1 00:00:10,039 --> 00:00:13,440 Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast. 2 00:00:13,480 --> 00:00:16,400 Speaker 1: I'm Tracy Alloway and I'm Joe wi isn't they Joe? 3 00:00:16,440 --> 00:00:19,479 Speaker 1: Have you looked at a chart of the dollar recently? 4 00:00:20,280 --> 00:00:22,720 Speaker 1: It's the only chart I look at. Well, let's but 5 00:00:23,040 --> 00:00:25,480 Speaker 1: if you were going to choose one desert island chart 6 00:00:25,560 --> 00:00:27,840 Speaker 1: right now, the dollar is a pretty good candidate. Yeah. 7 00:00:27,880 --> 00:00:30,040 Speaker 1: That's why I'm only sort of half joking when I 8 00:00:30,080 --> 00:00:32,360 Speaker 1: say it's the only chart that I look at because 9 00:00:32,840 --> 00:00:36,280 Speaker 1: so many, you know, the strong dollar has become the 10 00:00:36,360 --> 00:00:40,000 Speaker 1: sort of like central market story right now, and then 11 00:00:40,120 --> 00:00:42,479 Speaker 1: everything else sort of like trades off of is the 12 00:00:42,520 --> 00:00:45,040 Speaker 1: dollar weak or strong? I think we went a couple 13 00:00:45,040 --> 00:00:47,160 Speaker 1: of days were like paying attention to the British pound, 14 00:00:47,240 --> 00:00:48,880 Speaker 1: but now that kind of seems to be over. No, 15 00:00:49,000 --> 00:00:51,800 Speaker 1: it's really all about It's all about the dollar, and 16 00:00:51,840 --> 00:00:53,440 Speaker 1: it's come off a little bit from its home, but 17 00:00:53,440 --> 00:00:55,400 Speaker 1: it's still very high. Yeah. I was going to say, 18 00:00:55,480 --> 00:00:58,800 Speaker 1: you know, the last time we had an episode specifically 19 00:00:58,840 --> 00:01:00,960 Speaker 1: devoted to the dollar, I think was in the summer, 20 00:01:01,000 --> 00:01:03,440 Speaker 1: and we were kind of joking about top ticking it. Yeah, 21 00:01:03,440 --> 00:01:06,080 Speaker 1: we didn't. We definitely didn't, because it just kept going 22 00:01:06,240 --> 00:01:08,160 Speaker 1: and I think it reached, you know, a record high 23 00:01:08,319 --> 00:01:11,119 Speaker 1: in September, and now, as you mentioned, it's come down 24 00:01:11,120 --> 00:01:15,000 Speaker 1: a little bit, but still incredibly strong, and it's having 25 00:01:15,040 --> 00:01:18,479 Speaker 1: a massive impact on not only markets but real economies 26 00:01:18,520 --> 00:01:21,480 Speaker 1: around the world. Right, That really is the key thing. 27 00:01:21,680 --> 00:01:23,479 Speaker 1: And you know, it's a theme that we've talked about 28 00:01:23,480 --> 00:01:26,959 Speaker 1: for years, even before the pandemic or you know, even 29 00:01:27,040 --> 00:01:29,119 Speaker 1: during a period when the dollar is kind of weak 30 00:01:29,200 --> 00:01:33,280 Speaker 1: or much lower than it is. Dollar cycles are really important, 31 00:01:33,400 --> 00:01:35,880 Speaker 1: both for markets and the real economy. Yeah, and even 32 00:01:35,920 --> 00:01:38,160 Speaker 1: though people write quite a bit about them, I feel 33 00:01:38,200 --> 00:01:41,880 Speaker 1: like they still don't get enough attention paid to them. Weirdly, 34 00:01:42,000 --> 00:01:44,039 Speaker 1: it's like one of those things that I don't know, 35 00:01:44,120 --> 00:01:46,160 Speaker 1: people talk a lot about them, but we should definitely 36 00:01:46,200 --> 00:01:49,480 Speaker 1: talk even more. And when people, or at least you 37 00:01:49,520 --> 00:01:52,640 Speaker 1: and I, but when people think about these dollar cycles 38 00:01:52,640 --> 00:01:54,720 Speaker 1: and the fact they have globally, I feel like there's 39 00:01:54,720 --> 00:01:58,080 Speaker 1: always one name that comes up first. Yes, So on 40 00:01:58,120 --> 00:02:00,880 Speaker 1: that note, we really do have the perfect guests to 41 00:02:00,960 --> 00:02:03,960 Speaker 1: discuss this. Someone who's been on the podcast before talking 42 00:02:04,000 --> 00:02:06,680 Speaker 1: about what the strong dollar means for the global economy, 43 00:02:06,760 --> 00:02:09,200 Speaker 1: someone who has done a lot of academic research on 44 00:02:09,200 --> 00:02:11,880 Speaker 1: this topic, and to this day, whenever you and I 45 00:02:11,960 --> 00:02:14,640 Speaker 1: write about a strong dollar, we always make sure to 46 00:02:14,680 --> 00:02:18,040 Speaker 1: reference his previous papers. So I'm very pleased to say 47 00:02:18,160 --> 00:02:20,240 Speaker 1: we are going to be speaking with Hun Sung Shin. 48 00:02:20,560 --> 00:02:23,640 Speaker 1: He is, of course, the economic advisor and head of 49 00:02:23,680 --> 00:02:26,840 Speaker 1: research at the Bank for International Settlements, and the b 50 00:02:26,960 --> 00:02:30,320 Speaker 1: i S has just published a bulletin all about the 51 00:02:30,360 --> 00:02:33,200 Speaker 1: FX market, with a big portion of it devoted to 52 00:02:33,400 --> 00:02:36,080 Speaker 1: what's going on with the U S currency. So really 53 00:02:36,120 --> 00:02:39,119 Speaker 1: the perfect person. Let's do it, all right, Huan, Thank 54 00:02:39,120 --> 00:02:41,600 Speaker 1: you so much for coming back on all thoughts. Thanks Tray, 55 00:02:41,919 --> 00:02:45,400 Speaker 1: thanks for inviting me back. So you know, I mentioned 56 00:02:45,720 --> 00:02:49,200 Speaker 1: in our intro the chart of the dollar looks like 57 00:02:49,320 --> 00:02:51,800 Speaker 1: if you look at the Bloomberg Dollar Index, for instance, 58 00:02:51,840 --> 00:02:53,880 Speaker 1: it seems to be at a record. Can you maybe 59 00:02:53,960 --> 00:02:57,440 Speaker 1: give us some context about what we're seeing with the 60 00:02:57,560 --> 00:03:01,840 Speaker 1: U S currency? Now? How unusual is this particular moment 61 00:03:01,960 --> 00:03:04,800 Speaker 1: in history? And you know, Joe mentioned that there have 62 00:03:05,000 --> 00:03:08,520 Speaker 1: been strong dollar cycles previously. How is this one similar 63 00:03:08,760 --> 00:03:12,200 Speaker 1: or different? Yeah? Try so that's a great question to 64 00:03:12,200 --> 00:03:14,720 Speaker 1: to kick off with. Um, you know, maybe I can 65 00:03:15,000 --> 00:03:16,680 Speaker 1: go back in time a bit and give you the 66 00:03:16,680 --> 00:03:20,160 Speaker 1: broad sweep here. I mean, if we look back to 67 00:03:20,240 --> 00:03:24,680 Speaker 1: the past fifty years or so, maybe even the past 68 00:03:24,720 --> 00:03:28,400 Speaker 1: forty years, the era of flirting exchange rates. The chart 69 00:03:28,480 --> 00:03:31,120 Speaker 1: for the dollar looks a bit like a w You know, 70 00:03:31,160 --> 00:03:34,600 Speaker 1: we have a peak in the early eighties. In fact, 71 00:03:34,680 --> 00:03:39,320 Speaker 1: it peaked in January, and then it picked again in 72 00:03:39,360 --> 00:03:42,960 Speaker 1: the early two thousand's, and I'll give you some numbers shortly, 73 00:03:43,040 --> 00:03:46,000 Speaker 1: and it's very high currently, So just to give you 74 00:03:46,080 --> 00:03:49,360 Speaker 1: some some magnitude, I think it's worth having some of 75 00:03:49,360 --> 00:03:52,240 Speaker 1: these numbers in our minds as we as we talk 76 00:03:52,280 --> 00:03:56,680 Speaker 1: about this. The BIS publishes a long series on exchange rates. 77 00:03:57,120 --> 00:04:01,080 Speaker 1: It's the b I S Series on Real Effective Exchange Rates. 