WEBVTT - Why the End of US Dollar Dominance Is Now Possible 0:00:02.720 --> 0:00:07.240 Bloomberg Audio Studios, podcasts, radio news. 0:00:08.280 --> 0:00:10.160 You haven't heard an expression. Dollar is king. 0:00:10.840 --> 0:00:11.799 The dollar is king. 0:00:11.840 --> 0:00:12.960 We're going to keep it that way. 0:00:13.080 --> 0:00:16.920 Okay. 0:00:23.320 --> 0:00:26.120 I'm Stephanie Flanders, head of Government and Economics at Bloomberg, 0:00:26.239 --> 0:00:28.800 and this is Trumpnomics, the podcast that looks at the 0:00:28.800 --> 0:00:32.280 economic world of Donald Trump, how he's already shaped the 0:00:32.320 --> 0:00:35.520 global economy, and what on earth is going to happen next. 0:00:36.320 --> 0:00:39.960 This week, we're asking does the rise of trump Andomics 0:00:40.000 --> 0:00:42.960 mark the beginning of the end for the dollar. The 0:00:43.120 --> 0:00:45.720 US has faced serious competition on a number of fronts 0:00:45.720 --> 0:00:49.919 in recent decades, but its currency has not. Roughly nine 0:00:50.000 --> 0:00:53.040 out of ten foreign exchange transactions are conducted in dollars 0:00:53.080 --> 0:00:56.680 and almost half of all merchandise trade. The greenback also 0:00:56.760 --> 0:01:00.640 makes up nearly sixty percent of the reserves held by 0:01:00.680 --> 0:01:04.959 governments around the world, and that unrivaled position for the 0:01:05.000 --> 0:01:09.000 dollar as the world's dominant reserve currency has brought some 0:01:09.040 --> 0:01:12.880 big advantages to US policymakers and consumers over the years. 0:01:13.319 --> 0:01:15.320 We'll get into some of those in this show, and 0:01:15.760 --> 0:01:18.320 as President Trump likes to point out, it has also 0:01:18.480 --> 0:01:23.040 tended to make US exports a bit less competitive. That 0:01:23.120 --> 0:01:27.000 might explain why the administration doesn't seem very bothered by 0:01:27.080 --> 0:01:29.200 the nearly ten percent fall in the value of the 0:01:29.200 --> 0:01:31.160 dollar in the first six months of this year. That's 0:01:31.160 --> 0:01:34.200 the worst decline in the first half of any year 0:01:34.240 --> 0:01:39.720 since nineteen seventy three. But if that fall marks not 0:01:39.840 --> 0:01:42.600 a market adjustment but the beginning of a much deeper 0:01:42.680 --> 0:01:46.520 loss of confidence in the US currency in America's unique 0:01:46.640 --> 0:01:52.080 role in the global order, then potentially this administration, future administrations, 0:01:52.120 --> 0:01:55.120 and Americans more broadly, well they might start to care 0:01:55.520 --> 0:01:59.440 quite a lot. So how did the greenback become and 0:01:59.640 --> 0:02:04.880 stay the dominant reserve currency for so long? Have Donald 0:02:04.880 --> 0:02:08.560 Trump's policies seriously put it under threat? And what are 0:02:08.600 --> 0:02:11.680 the consequences for all of us if the dollar is 0:02:11.720 --> 0:02:16.400 no longer global top dog. Well, that's what's on my 0:02:16.760 --> 0:02:19.760 list for this episode, and I have investment grade guests 0:02:19.800 --> 0:02:23.480 to help me with the assignment. Our own. Seleia mosen Bloomberg, 0:02:23.560 --> 0:02:27.119 senior Washington correspondent, an author of the book paper Soldiers, 0:02:27.280 --> 0:02:30.680 How the Weaponization of the Dollar Changed the World Order, 0:02:31.320 --> 0:02:34.400 and dialing in from California, an academic whose work you 0:02:34.440 --> 0:02:37.040 could say is the reserve currency of global debate, on 0:02:37.120 --> 0:02:40.400 this topic. Doctor Barry eichen Green, Professor of economics and 0:02:40.400 --> 0:02:44.320 political science at the University of California, Berkeley, and doctor 0:02:44.360 --> 0:02:46.640 I Confu is also the author of a new book, 0:02:47.160 --> 0:03:02.400 Money Beyond Borders. I quite want to go back to basics, 0:03:03.080 --> 0:03:06.400 fors eichen Green, you suggested in a column for Vox 0:03:06.480 --> 0:03:10.720 eu that an understanding of Roman mythology can shed light 0:03:10.800 --> 0:03:13.120 