to worry both about how

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Speaker 2: much the currency moves and what the timeframe for the

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Speaker 2: movement is. So another ten or twenty percent over the

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Speaker 2: next couple of years would wo not be hard for

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Speaker 2: the markets to accommodate. Another twenty percent over the next

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Speaker 2: couple of months, on the other hand, would be a

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Speaker 2: big deal.

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Speaker 4: It's in the tradition of this podcast that probably we

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Speaker 4: would have had another ten percent before it even comes out,

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Speaker 4: because we've got about a week at least a week

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Speaker 4: or so's delay after recording it. I guess, Celia, if

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Speaker 4: we saw that kind of decline, we've already seen the

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Speaker 4: administration sort of parry and declare truces and delays when

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Speaker 4: there's a lot of pressure, for example, on the bond market.

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Speaker 4: If you saw a big fall in the dollar, potentially

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Speaker 4: associated with other market moves, how do you think this

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Speaker 4: president reacts to that.

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Speaker 1: I would imagine that the current Treasure Secretary, Scott Bessant,

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Speaker 1: would either himself or advise the President to make some

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Speaker 1: kind of statement to stabilize the dollar. Traditionally it's been

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Speaker 1: the Treasure secretary. But also you have to think about

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Speaker 1: what and who would markets trust because investors are smart.

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Speaker 1: They want to see that the policy is backing the

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Speaker 1: words and the rhetoric. And in the past we've seen

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Speaker 1: Treasury work with the Federal Reserve. I've spoken to former

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Speaker 1: fedificial Don Cone about his time at the FED when

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Speaker 1: they had to come out with a one two punch

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Speaker 1: around the global financial crisis, working with Treasury hand in

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Speaker 1: hand to stabilize Marcus. And that's how airtight the case

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Speaker 1: needs to be made to persuade investors to believe them.

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Speaker 1: It cannot just be a truth social post by the president,

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Speaker 1: or it cannot just be a comment by the treasure

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Speaker 1: secretary on airwaves.

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Speaker 4: I'm just thinking if we look at the revealed preference,

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Speaker 4: as we might say, for this president is just to

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Speaker 4: beat up on trading partners with the greatest stick. And

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Speaker 4: he has said, for example, that he's going to do

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Speaker 4: one hundred percent tariff. So I can't remember very high

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Speaker 4: tariffs on anybody in the bricks group that tries to

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Speaker 4: develop an alternative reserve currency. I mean, you could imagine

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Speaker 4: him wanting to come out with sort of big numbers

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Speaker 4: that people who are going to invest in dollars. Maybe

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Speaker 4: it's forcing pressuring central banks to buy lots of dollars

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Speaker 4: for their reserves to prop up the currency. Barry Eichengreen,

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Speaker 4: is there any scope for that kind of I mean,

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Speaker 4: you just tend to think that's the kind of thing

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Speaker 4: that the president will be reaching for. But is that

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Speaker 4: possible in an enormous global currency market.

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Speaker 2: I do not think so so. Stephanie, you talked before

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Speaker 2: about the idea of Amara Lago a court where the

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Speaker 2: president threatens tear ups if other countries don't let their

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Speaker 2: currency strengthen in the dollar weaken and now you're kind

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Speaker 2: of suggesting the opposite. The fact of the matter is,

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Speaker 2: as Salaya alluded to, the only branch of government that

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Speaker 2: can affect what happens to the dollar ultimately is the FED.

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Speaker 2: And the FED could strengthen the dollar, where to weaken

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Speaker 2: significantly buy wait for it, raise an interest rates? How

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Speaker 2: would that be received in the quarters the pressury, and

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Speaker 2: the Oval Office.

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Speaker 1: And really that's the path untrodden, right, We've never seen

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Speaker 1: the US have to bully the world into turning to

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Speaker 1: the dollar has always been a charm tactic.

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Speaker 4: Well, we will leave that question hanging in the air,

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Speaker 4: that unanswered question of how the president would respond to

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Speaker 4: having to raise interest rates in order to defend the dollar.

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Speaker 4: But Professor Barry I. Kingreen, Sleia Mosen, thank you.

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Speaker 3: So much, Thank you, thanks for having us, Thanks.

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Speaker 4: For listening to Trumponomics from Bloomberg. It was hosted by

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00:22:34,600 --> 00:22:37,439
Speaker 4: me Stephanie flanders I was joined by Selaiya Mosen and

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Speaker 4: Dr Barry Chenreen. Trumponomics is produced by Moses and dam

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00:22:41,240 --> 00:22:44,840
Speaker 4: and Samasadi with help from Amy Keen and special thanks

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00:22:44,840 --> 00:22:48,879
Speaker 4: to Rachel Lewis Chrisky and John Ring. Sage. Bowman is

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Speaker 4: the head of Bloomberg Podcast, and please, we'd love you

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Speaker 4: to help others to find Trumpanomics by rating it and

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Speaker 4: reviewing it highly wherever you listen to

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Speaker 1: It at two Pastors and two Priests and Strange State

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Speaker 1: and three p