78 00:04:01,160 --> 00:04:04,760 Speaker 1: So it's a weighted average across all the major bilateral 79 00:04:05,240 --> 00:04:08,800 Speaker 1: exchange rates with respect to a particular currency, and then 80 00:04:08,840 --> 00:04:12,120 Speaker 1: we adjust for inflation relative inflation as well. If we 81 00:04:12,360 --> 00:04:15,920 Speaker 1: go back fifty years and just look at the average 82 00:04:16,600 --> 00:04:19,159 Speaker 1: of the real effective exchange rate for the dollar, the 83 00:04:19,160 --> 00:04:21,520 Speaker 1: average is around it's just over a hundred and ten, 84 00:04:22,760 --> 00:04:26,800 Speaker 1: and in eighty five it reached the hundred and forty five, 85 00:04:27,000 --> 00:04:29,400 Speaker 1: just hundred and forty five. That gives you a sense 86 00:04:29,440 --> 00:04:32,320 Speaker 1: of how strong the dollar was back in eighty five. 87 00:04:32,760 --> 00:04:36,920 Speaker 1: In two thousand two, it peaked around hundred and twenty four, 88 00:04:37,279 --> 00:04:41,919 Speaker 1: and currently it's broken through hundred and forty. So we 89 00:04:42,040 --> 00:04:44,480 Speaker 1: are sort of, you know, we're not quite there in 90 00:04:44,600 --> 00:04:48,400 Speaker 1: terms of level, but we're you know, reasonably close. And 91 00:04:48,800 --> 00:04:50,760 Speaker 1: to give you a sense of the of the troughs, 92 00:04:51,200 --> 00:04:53,800 Speaker 1: there were periods of a weeker dollar as well. The 93 00:04:53,880 --> 00:04:56,359 Speaker 1: first trough, you know, the first trough in the w 94 00:04:56,520 --> 00:04:59,200 Speaker 1: as it were, that comes in the early nineties. It 95 00:04:59,279 --> 00:05:04,160 Speaker 1: reached the low nineties, and then just after the global 96 00:05:04,360 --> 00:05:08,360 Speaker 1: financial crisis it again reached the early the low nineties. Then, 97 00:05:09,120 --> 00:05:12,040 Speaker 1: so there happens some wiggles in the last five or 98 00:05:12,080 --> 00:05:14,200 Speaker 1: six years. But I think it's you know, useful to 99 00:05:14,240 --> 00:05:17,160 Speaker 1: have this kind of broad historical sweep as well. There's 100 00:05:17,200 --> 00:05:20,039 Speaker 1: that famous phrase, and I guess it was former Treasury 101 00:05:20,040 --> 00:05:22,239 Speaker 1: I just had to google it that former Treasury Secretary 102 00:05:22,320 --> 00:05:26,520 Speaker 1: John Connelly stated the dollars our currency, but it's your problem, 103 00:05:26,520 --> 00:05:29,320 Speaker 1: our currency. Your problem is this phrase that gets repeated 104 00:05:29,360 --> 00:05:31,120 Speaker 1: a lot, and I feel like when I think about, well, 105 00:05:31,160 --> 00:05:33,680 Speaker 1: how is it your problem? How is it everyone else's problem? 106 00:05:33,720 --> 00:05:36,080 Speaker 1: Your work in particular, you know, I always think back 107 00:05:36,120 --> 00:05:39,320 Speaker 1: to it, but just just start broadly, how would you 108 00:05:39,400 --> 00:05:42,760 Speaker 1: summarize the strange that it places on the global economy 109 00:05:42,839 --> 00:05:46,240 Speaker 1: when the dollar moves up this rapidly. What we can do, Joe, 110 00:05:46,360 --> 00:05:50,040 Speaker 1: is to highlight some of the roles played by the dollar. 111 00:05:50,080 --> 00:05:53,800 Speaker 1: I mean, it is the premiere international currency, and it 112 00:05:53,960 --> 00:05:57,360 Speaker 1: is the premier currency, uh in pretty much all respects. 113 00:05:57,360 --> 00:06:01,640 Speaker 1: So it is the invoicing currency of choice and international trade. 114 00:06:02,440 --> 00:06:06,799 Speaker 1: It is therefore the trade financing currency as well, quite naturally, 115 00:06:06,839 --> 00:06:10,600 Speaker 1: because if you're invoicing in a particular in a particular currency, 116 00:06:10,720 --> 00:06:15,039 Speaker 1: then the then the trade financing will also be in 117 00:06:15,120 --> 00:06:17,919 Speaker 1: that currency as well. But more broadly, it is a 118 00:06:17,920 --> 00:06:21,720 Speaker 1: currency that figures very highly in reserve holdings, but in 119 00:06:21,760 --> 00:06:25,040 Speaker 1: particular in capital markets and cross border banking as well. 120 00:06:25,120 --> 00:06:27,240 Speaker 1: So it's the, if you like, the funding currency for 121 00:06:27,279 --> 00:06:30,440 Speaker 1: global banking and capital markets. So what that means is 122 00:06:30,600 --> 00:06:33,320 Speaker 1: that you know, if it's a funding currency, it's the 123 00:06:33,400 --> 00:06:36,080 Speaker 1: currency that you borrow in. And therefore it's the currency 124 00:06:36,080 --> 00:06:38,760 Speaker 1: of leverage to some extent. And so when the dollar 125 00:06:38,839 --> 00:06:41,400 Speaker 1: becomes strong, if you like, it's the it's the leverage 126 00:06:41,400 --> 00:06:45,000 Speaker 1: that becomes you more costly. So it's quite natural for 127 00:06:45,040 --> 00:06:47,920 Speaker 1: you to see the pullback and risk appetite if you 128 00:06:48,080 --> 00:06:51,000 Speaker 1: like a reduction in risk taking as well. So there's 129 00:06:51,000 --> 00:06:54,200 Speaker 1: a very strong risk taking element, you know, as the 130 00:06:54,520 --> 00:06:57,440 Speaker 1: as the dollar strengthens, where you know, there's a kind 131 00:06:57,440 --> 00:07:00,040 Speaker 1: of you know, pullback from from mistake, and so a 132 00:07:00,560 --> 00:07:05,120 Speaker 1: stronger dollar has an effect on trade but also on 133 00:07:05,320 --> 00:07:07,640 Speaker 1: financial conditions as well, I think. So that's the kind 134 00:07:07,680 --> 00:07:11,720 Speaker 1: of one sentence, you know summary. Yeah, when we spoke 135 00:07:11,840 --> 00:07:15,160 Speaker 1: to um John Turik in the summer about this on 136 00:07:15,240 --> 00:07:18,120 Speaker 1: the show, you know, he kind of described how the 137 00:07:18,240 --> 00:07:23,080 Speaker 1: dollar works through an economic growth channel given the trade angle, 138 00:07:23,200 --> 00:07:25,760 Speaker 1: and also a liquidity one because the dollar has this 139 00:07:25,840 --> 00:07:29,560 Speaker 1: unusual position in the global financial system where it's a 140 00:07:29,600 --> 00:07:32,680 Speaker 1: safe haven currency. It's considered that and so when you 141 00:07:32,720 --> 00:07:36,240 Speaker 1: get worries about economic growth slowing because of the higher dollar, 142 00:07:36,360 --> 00:07:38,760 Speaker 1: you tend to get more flows into dollar assets, and 143 00:07:38,800 --> 00:07:40,800 Speaker 1: then the dollar goes up even more, so you get 144 00:07:40,800 --> 00:07:45,160 Speaker 1: this kind of cycle. I guess, maybe just one more 145 00:07:45,200 --> 00:07:48,920 Speaker 1: basic question, but why has the dollar been going up? 146 00:07:49,040 --> 00:07:51,840 Speaker 1: Is it all about interest rate differentials and the fact 147 00:07:51,840 --> 00:07:55,280 Speaker 1: that the Fed is hiking or are there other factors 148 00:07:55,360 --> 00:07:58,960 Speaker 1: to it? And you know, I'm thinking specifically about again 149 00:07:59,320 --> 00:08:01,600 Speaker 1: one of the dollar are is very specific or unique 150 00:08:01,680 --> 00:08:05,120 Speaker 1: roles in the world of commodities pricing. I'm certainly the 151 00:08:05,160 --> 00:08:09,040 Speaker 1: relative pace of managree tightening has certainly played a role, 152 00:08:09,120 --> 00:08:11,720 Speaker 1: and you know that's something that we describe in the bulletin. 153 00:08:12,000 --> 00:08:16,480 Speaker 1: If you look at the relative interest rate differentials between 154 00:08:16,720 --> 00:08:20,160 Speaker 1: the US and other countries, we do see a relationship there. 155 00:08:20,160 --> 00:08:23,400 Speaker 1: Where As the interest rate gap widens, we do see 156 00:08:23,600 --> 00:08:27,120 Speaker 1: a an impact on the bilateral exchange rate, so the 157 00:08:27,120 --> 00:08:30,400 Speaker 1: the other currency tends to depreciate more. So I think 158 00:08:30,440 --> 00:08:33,160 Speaker 1: that's a that's a pretty familiar story, and you know 159 00:08:33,200 --> 00:08:35,199 Speaker 1: that is a large part. But I think there is 160 00:08:35,240 --> 00:08:38,720 Speaker 1: also a very important real economy effect here as well. 161 00:08:38,840 --> 00:08:41,440 Speaker 1: If we look at the terms of trade, so roughly, 162 00:08:41,840 --> 00:08:43,880 Speaker 1: you know, how much has the price of your exports 163 00:08:44,000 --> 00:08:46,280 Speaker 1: changed the relative to the price of your imports. A 164 00:08:46,400 --> 00:08:50,000 Speaker 1: very recent development has been that the US has become 165 00:08:50,160 --> 00:08:55,440 Speaker 1: a uh net energy exporter, especially in natural gas. So 166 00:08:56,000 --> 00:09:00,640 Speaker 1: compared to past episodes when a stronger dollar went hand 167 00:09:00,679 --> 00:09:04,040 Speaker 1: in hand with weaker commodity prices, you know, there is 168 00:09:04,360 --> 00:09:06,880 Speaker 1: then this this additional effect that comes from the terms 169 00:09:06,880 --> 00:09:09,160 Speaker 1: of trade as well. So the dollar has moved to 170 00:09:09,240 --> 00:09:12,400 Speaker 1: some extent in line with other commodity exporters, So that's 171 00:09:12,440 --> 00:09:15,280 Speaker 1: the other that's the other factor. And yet a third 172 00:09:15,320 --> 00:09:18,520 Speaker 1: factor would be what you've already mentioned, Tracy, which