on the way the world decides on a go to 0:03:13.560 --> 0:03:17.600 reserve currency. Explain to us how Roman gods Mars and 0:03:17.680 --> 0:03:21.720 Mercury can help explain how reserve currencies get to be 0:03:21.800 --> 0:03:25.040 reserve currencies, and how the dollar has been so dominant 0:03:25.040 --> 0:03:25.680 for so long. 0:03:26.320 --> 0:03:31.480 So the Mars and Mercury reference is designed to alert 0:03:32.080 --> 0:03:35.360 listeners to the fact that there are really two sets 0:03:35.400 --> 0:03:40.600 of factors that influence the attractions of a currency globally 0:03:41.040 --> 0:03:44.839 the economic importance of an economy. So the dollar rose 0:03:44.880 --> 0:03:47.800 to prominence after World War Two, when the US became 0:03:47.840 --> 0:03:51.160 the largest economy in the world. The leading crater have 0:03:51.280 --> 0:03:54.920 the largest financial markets, but at the same time cure 0:03:54.960 --> 0:04:02.760 political factors international relations, alliance politics for the tendency of 0:04:02.920 --> 0:04:06.280 central banks and governments to hold and use currencies. So 0:04:06.960 --> 0:04:10.280 in the nineteen sixties, the West Chairman government and the 0:04:10.360 --> 0:04:16.120 Japanese government, which relied on the United States for their defense. 0:04:16.800 --> 0:04:19.840 We're willing to support the dollar through tough times. If 0:04:19.839 --> 0:04:23.599 you look today, you find that the central banks of 0:04:23.640 --> 0:04:28.040 South Korea and Japan hold more dollars as reserves than 0:04:28.080 --> 0:04:32.080 their trade relations and financial relations with the United States 0:04:32.080 --> 0:04:36.279 would lead you to expect. So there are worries about 0:04:36.480 --> 0:04:39.440 the fact that the US share in the global economy 0:04:39.760 --> 0:04:43.320 has been declining gradually over time. But now there are 0:04:43.360 --> 0:04:47.920 also worries about fraying US alliances, whether Donald Trump will 0:04:47.920 --> 0:04:51.320 turn his back on NATO, whether he's making friends or 0:04:51.880 --> 0:04:54.680 enemies abroad, and how that will affect the attractions of 0:04:54.720 --> 0:04:55.119 the dollar. 0:04:55.680 --> 0:04:57.760 I guess some people listening will still be curious about 0:04:57.760 --> 0:04:59.279 where Miles and Mercury come. 0:04:59.160 --> 0:05:03.040 In, Beyon, The reference came from my classically trained co. 0:05:03.040 --> 0:05:06.960 Authors, but it's Mercury is the. 0:05:06.800 --> 0:05:09.920 God of commerce and Mars the god of war. 0:05:10.080 --> 0:05:12.920 Indeed, you did some estimates which I think you kind 0:05:12.920 --> 0:05:15.360 of referred us back to more recently, because it seems 0:05:15.640 --> 0:05:18.000 even more relevant than when you first wrote the paper 0:05:18.120 --> 0:05:21.560 a few years back, to the impact on things like 0:05:21.640 --> 0:05:26.120 the cost of borrowing for the US government and holdings 0:05:26.120 --> 0:05:28.880 of reserves. If you think those two roles of the 0:05:29.000 --> 0:05:31.400 US economy are somewhat ebbing. 0:05:31.440 --> 0:05:34.239 Our back of the envelope estimates, or that the cost 0:05:34.279 --> 0:05:36.719 of borrowing for the US Treasury would go up by 0:05:36.839 --> 0:05:39.880 fifty sixty seventy basis points a bit less than one 0:05:39.920 --> 0:05:44.279 percentage point from its present what four percent on the 0:05:44.360 --> 0:05:50.080 ten year treasury? Were these alliance incentives to disappear? 0:05:50.279 --> 0:05:52.240 And that's the security that's just from the fact that 0:05:52.279 --> 0:05:55.400 these allies are not sort of over investing in dollars, 0:05:55.400 --> 0:05:58.839 if you like, because they are receiving this sort of 0:05:59.120 --> 0:06:00.920 other support from the US. 0:06:01.520 --> 0:06:04.719 Exactly, and that this would have an impact on the 0:06:04.760 --> 0:06:06.440 dollar exchange rate as well. 0:06:06.800 --> 0:06:09.400 And Celia, I guess you should sort of updates briefly. 