is 173 00:09:18,600 --> 00:09:21,720 Speaker 1: that as uncertainty is increased, the dollar tends to attract 174 00:09:21,800 --> 00:09:24,240 Speaker 1: your safe haven flows as well. So I think I 175 00:09:24,280 --> 00:09:27,520 Speaker 1: would say all of those are, to some extent, the 176 00:09:27,559 --> 00:09:30,640 Speaker 1: consequence of the unusual sequence of shocks we've had. So 177 00:09:30,679 --> 00:09:33,400 Speaker 1: we had obviously the pandemic, but also the war in 178 00:09:33,520 --> 00:09:37,560 Speaker 1: Ukraine and the and the subsequent impact of commodity prices 179 00:09:37,600 --> 00:09:42,560 Speaker 1: as well. And you can certainly put the monetary policy 180 00:09:42,600 --> 00:09:45,319 Speaker 1: responses also in this context. So I think we have to, 181 00:09:45,600 --> 00:09:49,120 Speaker 1: as it were, have a pretty comprehensive you know, I 182 00:09:49,280 --> 00:09:51,880 Speaker 1: joined that picture of why we are where we are. 183 00:10:08,400 --> 00:10:10,720 Speaker 1: I want to talk more about the commodity angle, because 184 00:10:10,720 --> 00:10:14,240 Speaker 1: that seems like what's really distinct and unusual here. And 185 00:10:14,280 --> 00:10:15,920 Speaker 1: if you, you know, you look at the chart of 186 00:10:16,200 --> 00:10:19,280 Speaker 1: past dollar spikes that you talked about, those were the 187 00:10:19,360 --> 00:10:21,520 Speaker 1: era in which, you know, the US was a big 188 00:10:21,520 --> 00:10:25,199 Speaker 1: oil importer and was not a commodity exporter at all. 189 00:10:25,480 --> 00:10:27,920 Speaker 1: This is a new We're not. We're a huge oil producer, 190 00:10:28,040 --> 00:10:31,120 Speaker 1: as we know, and the whole world is thirsty for 191 00:10:31,160 --> 00:10:35,240 Speaker 1: our natural gas. We're exporting as much as is physically possible. 192 00:10:35,679 --> 00:10:38,319 Speaker 1: How does that change things? And I'm also curious does 193 00:10:38,320 --> 00:10:40,719 Speaker 1: that create a spiral? So I'm thinking about sort of like, 194 00:10:40,760 --> 00:10:43,079 Speaker 1: you know, the Japanese yen, and for a long time 195 00:10:43,160 --> 00:10:47,400 Speaker 1: Japan was a big export powerhouse. Now it actually I 196 00:10:47,440 --> 00:10:50,959 Speaker 1: believe is an importing country, particularly due to energy prices. 197 00:10:51,240 --> 00:10:55,120 Speaker 1: We've seen how much the yen has weakened. Generally, does 198 00:10:55,200 --> 00:10:57,760 Speaker 1: this create like sort of a snowball effect where the 199 00:10:57,840 --> 00:11:01,440 Speaker 1: terms of trade for a country like Japan deterior It's 200 00:11:01,520 --> 00:11:04,560 Speaker 1: the end weekend and then energy prices get even more 201 00:11:04,600 --> 00:11:07,880 Speaker 1: expensive and sort of accelerating the cycle. That is certainly 202 00:11:07,920 --> 00:11:10,960 Speaker 1: one factor, Joe, and the terms of trade effect also 203 00:11:11,040 --> 00:11:13,680 Speaker 1: show up in the in the trade figures as well, 204 00:11:13,880 --> 00:11:17,800 Speaker 1: both for Japan and other other commodity importing areas, and 205 00:11:17,800 --> 00:11:19,880 Speaker 1: I'm thinking of Europe in particular. You know, we do 206 00:11:20,040 --> 00:11:24,320 Speaker 1: see the impact of the energy and food you know, 207 00:11:24,360 --> 00:11:27,280 Speaker 1: price changes, price increases recently. But I think the important 208 00:11:27,320 --> 00:11:31,640 Speaker 1: point here is the invoicing currency role of the dollar. 209 00:11:32,000 --> 00:11:36,199 Speaker 1: The dollar is the invoicing currency for energy, food, as 210 00:11:36,200 --> 00:11:38,920 Speaker 1: well as for manufacturing, by the way, but especially for 211 00:11:39,000 --> 00:11:41,880 Speaker 1: energy and food, because what that means is, if you're 212 00:11:42,240 --> 00:11:44,760 Speaker 1: in Japan or in the r area, you've seen your 213 00:11:44,800 --> 00:11:48,720 Speaker 1: currency depreciate against the dollar, and we know that commodity 214 00:11:48,760 --> 00:11:52,880 Speaker 1: prices have increased even in dollar terms, and so in 215 00:11:53,040 --> 00:11:55,760 Speaker 1: euro or end terms, it's actually increased a lot more. 216 00:11:55,960 --> 00:11:57,760 Speaker 1: And you know, there's a chart in the in the 217 00:11:57,840 --> 00:12:01,280 Speaker 1: bulletin that shows, you know, just roughly than magnitude, and 218 00:12:01,360 --> 00:12:05,439 Speaker 1: what that means is the energy and food prices are 219 00:12:05,600 --> 00:12:09,160 Speaker 1: then incorporated into your inflation figures. And I think the 220 00:12:09,200 --> 00:12:12,520 Speaker 1: important point to mention here, and you've covered this in 221 00:12:12,600 --> 00:12:17,240 Speaker 1: your previous podcasts, energy and food prices. They're really salient 222 00:12:17,480 --> 00:12:20,240 Speaker 1: commodities as far as household behavior is concerned, how shol 223 00:12:20,280 --> 00:12:24,679 Speaker 1: perceptions are concerned, and so they do figure quite importantly 224 00:12:24,840 --> 00:12:28,199 Speaker 1: in how expectations are set. And therefore, you know, how 225 00:12:28,240 --> 00:12:31,760 Speaker 1: you know, behavior changes as well, and so perhaps even 226 00:12:31,800 --> 00:12:35,760 Speaker 1: more than other traded goods, if you see this very 227 00:12:35,760 --> 00:12:40,319 Speaker 1: sharp increase in commodity prices, especially in your own currency, 228 00:12:41,200 --> 00:12:43,960 Speaker 1: I feel like that would have a disproportionate effect on inflation, 229 00:12:44,360 --> 00:12:48,560 Speaker 1: you know, domestically and the way that inflation is perceived. 230 00:12:49,000 --> 00:12:53,920 Speaker 1: What's different this time is that typically you know, historically 231 00:12:53,920 --> 00:12:58,360 Speaker 1: we see commodity prices weakening as the dollar strengthens. I mean, 232 00:12:58,400 --> 00:13:01,319 Speaker 1: there's a very you know well as published relationship, historical 233 00:13:01,400 --> 00:13:05,280 Speaker 1: relationship where a strong dollar goes hand in hand with 234 00:13:05,320 --> 00:13:09,040 Speaker 1: weaker commodity prices. What's different this time is that, you know, 235 00:13:09,120 --> 00:13:12,120 Speaker 1: given the shocks, given the nature of the shocks, we 236 00:13:12,200 --> 00:13:17,520 Speaker 1: have this conjunction of a stronger dollar and higher commodity 237 00:13:17,559 --> 00:13:20,800 Speaker 1: prices due to the war in Ukraine, for example, and 238 00:13:21,360 --> 00:13:25,120 Speaker 1: that combination, which is a very unusual one, has had 239 00:13:25,160 --> 00:13:28,400 Speaker 1: an effect in raising the food and energy prices in 240 00:13:28,480 --> 00:13:31,839 Speaker 1: other currencies a lot more than it did in the past. Right, 241 00:13:31,880 --> 00:13:35,840 Speaker 1: So normally you would have this inverse correlation between the 242 00:13:35,920 --> 00:13:40,040 Speaker 1: dollar and commodities, especially oil, and if the dollar went up, 243 00:13:40,120 --> 00:13:42,520 Speaker 1: you would expect oil prices to go down. But that's 244 00:13:42,600 --> 00:13:45,439 Speaker 1: not happening this time around. Can you talk a little 245 00:13:45,440 --> 00:13:49,920 Speaker 1: bit more about what that means for countries that are importing, 246 00:13:50,160 --> 00:13:53,000 Speaker 1: you know, a lot of food and energy, because I 247 00:13:53,040 --> 00:13:56,760 Speaker 1: think it's pretty important. Yes, it is very important, and 248 00:13:56,840 --> 00:13:59,400 Speaker 1: clearly it is a negative shock to your terms of trade. 249 00:14:00,240 --> 00:14:04,160 Speaker 1: It raises the price of food, it raises the price 250 00:14:04,280 --> 00:14:07,000 Speaker 1: of energy in your domestic currency. And so that will 251 00:14:07,040 --> 00:14:09,600 Speaker 1: feed into inflation. So it's a bit of a bit 252 00:14:09,600 --> 00:14:13,200 Speaker 1: of an unpleasant set of shocks there. We see, for example, 253 00:14:13,440 --> 00:14:16,880 Speaker 1: that the economies that are very geared towards manufacturing have 254 00:14:17,080 --> 00:14:20,360 Speaker 1: seen a worsening of their trade balance, you know, as 255 00:14:20,480 --> 00:14:23,200 Speaker 1: the terms of trade have moved against them. And it's 256 00:14:23,240 --> 00:14:26,400 Speaker 1: also true that as the exchange rates in these countries 257 00:14:26,400 --> 00:14:30,680 Speaker 1: have also depreciated relative to the dollar, that's also been 258 00:14:30,800 --> 00:14:33,960 Speaker 1: an unwelcome factor in raising inflation as well. Because of 259 00:14:34,000 --> 00:14:37,440 Speaker 1: the very unusual sequence, very unusual combination of shocks, it 260 00:14:37,520 --> 00:14:40,400 Speaker 1: has been a double valny. Can you talk a little 261 00:14:40,440 --> 00:14:43,920 Speaker 1: bit more about what it means from a policy perspective? 