0:06:09.440 --> 0:06:11.320 I mean I mentioned some of the headline numbers at 0:06:11.320 --> 0:06:13.520 the start, but what have we seen in foreign exchange 0:06:13.560 --> 0:06:15.320 markets since the start of the year and what do 0:06:15.360 --> 0:06:16.520 you think might be driving it? 0:06:16.880 --> 0:06:20.080 Well, there's hard data that is a drop in the 0:06:20.160 --> 0:06:23.920 dollar compared to the global basket of currencies that we 0:06:24.000 --> 0:06:24.880 look at Bloomberg. 0:06:25.200 --> 0:06:26.320 There's also the narrative. 0:06:26.400 --> 0:06:29.479 There's a narrative of a sell America trend that has 0:06:29.800 --> 0:06:33.560 picked up and is almost taken a hold as the 0:06:33.720 --> 0:06:38.880 market tries to adjust and then readjust to shifting tariff policies. 0:06:39.440 --> 0:06:41.719 We're seeing for the first time in a long time 0:06:42.160 --> 0:06:45.799 the sell in America narrative coming while there's concerns about 0:06:45.800 --> 0:06:49.960 America's ability to manage its public finances. So the US 0:06:50.120 --> 0:06:53.719 debt trajectory fiscal outlook is really really bad with no 0:06:54.120 --> 0:06:56.600 fix on the horizon. It doesn't seem that there is 0:06:56.640 --> 0:06:59.679 any party in Washington that actually cares about doing anything 0:07:00.040 --> 0:07:02.799 and making the difficult trade offs that would be required, 0:07:03.279 --> 0:07:06.560 and that in turn starts as vortex of Okay, people 0:07:06.640 --> 0:07:09.960 are selling out of American assets. That means American power 0:07:10.400 --> 0:07:15.560 to sort of outsource its geopolitical objectives by imposing economic 0:07:15.640 --> 0:07:18.880 sanctions that's going to be less potent. And if nations 0:07:18.960 --> 0:07:22.640 and companies in multinational corporations are using fewer dollars, then 0:07:22.720 --> 0:07:26.520 American policymakers have less visibility into how the global financial 0:07:26.560 --> 0:07:29.400 system is being used for malign activities. 0:07:29.720 --> 0:07:33.240 And after what Saliah said, I think global investors are 0:07:33.280 --> 0:07:37.560 watching very carefully what's happening in terms of federal reserve independence. 0:07:38.120 --> 0:07:41.200 That is a very important factor in how they regard 0:07:41.240 --> 0:07:42.760 the dollar, and. 0:07:42.760 --> 0:07:45.400 I guess we could also add the integrity of US 0:07:45.440 --> 0:07:48.960 economic statistics insofar as that's also had a few shadows 0:07:49.320 --> 0:07:52.480 potentially cast over the last few weeks with the firing 0:07:52.480 --> 0:07:55.200 of the head of the Bureau of Labor Statistics. I 0:07:55.240 --> 0:07:58.400 mean today, I know you've talked to these senior policymakers 0:07:58.600 --> 0:08:01.160 a lot off the record, but we tended to have 0:08:01.160 --> 0:08:03.600 pretty mixed messages on this, haven't we. I saw that 0:08:03.640 --> 0:08:06.800 the President recently said he wanted a strong dollar, but 0:08:06.880 --> 0:08:09.240 he also didn't like that that made it harder to 0:08:09.280 --> 0:08:12.400 sell exports that kind of inflated the value of the dollar. 0:08:12.560 --> 0:08:15.880 So how much do you feel the administration cares about 0:08:15.880 --> 0:08:17.640 this global role for the dollar. 0:08:17.920 --> 0:08:18.880 I think they do care. 0:08:19.040 --> 0:08:21.560 I think Trump really does like the idea of the 0:08:21.640 --> 0:08:24.200 dollar being a strong man kind of like him, that 0:08:24.240 --> 0:08:27.560 can survive a lot. They're really putting it to the test. 0:08:27.760 --> 0:08:32.240 But like any politician, the Trump team wants the benefits 0:08:32.240 --> 0:08:33.960 of a strong dollar and then the benefits of a 0:08:34.000 --> 0:08:36.720 week dollar all to happen at the same time, which 0:08:36.760 --> 0:08:39.520 is kind of not possible. And they're also sending mixed 0:08:39.520 --> 0:08:42.960 messages around the key pillars of what makes the dollar 0:08:43.240 --> 0:08:45.920 the reserve asset and so trusted by foreign investors. As 0:08:46.000 --> 0:08:48.880 