262 00:14:44,080 --> 00:14:47,240 Speaker 1: Four countries that are faced with this unusual series of shocks, 263 00:14:47,280 --> 00:14:49,960 Speaker 1: So there is high inflation, but much of it in 264 00:14:50,080 --> 00:14:54,120 Speaker 1: areas that they probably can't control, you know, the global commodities. 265 00:14:54,560 --> 00:14:57,560 Speaker 1: What does it mean in terms of policy space? That 266 00:14:57,760 --> 00:15:00,560 Speaker 1: are different countries, haven't you know? We all vols seeing 267 00:15:00,600 --> 00:15:03,480 Speaker 1: the end charge and it looks like maybe there has 268 00:15:03,520 --> 00:15:06,400 Speaker 1: been some intervention at some point, but you know, it's 269 00:15:06,440 --> 00:15:09,080 Speaker 1: limited and it's sort of ambiguous. But what is it 270 00:15:09,160 --> 00:15:12,000 Speaker 1: due to policy makers in countries that are faced with 271 00:15:12,080 --> 00:15:14,600 Speaker 1: this series of shocks. Yeah, I think that's a very 272 00:15:15,560 --> 00:15:18,320 Speaker 1: good question, Joe, and I suppose the first order of 273 00:15:18,360 --> 00:15:21,640 Speaker 1: business is to is to address the inflation that is underlying. 274 00:15:22,200 --> 00:15:25,040 Speaker 1: If you like the it actually sets the terms of 275 00:15:25,080 --> 00:15:28,360 Speaker 1: the trade off for all these other policy questions. Even 276 00:15:28,400 --> 00:15:33,760 Speaker 1: if the source of the inflation is these higher energy 277 00:15:33,800 --> 00:15:36,880 Speaker 1: and food prices, we know from historical experience, at once 278 00:15:36,920 --> 00:15:41,840 Speaker 1: that gets entrenched, it will feed into expectations about, you know, 279 00:15:41,840 --> 00:15:44,640 Speaker 1: how inflation will develop in the future. It's going to 280 00:15:44,680 --> 00:15:48,640 Speaker 1: get much more difficult to to bring inflation down. And 281 00:15:48,640 --> 00:15:50,960 Speaker 1: and just to give you a sense of how that 282 00:15:51,000 --> 00:15:56,560 Speaker 1: process has has progressed, we know and you've been covering 283 00:15:56,600 --> 00:15:59,320 Speaker 1: this in your podcast a lot. In the early days 284 00:15:59,360 --> 00:16:01,640 Speaker 1: of the shock, uh, you know, just off you know, 285 00:16:01,720 --> 00:16:05,760 Speaker 1: just as we were talking about supply chains, it seemed 286 00:16:05,800 --> 00:16:09,600 Speaker 1: that the price increases were limited to you know, certain 287 00:16:09,720 --> 00:16:11,800 Speaker 1: good sectors. Some of the work of the b I 288 00:16:11,920 --> 00:16:14,720 Speaker 1: S we we also follow that pretty closely. But what 289 00:16:14,720 --> 00:16:17,440 Speaker 1: we've seen is that there's been a broadening out of 290 00:16:17,520 --> 00:16:22,320 Speaker 1: inflation over the subsequent months. We've seen the core inflation 291 00:16:22,360 --> 00:16:25,720 Speaker 1: measure also move up. And this is global energy as well, 292 00:16:26,600 --> 00:16:28,400 Speaker 1: and this is global so this is a phenomenon that 293 00:16:28,440 --> 00:16:30,400 Speaker 1: we're seeing in every country, which is not just high 294 00:16:30,480 --> 00:16:34,640 Speaker 1: inflation now just headline inflation, but this broadening effect of 295 00:16:34,760 --> 00:16:39,160 Speaker 1: across goods and services. Yeah, exactly, and we see it 296 00:16:39,160 --> 00:16:42,880 Speaker 1: in core inflation. And this is true outside the US 297 00:16:42,920 --> 00:16:45,440 Speaker 1: as well. So irrespective of the source of the shock, 298 00:16:45,600 --> 00:16:48,760 Speaker 1: you know, once inflation it gets entrenched, we know there's 299 00:16:48,760 --> 00:16:51,000 Speaker 1: going to be very difficult to bring it down. So 300 00:16:51,040 --> 00:16:54,080 Speaker 1: addressing inflation would be certainly, you know, the first order 301 00:16:54,080 --> 00:16:56,840 Speaker 1: of business. But as you're doing that, I think there 302 00:16:56,880 --> 00:16:59,480 Speaker 1: are other things one can do to mitigate some of 303 00:16:59,480 --> 00:17:02,640 Speaker 1: the effects of a stronger dollar, especially if it affects 304 00:17:02,680 --> 00:17:06,520 Speaker 1: your financial markets. So we know, as we you know, 305 00:17:06,560 --> 00:17:08,800 Speaker 1: spoke just earlier, one of the very you know, well 306 00:17:08,920 --> 00:17:11,480 Speaker 1: established effects of a stronger dollar is that it tightens 307 00:17:11,520 --> 00:17:14,720 Speaker 1: financial conditions. You know, it is the global funding currency, 308 00:17:14,960 --> 00:17:16,879 Speaker 1: it's the currency that you borrow, and therefore it's the 309 00:17:16,920 --> 00:17:20,040 Speaker 1: currency of leverage. So stronger dollar tends to go hand 310 00:17:20,080 --> 00:17:24,200 Speaker 1: in hand with the leveraging if you like, a recoiling 311 00:17:24,560 --> 00:17:28,520 Speaker 1: from risk taking, and that manifests itself in you know, 312 00:17:28,560 --> 00:17:32,520 Speaker 1: not only hanking sector flows bank lending, but also in 313 00:17:32,600 --> 00:17:36,720 Speaker 1: capital markets. You see for example, spreads on corporate bonds 314 00:17:36,880 --> 00:17:40,000 Speaker 1: go up as a dollar strengthens, And there's a chart 315 00:17:40,040 --> 00:17:43,639 Speaker 1: in the bulletin, but I think illustrates that quite quite strikingly. 316 00:17:44,000 --> 00:17:46,879 Speaker 1: And we also have very good evidence that it affects 317 00:17:46,920 --> 00:17:50,439 Speaker 1: the shadow price of intermediary balance sheet if you like. 318 00:17:51,040 --> 00:17:53,760 Speaker 1: So you know when you when you speak to Salt 319 00:17:53,800 --> 00:17:58,080 Speaker 1: and Posts or or Perry Merlin, you know they I 320 00:17:58,119 --> 00:18:00,159 Speaker 1: think have a very similar sort of approach to the US. 321 00:18:00,600 --> 00:18:02,640 Speaker 1: There is a there is a sort of marginal cost 322 00:18:02,680 --> 00:18:05,680 Speaker 1: of balance sheet we tend to observe, for example, through 323 00:18:05,720 --> 00:18:10,879 Speaker 1: the deviation from covered interest parity. The ffect spaces spread, 324 00:18:11,359 --> 00:18:15,200 Speaker 1: for example, is that that spread goes up when the 325 00:18:15,280 --> 00:18:17,359 Speaker 1: daughter is stronger, which is a kind of tell tale 326 00:18:17,440 --> 00:18:21,600 Speaker 1: sign that pattern shoot is becoming more expensive. And so 327 00:18:22,080 --> 00:18:25,040 Speaker 1: for all these reasons, if the tightening of financial conditions 328 00:18:25,160 --> 00:18:28,480 Speaker 1: gets excessive, and you know, it might sort of trigger 329 00:18:29,040 --> 00:18:32,600 Speaker 1: episodes of stress, and then of course there are ways 330 00:18:32,720 --> 00:18:35,280 Speaker 1: of mitigating that kind of stress. I think central banks 331 00:18:35,280 --> 00:18:37,840 Speaker 1: have and how the tools to do that. You can 332 00:18:37,920 --> 00:18:41,679 Speaker 1: mitigate that partly by in a supplying liquidity in a 333 00:18:41,760 --> 00:18:45,600 Speaker 1: very sort of strategic way, but also effects intervention to 334 00:18:46,240 --> 00:18:49,240 Speaker 1: as we'll lean against the wind is another way to 335 00:18:49,359 --> 00:18:51,359 Speaker 1: address partly this kind of you know, you know, the 336 00:18:51,400 --> 00:18:54,560 Speaker 1: tightening of financial conditions as well. This is what I 337 00:18:54,560 --> 00:18:57,359 Speaker 1: wanted to ask you about. Like we used to worry 338 00:18:57,400 --> 00:19:01,439 Speaker 1: about competitive devaluation in years since two thousand eight, But 339 00:19:01,480 --> 00:19:06,080 Speaker 1: should we be worried about competitive I guess it interventions 340 00:19:06,200 --> 00:19:09,520 Speaker 1: now people trying to strengthen their currency against the dollar. 341 00:19:09,640 --> 00:19:13,600 Speaker 1: And how sustainable are those types of moves? You know, 342 00:19:13,640 --> 00:19:16,680 Speaker 1: I can see some parts of the argument, but why 343 00:19:17,280 --> 00:19:20,120 Speaker 1: a strongervelop might lead to you know, high interest rates 344 00:19:20,119 --> 00:19:22,760 Speaker 1: and other jurisdictions you know, higher than pactic could be 345 00:19:22,880 --> 00:19:25,159 Speaker 1: you know, in the absence of a stronger dollar. But 346 00:19:25,200 --> 00:19:27,800 Speaker 1: I'm not sure that that the argument sort of fully 347 00:19:27,800 --> 00:19:30,640 Speaker 1: comes around to a conclusion that you know, this leads 348 00:19:30,680 --> 00:19:34,800 Speaker 1: to kind of competitive strengthening. So one part that certainly 349 00:19:34,840 --> 00:19:37,440 Speaker 1: does you know, make some sense is the idea that 350 00:19:37,760 --> 00:19:41,840 Speaker 1: you know, as the dollar strengthens, it raises the local 351 00:19:41,880 --> 00:19:45,159 Speaker 1: currency price of food and energy, and that certainly has 352 00:19:45,200 --> 00:19:49,000 Speaker 1: an effect on domestic inflation for the reasons that we discussed, 353 00:19:50,040 --> 00:19:53,199 Speaker 1: so that has to be met by a monetary policy 354 00:19:53,240 --> 00:19:56,720 Speaker 1: response domestically, So there would be a tightening there, but 355 00:19:57,040 --> 00:19:59,760 Speaker 1: for a kind of feedback loop to be established. You 356 00:20:00,000 --> 00:20:03,440 Speaker 1: you need some some kind of way of completing that circle. 357 00:20:03,600 --> 00:20:06,159 Speaker 1: And I think that additional step for us it is 358 00:20:06,200 --> 00:20:10,080 Speaker 1: not as clear. If anything, you would imagine that, you know, 359 00:20:10,119 --> 00:20:12,240 Speaker 1: the quartation goes the other way. So as the global 360 00:20:12,280 --> 00:20:15,360 Speaker 1: economy weakens, you might you know, see the fair sort 361 00:20:15,359 --> 00:20:17,560 Speaker 1: of moderating, you know, if if there is a demand 362 00:20:17,600 --> 00:20:19,919 Speaker 1: spill over. But clearly this is something that you know, 363 00:20:19,960 --> 00:20:23,080 Speaker 1: we need to keep an eye on. It's certainly a 364 00:20:23,080 --> 00:20:27,240 Speaker 1: departure from the usual story about competitive devaluations, you know, 365 00:20:27,359 --> 00:20:30,919 Speaker 1: currency wars in the traditional sense. But I think the 366 00:20:30,840 --> 00:20:33,360 Speaker 1: the you know, the effects are pretty multifaceted here. And 367 00:20:34,640 --> 00:20:37,800 Speaker 1: if we just look at some of the more recent 368 00:20:38,320 --> 00:20:41,760 Speaker 1: events and in capital markets that you mentioned that the 369 00:20:41,800 --> 00:20:43,760 Speaker 1: dollar has sort of slightly topped out now in the 370 00:20:43,840 --> 00:20:46,280 Speaker 1: last few days, but more generally, if we look at 371 00:20:46,320 --> 00:20:49,600 Speaker 1: the monetary policy responses around the world, I would say that, 372 00:20:49,680 --> 00:20:52,760 Speaker 1: you know, there are sort of signs that this kind 373 00:20:52,760 --> 00:20:57,679 Speaker 1: of reverse currency wars scenario probably isn't you know, as 374 00:20:57,680 --> 00:21:01,280 Speaker 1: strong as you know, we might have fooled and so yeah, 375 00:21:01,280 --> 00:21:03,879 Speaker 1: so I would accept some parts of that, but probably 376 00:21:03,920 --> 00:21:07,920 Speaker 1: wouldn't embrace it. Holy So you mentioned you know, you 377 00:21:08,280 --> 00:21:11,520 Speaker 1: referenced our conversation recently with Resulting and Period that was 378 00:21:11,520 --> 00:21:13,960 Speaker 1: about the future of the dollar. But I actually want 379 00:21:13,960 --> 00:21:17,159 Speaker 1: to sort of look backwards for a second, because you know, 380 00:21:17,359 --> 00:21:19,879 Speaker 1: as you talk about, as we've been discussing, the dollar 381 00:21:20,119 --> 00:21:23,680 Speaker 1: is the invoice and currency, It's the funding curacy currency, 382 00:21:23,720 --> 00:21:27,399 Speaker 1: it's the everything currency, it's the borrowing currency. When you 383 00:21:27,560 --> 00:21:31,000 Speaker 1: look back, either it's sort of real activity or um 384 00:21:31,359 --> 00:21:34,960 Speaker 1: borrowing and hard currency for other countries. Over the last 385 00:21:35,000 --> 00:21:37,560 Speaker 1: few years, has there been any change to the trajectory 386 00:21:37,600 --> 00:21:40,160 Speaker 1: of the importance of the dollar or has it been 387 00:21:40,200 --> 00:21:43,440 Speaker 1: sort of just going from strength to strength in terms 388 00:21:43,480 --> 00:21:46,199 Speaker 1: of its role in the world economic Well, Joe, I 389 00:21:46,200 --> 00:21:48,119 Speaker 1: think I can sort of give you some hard numbers 390 00:21:48,119 --> 00:21:50,399 Speaker 1: here because as well as the bulletin, we we have 391 00:21:50,600 --> 00:21:54,360 Speaker 1: just come out with the BIS triannual survey. Every three 392 00:21:54,440 --> 00:21:57,480 Speaker 1: years we do a pretty you know, thorough stoptake of 393 00:21:57,640 --> 00:22:00,840 Speaker 1: what's going on in the effects market particular, but also 394 00:22:00,880 --> 00:22:03,360 Speaker 1: in the interest ructor of this market. But let's focus 395 00:22:03,359 --> 00:22:06,000 Speaker 1: on the effects market. So we do a pretty you know, 396 00:22:06,160 --> 00:22:09,640 Speaker 1: detailed stock take. We gather data from all our part 397 00:22:09,640 --> 00:22:12,480 Speaker 1: per central banks, but we have a pretty good take 398 00:22:12,560 --> 00:22:16,800 Speaker 1: and We've just come out with the latest Triangle survey 399 00:22:16,880 --> 00:22:19,400 Speaker 1: and the answer is not much has changed. If anything, 400 00:22:19,560 --> 00:22:23,000 Speaker 1: the role of the dollar has has strengthened somewhat. So 401 00:22:23,440 --> 00:22:26,520 Speaker 1: just to give you some some broad numbers here, the 402 00:22:26,520 --> 00:22:31,800 Speaker 1: headline number is that of all effex transactions have the 403 00:22:31,840 --> 00:22:35,119 Speaker 1: dollar on one side, So you know, it's a it's 404 00:22:35,160 --> 00:22:38,080 Speaker 1: a pretty big number. And that was the same in 405 00:22:38,160 --> 00:22:43,600 Speaker 1: our last Triangle survey back in and the other currencies, 406 00:22:43,640 --> 00:22:47,080 Speaker 1: I mean they pretty much were trading water in that respect, 407 00:22:47,080 --> 00:22:54,880 Speaker 1: the Euro, the n seventeen, the pound, sterling, so that's 408 00:22:54,960 --> 00:22:57,560 Speaker 1: you know, pretty much you know what they were last 409 00:22:57,600 --> 00:23:00,760 Speaker 1: time around. The remin b has gone. It went up 410 00:23:00,840 --> 00:23:04,720 Speaker 1: from four percent in UH in twenty nine to seven 411 00:23:04,760 --> 00:23:07,720 Speaker 1: percent this year, so there's a sort of a marginal 412 00:23:07,760 --> 00:23:10,680 Speaker 1: take up in the m MB, but on the scale 413 00:23:10,720 --> 00:23:13,560 Speaker 1: of things still seems you know, this is uh you know, 414 00:23:13,600 --> 00:23:16,520 Speaker 1: it's pretty small. And you know, for those listeners who say, well, 415 00:23:16,520 --> 00:23:18,600 Speaker 1: how come these numbers add up to more than a hundred, 416 00:23:18,800 --> 00:23:21,919 Speaker 1: We'll remember we are talking about a currency being on 417 00:23:22,040 --> 00:23:25,080 Speaker 1: one side of a transaction, right, so you know, in theory, 418 00:23:25,119 --> 00:23:27,560 Speaker 1: if you add it all up, it'll add up to two. 419 00:23:30,280 --> 00:23:33,440 Speaker 1: That's a useful footnote, that is a useful This will 420 00:23:33,440 --> 00:23:36,760 Speaker 1: help us with Twitter people. I realized that because absolutely 421 00:23:36,960 --> 00:23:39,000 Speaker 1: it took me. I realized then halfway through. But at 422 00:23:39,000 --> 00:23:41,320 Speaker 1: first I was like, wait a second eight plus thirteen 423 00:23:41,359 --> 00:23:44,800 Speaker 1: plus seven, and it took me. But then I got absolutely, 424 00:23:45,480 --> 00:23:48,840 Speaker 1: but that's useful for no. Yeah, and Joe, maybe you know, 425 00:23:48,920 --> 00:23:51,479 Speaker 1: just to finish the thought, so, why might it be 426 00:23:51,560 --> 00:23:54,600 Speaker 1: the case that you know, there is this very if 427 00:23:54,600 --> 00:23:58,520 Speaker 1: you're like resilient role for the dollars, the premier international currency, 428 00:23:58,520 --> 00:24:01,080 Speaker 1: what if you think about how the pieces fit together? 