very alluded to, that is the rule of law, the 0:08:49.000 --> 0:08:51.600 free and fair elections, that we have, the strong democracy, 0:08:51.600 --> 0:08:55.280 that we have independent agencies, and an independent central bank. 0:08:55.440 --> 0:08:59.800 Each of these pillars, every tenant is now being a. 0:09:00.679 --> 0:09:02.840 We touched on this a little bit in an earlier 0:09:02.840 --> 0:09:06.040 episode this year when we were talking about the potential 0:09:06.040 --> 0:09:08.520 for a so called Mara Lago accord. You know, Stephen Myron, 0:09:08.520 --> 0:09:11.800 who's now a senior economic advisor to the administration, had 0:09:11.840 --> 0:09:15.320 sort of sketched out a potential sort of deal that 0:09:15.320 --> 0:09:17.720 could be done between the US and its trading partners 0:09:17.760 --> 0:09:21.200 where somehow the rest of the world would pay for 0:09:21.280 --> 0:09:25.600 more of the burden of having this global reserve currency. 0:09:26.480 --> 0:09:28.560 Whether or not we think there's anything in that, or 0:09:28.600 --> 0:09:32.120 whether there's going to ultimately be any negotiations along those lines, 0:09:32.240 --> 0:09:35.439 I mean, Barry Eckingreen, you could argue that it's been 0:09:35.440 --> 0:09:38.120 a public good for the world to have a global 0:09:38.160 --> 0:09:40.800 reserve currency. In most times in global history we haven't 0:09:40.840 --> 0:09:46.240 had one, and maybe it's not unreasonable for the US 0:09:46.360 --> 0:09:49.280 to want countries to kind of pay in one way 0:09:49.360 --> 0:09:52.199 or another to continue to have a global reserve currency. 0:09:53.000 --> 0:09:56.320 I think it's important to recognize also that the United 0:09:56.320 --> 0:10:01.800 States derives very significant benefits from the dollars international role. 0:10:01.960 --> 0:10:05.680 So people in the Trump administration would say there are costs. 0:10:06.280 --> 0:10:09.280 US exporters find it a little bit more difficult to 0:10:09.280 --> 0:10:13.920 do international business because the dollar is stronger than otherwise. 0:10:14.480 --> 0:10:17.480 Although I would put the value of the dollar way 0:10:17.559 --> 0:10:21.280 down on the list of determinants of US export competitiveness, 0:10:21.400 --> 0:10:25.280 below the skills and training of American workers, the up 0:10:25.320 --> 0:10:28.520 to datedness of our technology and our capital stock, and 0:10:28.559 --> 0:10:31.360 so forth, and then whether the dollar is a few 0:10:31.400 --> 0:10:35.680 percentage points higher or lower enters the list. On the 0:10:35.720 --> 0:10:38.480 other side of the balance sheet, US banks and firms 0:10:38.520 --> 0:10:41.160 have the convenience of being able to do cross border 0:10:41.200 --> 0:10:44.000 business in their own currency. They don't have to pay 0:10:44.559 --> 0:10:49.000 to purchase insurance hedges if you will, The Treasury can 0:10:49.040 --> 0:10:52.960 borrow at a lower cost than otherwise. We discussed that earlier, 0:10:53.440 --> 0:10:56.600 and the US gets another form of insurance from the 0:10:56.640 --> 0:11:00.600 dollars international role. The dollar is a safe haven some 0:11:00.679 --> 0:11:04.600 when a bad thing happens, everybody rushes into dollars and 0:11:04.679 --> 0:11:08.920 into US financial markets, and that's what has been different 0:11:09.000 --> 0:11:13.439 it appears about the spring of twenty twenty five that 0:11:13.559 --> 0:11:18.000 when this reciprocal care of upheaval occurred, people rushed out 0:11:18.000 --> 0:11:18.480 of dollars. 