429 00:24:01,920 --> 00:24:04,080 Speaker 1: And I think we talked about this in one of 430 00:24:04,080 --> 00:24:07,679 Speaker 1: our previous conversations. All the pieces support the other pieces, 431 00:24:07,720 --> 00:24:10,760 Speaker 1: So you know, think about starting from invoicing. So if 432 00:24:10,760 --> 00:24:13,120 Speaker 1: you're in the voice in the dollar, then it makes 433 00:24:13,119 --> 00:24:16,720 Speaker 1: sense to finance trade financing, you know, in dollars, because 434 00:24:16,760 --> 00:24:20,480 Speaker 1: you're going to be receiving you dollar cash flows. And similarly, 435 00:24:20,680 --> 00:24:23,000 Speaker 1: if you're going to make an investment and the cash 436 00:24:23,000 --> 00:24:26,119 Speaker 1: flows in dollars, then of course it makes sense to 437 00:24:26,160 --> 00:24:29,040 Speaker 1: borrow in dollars because you know, you want to eliminate 438 00:24:29,080 --> 00:24:31,760 Speaker 1: at least one of the you know, the the uncertainties 439 00:24:31,800 --> 00:24:36,400 Speaker 1: between your obligations and income in cash, so you tend 440 00:24:36,400 --> 00:24:39,520 Speaker 1: to borrow in dollars even if you're not located in 441 00:24:39,560 --> 00:24:43,320 Speaker 1: the United States. And if that's the case, then the 442 00:24:43,359 --> 00:24:46,639 Speaker 1: capital markets, you know, will have a preponderance of dollar instruments, 443 00:24:46,680 --> 00:24:49,000 Speaker 1: and which is you know, you know exactly what we see. 444 00:24:49,320 --> 00:24:52,040 Speaker 1: So the capital market development will very much follow in 445 00:24:52,080 --> 00:24:55,320 Speaker 1: the wake of these currency decisions. You know, asset managers 446 00:24:55,640 --> 00:24:59,399 Speaker 1: pretty much will have a preponderance of dollar securities, you know, 447 00:24:59,400 --> 00:25:03,680 Speaker 1: dollar assets more generally. And you know, if you're a 448 00:25:03,720 --> 00:25:06,680 Speaker 1: pension fund or a life insurance company from a non 449 00:25:06,720 --> 00:25:10,800 Speaker 1: dollar jurisdiction, you know, you're limited in your domestic currency instruments, 450 00:25:10,800 --> 00:25:13,119 Speaker 1: and so in your portfolio there's going to be a 451 00:25:13,200 --> 00:25:16,439 Speaker 1: very large chunk of you know, dollar denominated assets. And 452 00:25:16,480 --> 00:25:19,680 Speaker 1: so if that's the case, then you have to find 453 00:25:19,680 --> 00:25:23,400 Speaker 1: a way of hedging the currency risk, because your obligations 454 00:25:23,440 --> 00:25:27,920 Speaker 1: to your beneficiaries, your obligations to your policy holders are 455 00:25:27,920 --> 00:25:30,080 Speaker 1: going to be in your domestic currency rather than in dollars. 456 00:25:30,080 --> 00:25:32,960 Speaker 1: And so there's a there's a role for dollar hedging. 457 00:25:33,240 --> 00:25:35,280 Speaker 1: There's a hedging for the dollar risk, which means that 458 00:25:35,440 --> 00:25:37,280 Speaker 1: you know, you would take up you know, swaps with 459 00:25:37,320 --> 00:25:40,359 Speaker 1: the global banks and the global banks are if you like, 460 00:25:40,960 --> 00:25:44,040 Speaker 1: lending you dollars short term, and of course they would 461 00:25:44,080 --> 00:25:47,000 Speaker 1: need to source those dollars in global capital markets, and 462 00:25:47,040 --> 00:25:51,480 Speaker 1: so the the global banking system, the global capital markets. 463 00:25:52,080 --> 00:25:54,240 Speaker 1: There's a very good reason why that's a very heavy 464 00:25:54,280 --> 00:25:59,840 Speaker 1: dollar ecosystem, because it builds on all these previous steps, 465 00:26:00,000 --> 00:26:03,640 Speaker 1: and so as you know, one layer is supported by 466 00:26:03,720 --> 00:26:05,679 Speaker 1: the layer beneath, the whole thing sort of you know, 467 00:26:05,760 --> 00:26:08,560 Speaker 1: hangs together. It's going to be, you know, very difficult 468 00:26:08,640 --> 00:26:11,400 Speaker 1: to see how that kind of arrangement would would change. 469 00:26:11,400 --> 00:26:13,720 Speaker 1: Perhaps over the very very long run, you know, we 470 00:26:13,760 --> 00:26:16,760 Speaker 1: would see its possibly some changes at the margin, but 471 00:26:16,840 --> 00:26:20,120 Speaker 1: it's going to be something which you know has inherent 472 00:26:20,400 --> 00:26:23,919 Speaker 1: I feel like resilience because of this mutually reinforcing layer, 473 00:26:24,119 --> 00:26:44,080 Speaker 1: the layers of the global financial system. You know, you 474 00:26:44,200 --> 00:26:47,680 Speaker 1: mentioned the impact of a stronger dollar on global financial 475 00:26:47,720 --> 00:26:52,679 Speaker 1: conditions historically, given its centrality in global trade, and I 476 00:26:52,720 --> 00:26:55,439 Speaker 1: wanted to ask you. In the bulletin, there's a line 477 00:26:55,520 --> 00:26:59,760 Speaker 1: that says, more generally, it's unclear whether the impacts of 478 00:27:00,000 --> 00:27:02,919 Speaker 1: things in the dollar exchange rate on global financial conditions 479 00:27:03,080 --> 00:27:06,840 Speaker 1: is now stronger or weaker than in the past. Can 480 00:27:06,880 --> 00:27:09,760 Speaker 1: you explain that a little more like what potentially has 481 00:27:09,880 --> 00:27:13,600 Speaker 1: changed here. So what we were thinking of in that 482 00:27:13,640 --> 00:27:16,240 Speaker 1: passage is that, you know, we have to distinguish between 483 00:27:17,320 --> 00:27:21,119 Speaker 1: the aggregate impact given the size of the rise in 484 00:27:21,400 --> 00:27:26,400 Speaker 1: the dollar index, versus the point for point impact. So 485 00:27:26,440 --> 00:27:28,680 Speaker 1: you know, as one point goes up in the broad 486 00:27:28,680 --> 00:27:32,800 Speaker 1: dollar index, how does that affect financial conditions? So clearly, 487 00:27:32,840 --> 00:27:36,480 Speaker 1: given the very large moves, we have seen quite substantial 488 00:27:36,520 --> 00:27:39,480 Speaker 1: impact across the board. But what we had in mind 489 00:27:39,480 --> 00:27:42,439 Speaker 1: in that paragraph was really about the you know, the 490 00:27:42,440 --> 00:27:46,159 Speaker 1: point by point impact, and there I think we do 491 00:27:46,240 --> 00:27:48,960 Speaker 1: see some interesting things this time around. So, you know, 492 00:27:49,040 --> 00:27:51,800 Speaker 1: on the one hand, it's certainly the case that emerging 493 00:27:51,880 --> 00:27:55,600 Speaker 1: markets are much more resilient or seems to be much 494 00:27:55,600 --> 00:27:59,000 Speaker 1: more resilient this time around. And if anything, it's it's 495 00:27:59,000 --> 00:28:03,080 Speaker 1: advanced economies that have really been perhaps more affected by 496 00:28:03,200 --> 00:28:06,359 Speaker 1: tightening global financial conditions. So one one way to think 497 00:28:06,359 --> 00:28:09,479 Speaker 1: about the emerging market story here is, first of all, 498 00:28:09,520 --> 00:28:12,960 Speaker 1: if we look at the changes in the bilateral exchange rate, 499 00:28:13,119 --> 00:28:16,639 Speaker 1: it is very telling, for example, that the Brazilian real 500 00:28:16,760 --> 00:28:20,919 Speaker 1: and the Mexican paco have actually appreciated relative to the 501 00:28:20,960 --> 00:28:23,800 Speaker 1: dollar this year, and that's really how to turn up 502 00:28:23,800 --> 00:28:26,200 Speaker 1: for the books. You know, when you typically think back 503 00:28:26,240 --> 00:28:30,400 Speaker 1: to two recent periods of dollar strength, in particular that 504 00:28:30,480 --> 00:28:35,639 Speaker 1: period in the in the middle of the sixteen that 505 00:28:35,760 --> 00:28:39,760 Speaker 1: was an episode when a strong dollar hit the emerging 506 00:28:39,800 --> 00:28:43,920 Speaker 1: markets particularly hard and also actually commodities. You know, that 507 00:28:44,000 --> 00:28:47,000 Speaker 1: was a period when when all reached very very low levels. 