0:11:18.559 --> 0:11:20.520 Not in yes, so Lea. 0:11:20.559 --> 0:11:22.320 I mean that's something I think you mentioned in the 0:11:22.360 --> 0:11:25.280 piece that you wrote. There has always been that very 0:11:25.320 --> 0:11:30.280 striking safe haven quality to US markets and the dollar 0:11:30.360 --> 0:11:33.640 in particular, where you can have, in the extreme example, 0:11:33.760 --> 0:11:36.320 you can have a shock involving the possibility of the 0:11:36.440 --> 0:11:38.920 US defaulting. You know, when there's been a sort of 0:11:38.960 --> 0:11:43.600 standoff over the debt ceiling in Washington and investors are 0:11:43.640 --> 0:11:46.000 worried about, you, the US defaulting. Well, that's a scary 0:11:46.040 --> 0:11:48.520 thing happening. So then people go into US treasuries even 0:11:48.559 --> 0:11:50.720 though the US treasuries are the asset that might be 0:11:50.800 --> 0:11:54.880 defaulted on. That is clearly something has changed this year 0:11:54.960 --> 0:11:56.160 when it comes to things like that. 0:11:56.679 --> 0:11:57.240 Oh it has. 0:11:57.360 --> 0:12:01.160 I mean global financial crisis is clear example of when 0:12:01.200 --> 0:12:04.160 everyone should have been pouring out of American assets because 0:12:04.400 --> 0:12:07.520 the US created and caused the subprime mortgage collapse that 0:12:07.600 --> 0:12:10.640 led to the global financial crisis. But everybody piled in 0:12:10.800 --> 0:12:13.920 just to as proof that the dollar is so resilient, 0:12:13.960 --> 0:12:17.559 and it wasn't. The case in April. But one thing 0:12:17.600 --> 0:12:20.960 to note is just the benefits that Barry pointed out 0:12:20.960 --> 0:12:24.200 to the US for being the owner of the reserve asset. 0:12:24.640 --> 0:12:29.400 It hits every single American consumer because if there is 0:12:29.640 --> 0:12:34.400 just a few percentage point increase to the tenure and 0:12:34.559 --> 0:12:36.480 what are borrowing costs are going to be, that is 0:12:36.520 --> 0:12:40.520 going to affect credit card debt, mortgage rates, auto loans, 0:12:40.679 --> 0:12:45.120 student loans, everything. That tiny number is not actually tiny 0:12:45.160 --> 0:12:48.320 when it comes to the household accounts. And that's actually 0:12:48.720 --> 0:12:52.520 the essence of Trumpanomics. It's economic populism. Trump does not 0:12:52.720 --> 0:12:54.960 want that number to go up, and he talks about it. 0:12:55.000 --> 0:12:57.600 He talks about borrowing costs going up and that the 0:12:57.600 --> 0:13:01.520 Federal Reserve should do something about it. Again, cognitive dissonance, 0:13:01.640 --> 0:13:04.559 not realizing that the fix that you're proposing is actually 0:13:04.640 --> 0:13:06.560 going to damage it. And that goes with their views 0:13:06.559 --> 0:13:07.480 of the dollar as well. 0:13:07.880 --> 0:13:10.160 You mentioned the financial crisis, and I noticed that the 0:13:10.200 --> 0:13:12.200 other time that we'd had a big fall in the 0:13:12.240 --> 0:13:14.760 dollar was in I think twenty ten, when the Federal 0:13:14.800 --> 0:13:19.000 Reserve was cutting interest rates, and that was possibly also 0:13:19.080 --> 0:13:21.760 adjusting from the rise that you were just referenced. In 0:13:21.760 --> 0:13:25.120 the middle of the crisis. Currencies can swing ten percent 0:13:25.240 --> 0:13:28.520 either direction, even the world's reserve currency, and it doesn't 0:13:28.559 --> 0:13:34.800 necessarily mean it's a paradigm shift in reserve currencies, which 0:13:34.840 --> 0:13:37.840 obviously a subject to much more kind of long term trends. 0:13:37.840 --> 0:13:41.680 Are we just kind of overreading this movement of the 0:13:41.760 --> 0:13:44.520 last six months, I guess, Barrychngreen first. 0:13:45.360 --> 0:13:49.200 It's possible. I'm reminded of the nineteen seventies when the 0:13:49.240 --> 0:13:53.880 Bretton Woods system ended, the dollar was devalued, it began 0:13:54.000 --> 0:13:57.199 to fall on the for and exchange market. In nineteen 0:13:57.280 --> 0:14:03.000 seventy six, Charles Kindelberger, one of the most eminent monetary 0:14:03.000 --> 0:14:06.120 and economic historians a stay said the dollar is quote 0:14:06.240 --> 0:14:11.240 finished as an international currency, which obviously did not turn 0:14:11.320 --> 0:14:14.760 out to be the case. When there is an incumbent 0:14:15.000 --> 0:14:21.320 international currency, it takes a big, persistent shock to displace it, 0:14:21.840 --> 0:14:24.560 and there has to be an alternative, and it's not 0:14:24.680 --> 0:14:26.360 clear that those conditions are present. 