508 00:28:47,240 --> 00:28:49,920 Speaker 1: So the emerging markets are actually doing reasonably well this 509 00:28:49,960 --> 00:28:53,320 Speaker 1: time around. And we also see it in the spreads 510 00:28:53,520 --> 00:28:57,280 Speaker 1: of domestic currency sovereign bonds issued by emerging markets. I mean, 511 00:28:57,280 --> 00:29:00,640 Speaker 1: there's a chart in the in the bulletin at you know, 512 00:29:00,840 --> 00:29:03,520 Speaker 1: it's been a quite a striking way that when you 513 00:29:03,560 --> 00:29:06,880 Speaker 1: look at advanced the economy corporate bonds, or indeed the 514 00:29:06,920 --> 00:29:11,920 Speaker 1: dollar denominated bonds of of emerging markets, we have the 515 00:29:12,040 --> 00:29:15,600 Speaker 1: usual story where a stronger dollar has gone hand in 516 00:29:15,680 --> 00:29:20,320 Speaker 1: hand with higher bond spreads. But the one exception is 517 00:29:20,400 --> 00:29:24,600 Speaker 1: the local currency emerging market sovereign bonds. I mean, they're 518 00:29:24,600 --> 00:29:27,360 Speaker 1: the spread had actually come in, and so that's another 519 00:29:27,400 --> 00:29:31,680 Speaker 1: sense in which emerging markets have actually done pretty well. 520 00:29:31,760 --> 00:29:35,120 Speaker 1: And I think part of this story is the fact 521 00:29:35,160 --> 00:29:39,600 Speaker 1: that the emerging markets started to you know tighten earlier. 522 00:29:39,680 --> 00:29:43,320 Speaker 1: You know, they anticipated what was coming down the road. Um, 523 00:29:43,520 --> 00:29:46,440 Speaker 1: you know, Brazil started to tighten quite early last year 524 00:29:46,840 --> 00:29:51,000 Speaker 1: and you know, quite quite far as well, say with Mexico, 525 00:29:51,120 --> 00:29:53,959 Speaker 1: although to a lesser extent an emerging markets have actually 526 00:29:54,280 --> 00:29:56,280 Speaker 1: you know, learned a lesson. I think one of the 527 00:29:56,640 --> 00:29:59,800 Speaker 1: good stories to come out of this current episode is 528 00:29:59,800 --> 00:30:03,160 Speaker 1: the emerging markets have been a bright spot relative to 529 00:30:03,520 --> 00:30:06,640 Speaker 1: you know, all the other difficulties that the globally economy 530 00:30:06,680 --> 00:30:10,720 Speaker 1: is facing. Just looking at the in the bulletin and 531 00:30:10,800 --> 00:30:13,400 Speaker 1: I'm looking at the third chart, in particular the changes 532 00:30:13,440 --> 00:30:16,840 Speaker 1: in terms of trades since January twenty two, and I 533 00:30:16,880 --> 00:30:20,640 Speaker 1: mean part of the story is just that Europe, the 534 00:30:20,680 --> 00:30:25,520 Speaker 1: euro Area and Japan are extremely dependent on foreign sources 535 00:30:25,560 --> 00:30:28,440 Speaker 1: of energy, particularly guess and of course we all know 536 00:30:28,480 --> 00:30:31,560 Speaker 1: the story with the pipelines into Europe and Japan's lack 537 00:30:31,640 --> 00:30:35,160 Speaker 1: of domestic energy production. How much when we look at 538 00:30:35,240 --> 00:30:39,520 Speaker 1: that other chart showing in particular the extremely strong performance 539 00:30:39,520 --> 00:30:42,840 Speaker 1: of the Brazilian rail is it a sort of simple 540 00:30:43,120 --> 00:30:45,760 Speaker 1: terms of trade story. I think the terms of trade 541 00:30:45,920 --> 00:30:48,960 Speaker 1: definitely have a role to play, but it's also I 542 00:30:48,960 --> 00:30:51,120 Speaker 1: think the monetary policy story as well, So you know, 543 00:30:51,160 --> 00:30:53,480 Speaker 1: I should certainly have mentioned in terms of trade effect 544 00:30:53,520 --> 00:30:55,880 Speaker 1: for Brazil as well. I mean, there's a scattered chart 545 00:30:55,920 --> 00:30:59,200 Speaker 1: in the bulletin that shows that you know, those you know, 546 00:30:59,240 --> 00:31:03,160 Speaker 1: those countries that tighten more relative to the US, you know, 547 00:31:03,200 --> 00:31:07,040 Speaker 1: those are the ones that have actually maintained the currency values. 548 00:31:07,320 --> 00:31:09,280 Speaker 1: There are lots of other effects going on, So this 549 00:31:09,360 --> 00:31:11,680 Speaker 1: is by no means a clean relationship. But yeah, I 550 00:31:11,720 --> 00:31:16,160 Speaker 1: see like Canada is relatively better and also one of 551 00:31:16,160 --> 00:31:18,280 Speaker 1: the sort of of the you know, of the sort 552 00:31:18,280 --> 00:31:21,040 Speaker 1: of dirtier shirts, one of the countries that it looks 553 00:31:21,040 --> 00:31:23,280 Speaker 1: like it's tighten more than some of the others. Yeah, 554 00:31:23,360 --> 00:31:25,880 Speaker 1: and of course Canada is a very large oil produced 555 00:31:25,880 --> 00:31:30,040 Speaker 1: as well. So this is the big question, and I 556 00:31:30,040 --> 00:31:33,160 Speaker 1: feel like I've asked it a couple of times this year, 557 00:31:33,200 --> 00:31:36,720 Speaker 1: But is there a point at which a strong dollar 558 00:31:36,920 --> 00:31:41,320 Speaker 1: becomes problematic for the U S economy itself? Despite you know, 559 00:31:41,440 --> 00:31:44,360 Speaker 1: the uniqueness of the role of the U. S currency 560 00:31:44,640 --> 00:31:48,200 Speaker 1: in the global financial system and despite the energy independence 561 00:31:48,240 --> 00:31:52,320 Speaker 1: which Joe was just talking about. That's a great question, Tracy. 562 00:31:52,480 --> 00:31:55,440 Speaker 1: You know that that definitely are consequences. I think these 563 00:31:55,440 --> 00:31:58,520 Speaker 1: two is how much of the impact of the dollar 564 00:31:58,880 --> 00:32:02,400 Speaker 1: globally will then spill back to the US. And and 565 00:32:02,440 --> 00:32:05,280 Speaker 1: here I think the demand channel certainly will be one 566 00:32:05,920 --> 00:32:08,360 Speaker 1: if you have a week of global economy that's certainly 567 00:32:08,560 --> 00:32:11,440 Speaker 1: not not good news for the US economy either. And 568 00:32:11,440 --> 00:32:16,360 Speaker 1: this is why actually the reverse currency war stories you know, 569 00:32:16,440 --> 00:32:19,000 Speaker 1: needs to be you know, somewhat modified, because but that 570 00:32:19,120 --> 00:32:21,760 Speaker 1: sort of feedback loop to hold, there has to be 571 00:32:21,800 --> 00:32:25,440 Speaker 1: something that completes the circle. And it's perhaps not as 572 00:32:25,800 --> 00:32:27,480 Speaker 1: you know obvious, you know, as it could be there 573 00:32:28,040 --> 00:32:30,040 Speaker 1: now in spite of everything, though, I mean, I would 574 00:32:30,040 --> 00:32:32,880 Speaker 1: just go back to what I was saying earlier on 575 00:32:32,880 --> 00:32:35,320 Speaker 1: on some of the policy implications. You know, I think 576 00:32:35,320 --> 00:32:39,040 Speaker 1: the first order of business has to be inflation, because 577 00:32:39,040 --> 00:32:41,760 Speaker 1: you know that from that we know that once inflation 578 00:32:41,760 --> 00:32:44,680 Speaker 1: gets entrenched, you know that that will be much more 579 00:32:44,720 --> 00:32:48,560 Speaker 1: difficult to dislodge. But it does mean that, you know, 580 00:32:48,600 --> 00:32:51,720 Speaker 1: as we tackle inflation globally, there are some of these 581 00:32:51,720 --> 00:32:55,600 Speaker 1: collateral effects that will definitely in a way on US 582 00:32:56,040 --> 00:32:59,800 Speaker 1: as demand slows, as in particular in those countries with 583 00:33:00,080 --> 00:33:03,880 Speaker 1: very high dead levels, in particular very high household debt levels, 584 00:33:04,480 --> 00:33:06,560 Speaker 1: as rates go up, you know that will actually have 585 00:33:06,880 --> 00:33:10,680 Speaker 1: pre you rapidly you know, cooling effect on demand as well, 586 00:33:10,840 --> 00:33:14,280 Speaker 1: and also perhaps financial stability issues that are coming up. 587 00:33:14,880 --> 00:33:17,120 Speaker 1: So if you think about those kinds of I feel 588 00:33:17,120 --> 00:33:22,480 Speaker 1: like financial stability challenges, financial stability if like trip wires 589 00:33:22,480 --> 00:33:24,520 Speaker 1: that might be lurking, I think we just have to 590 00:33:24,560 --> 00:33:28,160 Speaker 1: be much more vigilant about seeing where the fault lines 591 00:33:28,480 --> 00:33:31,360 Speaker 1: might be lurking and address them in a way that 592 00:33:31,440 --> 00:33:33,680 Speaker 