0:14:26.840 --> 0:14:28.680 Well, actually, I was just going to follow up on that, 0:14:28.760 --> 0:14:30.760 and I know that Selio will to say something on 0:14:30.840 --> 0:14:32.560 this as well, But I mean that has been always 0:14:32.640 --> 0:14:35.240 been the answer that people have given, and goodness knows, 0:14:35.240 --> 0:14:37.400 these discussions have been held over the decades, and I 0:14:37.440 --> 0:14:39.440 suspect that Professor I agree, it has been involved in 0:14:39.480 --> 0:14:42.600 a great many of them. But the answer that's always 0:14:42.640 --> 0:14:45.720 given is, you know, these things take a really long time. 0:14:46.360 --> 0:14:50.360 The UK sterling was the dominant globe reserve currency for 0:14:50.400 --> 0:14:54.000 a long time, long after the US overtook the UK 0:14:54.800 --> 0:14:57.760 in terms of its economy. There was something like seventy 0:14:57.840 --> 0:15:02.080 years before the US dollar actually became the global reserve currency. 0:15:02.320 --> 0:15:04.800 Those kind of shifts just take a really long time. 0:15:05.200 --> 0:15:07.840 And crucially, if you're going to move out of the dollar, 0:15:08.040 --> 0:15:12.040 you need an alternative, and it isn't clear yet that 0:15:12.120 --> 0:15:14.440 there is an alternative to the dollar out there. 0:15:14.840 --> 0:15:18.920 It isn't clear because there aren't enough safe and liquid 0:15:19.440 --> 0:15:23.360 euro denominated reserve assets available to the rest of the world, 0:15:23.360 --> 0:15:26.040 and it's not clear that the European Union is in 0:15:26.080 --> 0:15:29.400 a position to create them. China is moving as fast 0:15:29.440 --> 0:15:33.040 as it can to promote international use of its currency, 0:15:33.400 --> 0:15:36.840 but it is starting out way behind the dollar. So 0:15:37.040 --> 0:15:41.960 even if use of its currency continues for cross border payments, 0:15:42.000 --> 0:15:46.040 for example, continues to increase the double digit rates, it 0:15:46.080 --> 0:15:50.600 will take a decade or longer before the Chinese renman 0:15:50.680 --> 0:15:55.160 bee comes within haaling distance of the dollar. So you know, 0:15:55.240 --> 0:15:59.880 these kind of events occur slowly until they occur quickly. 0:16:00.200 --> 0:16:01.960 I mean, I guess the other alternatives. We talk a 0:16:01.960 --> 0:16:05.800 lot about crypto these days. I mean, there's bitcoin, many 0:16:05.880 --> 0:16:08.720 might say was a potential alternative, and also people talk 0:16:08.720 --> 0:16:11.120 about stable coins, although I know that they have a 0:16:11.160 --> 0:16:13.440 slightly different implication for the dollar. But are either of 0:16:13.480 --> 0:16:16.120 those sort of likely alternatives. 0:16:17.000 --> 0:16:19.600 I actually think the most likely alternative is going to 0:16:19.600 --> 0:16:24.520 be a multi currency era rather than one currency taking over. 0:16:24.680 --> 0:16:27.960 We may face decades where the dollar is still dominant, 0:16:27.960 --> 0:16:29.520 but not quite as dominant. 0:16:29.520 --> 0:16:32.120 Maybe it was never designed to or meant to, or 0:16:32.160 --> 0:16:32.880 doesn't need. 0:16:32.720 --> 0:16:35.720 To be quite as powerful as it is in today's 0:16:35.720 --> 0:16:38.640 financial system, and we might see that the Euro rises 0:16:38.640 --> 0:16:41.600 a little bit more, the yen, maybe the yuon, and 0:16:41.640 --> 0:16:44.480 maybe some of these other currencies or other assets like 0:16:44.520 --> 0:16:47.280 stable coins and maybe even bitcoin. But I think when 0:16:47.280 --> 0:16:49.840 I think about alternatives, I don't think of one. I 0:16:49.880 --> 0:16:52.920 think of many. And that's a shock. It feels incremental, 0:16:53.480 --> 0:16:55.680 but it will be a shock to the system because 0:16:55.720 --> 0:16:58.400 then you might have things like runs on currencies with 0:16:58.480 --> 0:17:00.840 investors trying to figure out where is the safest place 0:17:00.920 --> 0:17:01.080 to go. 0:17:01.760 --> 0:17:04.640 Possibly, we don't care so much about a gradual decline 0:17:04.640 --> 0:17:06.040 of a dollar, or at least if one is just 0:17:06.080 --> 0:17:10.320 thinking about the sort of stability of global system, we'd 0:17:10.320 --> 0:17:12.600 be much less worried about that than we would a 0:17:12.680 --> 0:17:17.520 sudden questioning of the US government's credit worthiness and a 0:17:17.760 --> 0:17:21.000 dash for the exits from the dollar. I mean, I 0:17:21.040 --> 0:17:24.760 can green, how much do you think the probability of 0:17:24.800 --> 0:17:28.440 that kind of dollar route has gone up in the 0:17:28.520 --> 0:17:29.800 last year or so. 0:17:30.240 --> 0:17:32.359 It has certainly gone up. If you're asking me for 0:17:32.400 --> 0:17:36.800 a number, not provide. But I would have been dismissive 0:17:37.119 --> 0:17:40.199 of those stories of a route until this year. I 0:17:40.240 --> 0:17:44.080 would have agreed with Salia that the most likely scenario 0:17:44.200 --> 0:17:49.159 is a gradual transition to a more multipolar system. But 0:17:49.280 --> 0:17:52.439 I think we now need to entertain the possibility of 0:17:52.480 --> 0:17:56.119 a route as well, simply because of the level of 0:17:56.280 --> 0:18:01.159 noise and chaos in terms of US policy. And I 0:18:01.240 --> 0:18:05.400 do worry that if there is a sudden big move 0:18:05.760 --> 0:18:09.520 in the value of the dollar, because foreign official and 0:18:09.640 --> 0:18:13.919 private investors row significantly more reluctant to hold and use it, 0:18:14.400 --> 0:18:18.159 that could destabilize the US treasury market. That could destabilize 0:18:18.160 --> 0:18:22.800 important financial institutions that hold dollar denominated assets that are 0:18:22.800 --> 0:18:26.400 suddenly losing value on the foreign exchange market. That could 0:18:26.440 --> 0:18:30.119 have quite dire consequences were to occur. 0:18:30.440 --> 0:18:32.199 We don't want to put numbers on the probability, but 0:18:32.240 --> 0:18:34.560 when does a decline become a route what kind of 0:18:34.640 --> 0:18:36.360 numbers would be talking I mean, we've seen a ten 0:18:36.400 --> 0:18:40.040 percent decline, We've seen that investors have more and more 0:18:40.080 --> 0:18:43.040 reason potentially to put their sort of marginal dollar in 0:18:43.119 --> 0:18:47.480 other countries. But when would you start worrying about a 0:18:47.560 --> 0:18:51.600 sort of self fueling spiral? Is does it need to 0:18:51.600 --> 0:18:54.359 be another ten percent when you're modeling these things, what 0:18:54.440 --> 0:18:55.480 kind of numbers are you thinking? 0:18:55.920 --> 0:18:57.840 Well, I think you have to worry both about how 0:18:57.880 --> 0:19:01.399 much the currency moves and what the timeframe for the 0:19:01.440 --> 0:19:04.879 movement is. So another ten or twenty percent over the 0:19:04.920 --> 0:19:07.480 next couple of years would wo not be hard for 0:19:07.520 --> 0:19:10.800 the markets to accommodate. Another twenty percent over the next 0:19:10.800 --> 0:19:13.439 couple of months, on the other hand, would be a 0:19:13.440 --> 0:19:13.840 big deal. 0:19:14.720 --> 0:19:16.680 It's in the tradition of this podcast that probably we 0:19:16.680 --> 0:19:18.880 would have had another ten percent before it even comes out, 0:19:18.880 --> 0:19:20.880 because we've got about a week at least a week 0:19:21.000 --> 0:19:25.080 or so's delay after recording it. I guess, Celia, if 0:19:25.119 --> 0:19:27.600 we saw that kind of decline, we've already seen the 0:19:27.600 --> 0:19:33.640 administration sort of parry and declare truces and delays when 0:19:33.680 --> 0:19:36.320 there's a lot of pressure, for example, on the bond market. 0:19:36.960 --> 0:19:41.160 If you saw a big fall in the dollar, potentially 0:19:41.240 --> 0:19:44.720 associated with other market moves, how do you think this 0:19:44.920 --> 0:19:46.320 president reacts to that. 0:19:47.640 --> 0:19:52.879 I would imagine that the current Treasure Secretary, Scott Bessant, 0:19:53.240 --> 0:19:57.000 would either himself or advise the President to make some 0:19:57.119 --> 0:20:01.080 kind of statement to stabilize the dollar. Traditionally it's been 0:20:01.119 --> 0:20:03.879 the Treasure secretary. But also you have to think about 0:20:03.920 --> 0:20:06.960 what and who would markets trust because investors are smart. 0:20:07.000 --> 0:20:09.040 They want to see that the policy is backing the 0:20:09.040 --> 0:20:11.960 words and the rhetoric. And in the past we've seen 0:20:12.200 --> 0:20:15.720 Treasury work with the Federal Reserve. I've spoken to former 0:20:15.880 --> 0:20:18.960 fedificial Don Cone about his time at the FED when 0:20:19.000 --> 0:20:20.920 they had to come out with a one two punch 0:20:20.960 --> 0:20:24.600 around the global financial crisis, working with Treasury hand in 0:20:24.720 --> 0:20:29.200 hand to stabilize Marcus. And that's how airtight the case 0:20:29.240 --> 0:20:31.680 needs to be made to persuade investors to believe them. 0:20:31.680 --> 0:20:34.000 It cannot just be a truth social post by the president, 0:20:34.240 --> 0:20:36.879 or it cannot just be a comment by the treasure 0:20:36.920 --> 0:20:38.520 secretary on airwaves. 0:20:38.960 --> 0:20:41.200 I'm just thinking if we look at the revealed preference, 0:20:41.240 --> 0:20:43.439 as we might say, for this president is just to 0:20:44.320 --> 0:20:47.520 beat up on trading partners with the greatest stick. And 0:20:47.560 --> 0:20:49.480 he has said, for example, that he's going to do 0:20:49.560 --> 0:20:51.720 one hundred percent tariff. So I can't remember very high 0:20:51.720 --> 0:20:55.600 tariffs on anybody in the bricks group that tries to 0:20:55.960 --> 0:20:59.600 develop an alternative reserve currency. I mean, you could imagine 0:21:00.480 --> 0:21:03.600 him wanting to come out with sort of big numbers 0:21:03.640 --> 0:21:05.640 that people who are going to invest in dollars. Maybe 0:21:05.640 --> 0:21:10.120 it's forcing pressuring central banks to buy lots of dollars 0:21:10.160 --> 0:21:13.800 for their reserves to prop up the currency. Barry Eichengreen, 0:21:13.840 --> 0:21:16.439 is there any scope for that kind of I mean, 0:21:16.480 --> 0:21:17.960 you just tend to think that's the kind of thing 0:21:18.000 --> 0:21:20.520 that the president will be reaching for. But is that 0:21:20.560 --> 0:21:23.359 possible in an enormous global currency market. 0:21:23.760 --> 0:21:26.320 I do not think so so. Stephanie, you talked before 0:21:26.400 --> 0:21:29.400 about the idea of Amara Lago a court where the 0:21:29.440 --> 0:21:33.399 president threatens tear ups if other countries don't let their 0:21:33.680 --> 0:21:36.920 currency strengthen in the dollar weaken and now you're kind 0:21:36.920 --> 0:21:40.119 of suggesting the opposite. The fact of the matter is, 0:21:40.320 --> 0:21:45.000 as Salaya alluded to, the only branch of government that 0:21:45.040 --> 0:21:48.639 can affect what happens to the dollar ultimately is the FED. 0:21:49.640 --> 0:21:53.119 And the FED could strengthen the dollar, where to weaken 0:21:53.200 --> 0:21:57.239 significantly buy wait for it, raise an interest rates? How 0:21:57.280 --> 0:22:00.760 would that be received in the quarters the pressury, and 0:22:00.840 --> 0:22:01.680 the Oval Office. 0:22:01.800 --> 0:22:05.200 And really that's the path untrodden, right, We've never seen 0:22:05.400 --> 0:22:09.480 the US have to bully the world into turning to 0:22:09.520 --> 0:22:11.560 the dollar has always been a charm tactic. 0:22:12.960 --> 0:22:16.080 Well, we will leave that question hanging in the air, 0:22:16.160 --> 0:22:19.000 that unanswered question of how the president would respond to 0:22:19.040 --> 0:22:21.760 having to raise interest rates in order to defend the dollar. 0:22:21.880 --> 0:22:24.280 But Professor Barry I. Kingreen, Sleia Mosen, thank you. 0:22:24.200 --> 0:22:32.560 So much, Thank you, thanks for having us, Thanks. 0:22:32.359 --> 0:22:34.560 For listening to Trumponomics from Bloomberg. It was hosted by 0:22:34.600 --> 0:22:37.439