1: the policy framework as a whole is going to give 593 00:33:33,760 --> 00:33:36,440 Speaker 1: us something you know, fairly coherent. So you know, it 594 00:33:36,480 --> 00:33:40,000 Speaker 1: would not be a good idea if you're tightening with 595 00:33:40,120 --> 00:33:42,520 Speaker 1: one hand but then loosening with the other, you're going 596 00:33:42,560 --> 00:33:44,800 Speaker 1: to be, you know, intervening in markets. It had better 597 00:33:44,840 --> 00:33:48,520 Speaker 1: be you know, fairly well focused, with a very you know, 598 00:33:49,120 --> 00:33:51,840 Speaker 1: tightly defined rationale for why you're doing it. I think 599 00:33:51,880 --> 00:33:57,000 Speaker 1: it's especially important in in the current period because, as 600 00:33:57,040 --> 00:34:00,600 Speaker 1: we discussed earlier, the rest taking channel me means that 601 00:34:01,440 --> 00:34:04,080 Speaker 1: the global funding currency roll of the dollar means that 602 00:34:04,120 --> 00:34:07,320 Speaker 1: you know, there are constraints that are kicking in earlier, 603 00:34:07,640 --> 00:34:10,640 Speaker 1: and you know they may interact in very complex ways, 604 00:34:10,840 --> 00:34:15,040 Speaker 1: and so there are trip wires strewn all over the 605 00:34:15,080 --> 00:34:18,120 Speaker 1: place that we need to be tiptoeing around very carefully 606 00:34:18,120 --> 00:34:22,120 Speaker 1: as well. So so even as we were addressing inflation, 607 00:34:22,280 --> 00:34:24,640 Speaker 1: you know, that's job number one. We have to keep 608 00:34:24,640 --> 00:34:28,360 Speaker 1: a very close eye on what else might go wrong. 609 00:34:28,760 --> 00:34:31,440 Speaker 1: I suppose, you know, we we now have a lot 610 00:34:31,480 --> 00:34:36,160 Speaker 1: of experience after the GFC on how to address you know, 611 00:34:36,200 --> 00:34:40,080 Speaker 1: specific market stresses, and I think it is fair to 612 00:34:40,120 --> 00:34:43,800 Speaker 1: say these are primarily about capital markets and non bank 613 00:34:43,920 --> 00:34:46,960 Speaker 1: financial intermediaries rather than the banking sector. You know, we 614 00:34:47,000 --> 00:34:50,319 Speaker 1: can be happy that at least the banking sector looks 615 00:34:50,320 --> 00:34:53,160 Speaker 1: a lot stronger than before the GFC, but still the 616 00:34:53,200 --> 00:34:57,439 Speaker 1: capital markets and non bank financial intermediaries, these nb f 617 00:34:57,440 --> 00:35:01,000 Speaker 1: I s in the jargon, they have have channels of 618 00:35:02,080 --> 00:35:05,319 Speaker 1: transmission that we're not always familiar with. I think the 619 00:35:05,360 --> 00:35:07,880 Speaker 1: recent experience in the UK is a very good example 620 00:35:07,920 --> 00:35:11,600 Speaker 1: of that. So while we are actually addressing with inflation 621 00:35:12,080 --> 00:35:15,560 Speaker 1: and the conducting monetary policy in the best way, and 622 00:35:15,880 --> 00:35:18,160 Speaker 1: that's you know, taking into account the spillbacks as well 623 00:35:18,200 --> 00:35:21,839 Speaker 1: as spillovers, we have to be extremely vigilant on what 624 00:35:21,880 --> 00:35:24,520 Speaker 1: else is going on because there are trip wires, you know, 625 00:35:24,560 --> 00:35:26,919 Speaker 1: strewn on the floor, as it were, and they are 626 00:35:27,320 --> 00:35:29,759 Speaker 1: those types of things that can be easily missed. Who 627 00:35:29,760 --> 00:35:33,360 Speaker 1: have to be vigilant. I have one more question, which 628 00:35:33,440 --> 00:35:38,200 Speaker 1: is what could actually break the dollar doom loop that 629 00:35:38,239 --> 00:35:42,560 Speaker 1: we've sort of been describing, because you know, in normal times, 630 00:35:42,600 --> 00:35:45,880 Speaker 1: I think one of the accepted ways that dollar strength 631 00:35:45,920 --> 00:35:48,400 Speaker 1: would kind of peter out would be the rest of 632 00:35:48,440 --> 00:35:51,200 Speaker 1: the world starts exporting more goods to the US to 633 00:35:51,320 --> 00:35:55,280 Speaker 1: take advantage of, you know, the stronger currency, and eventually 634 00:35:55,360 --> 00:35:58,120 Speaker 1: that kind of hits US domestic growth and that would 635 00:35:58,160 --> 00:36:01,560 Speaker 1: cause the dollar to weaken. But as you well know, 636 00:36:01,760 --> 00:36:04,560 Speaker 1: we aren't in normal times, and you know, Europe is 637 00:36:04,600 --> 00:36:08,799 Speaker 1: disrupted by energy shortages, and China is still disrupted by 638 00:36:09,120 --> 00:36:11,840 Speaker 1: COVID lockdowns and things like that. So there seems to 639 00:36:11,880 --> 00:36:14,640 Speaker 1: be a big question mark over whether or not the 640 00:36:14,760 --> 00:36:19,120 Speaker 1: normal economic patterns would apply well. Tracy, I think, you know, 641 00:36:19,160 --> 00:36:22,960 Speaker 1: even in normal times, a story that a depreciation would 642 00:36:23,000 --> 00:36:26,120 Speaker 1: actually stimulate exports and therefore that's going to be pulling 643 00:36:26,120 --> 00:36:29,080 Speaker 1: the economy to stronger activity. I think even in normal 644 00:36:29,120 --> 00:36:32,960 Speaker 1: times that mechanism you know, wasn't wasn't quite right. We 645 00:36:33,080 --> 00:36:36,160 Speaker 1: know that the influence of dollar invoicing also extends to 646 00:36:36,680 --> 00:36:39,160 Speaker 1: the impact on trade balances as well. If your price 647 00:36:39,239 --> 00:36:41,839 Speaker 1: is sticky in dollar terms, your export price has done 648 00:36:41,840 --> 00:36:44,799 Speaker 1: it just very much, but the dollar invoice goods domestically, 649 00:36:45,080 --> 00:36:47,919 Speaker 1: you know, will rise in domestic currency terms, and so 650 00:36:48,000 --> 00:36:53,000 Speaker 1: that has a immediate effect on consumption. So typically what 651 00:36:53,080 --> 00:36:55,640 Speaker 1: we see is that a stronger dollar goes hand in 652 00:36:55,719 --> 00:36:59,520 Speaker 1: hand with both weaker exports and the weaker imports. Weaker 653 00:36:59,560 --> 00:37:03,520 Speaker 1: imports much more strongly felt. And in addition, there are 654 00:37:03,520 --> 00:37:06,720 Speaker 1: these you know, financial channels that that operate what would 655 00:37:06,719 --> 00:37:10,440 Speaker 1: break the current episode. I think, you know, if we 656 00:37:10,520 --> 00:37:13,480 Speaker 1: can get inflation under control, and if we can see 657 00:37:14,560 --> 00:37:18,080 Speaker 1: inflation you know, visibly coming under control, we see a 658 00:37:18,200 --> 00:37:22,480 Speaker 1: path back to target that's going to undoubtedly influence the 659 00:37:22,560 --> 00:37:25,880 Speaker 1: thinking behind monetary policy actions around the world. And for 660 00:37:25,920 --> 00:37:29,000 Speaker 1: the reasons that we discussed. You know, the monetary policy 661 00:37:29,040 --> 00:37:32,280 Speaker 1: actions in one country will definitely affect those in other countries, 662 00:37:33,640 --> 00:37:36,680 Speaker 1: and to the extent that the exchange rates will also 663 00:37:36,800 --> 00:37:40,680 Speaker 1: move as the path of monetary policy, you know, adjust 664 00:37:41,120 --> 00:37:44,560 Speaker 1: way into the future. That's going to affect exchange rates 665 00:37:44,560 --> 00:37:48,400 Speaker 1: in particular, but as a prices more generally. I'm less 666 00:37:48,440 --> 00:37:51,799 Speaker 1: pessimistic than than some other commentators that you know you've 667 00:37:51,840 --> 00:37:55,120 Speaker 1: had on your podcast in that you know, on once 668 00:37:55,160 --> 00:37:57,560 Speaker 1: we get inflation under control, you know, that's the key 669 00:37:57,600 --> 00:37:59,279 Speaker 1: if you like. So, if you think that we've been 670 00:37:59,320 --> 00:38:02,200 Speaker 1: in some kind the you know, vicious spiral, getting inflation 671 00:38:02,480 --> 00:38:06,600 Speaker 1: under control will allow us to convert that vicious spiral 672 00:38:06,600 --> 00:38:09,480 Speaker 1: into virtuous spiral. And you know, this could happen much 673 00:38:09,480 --> 00:38:12,880 Speaker 1: more quickly than than you know, many of us, you know, 674 00:38:12,920 --> 00:38:15,759 Speaker 1: could imagine. So you know, as you know, Joe, I mean, 675 00:38:15,760 --> 00:38:18,480 Speaker 1: things move very very quickly in financial markets, and so 676 00:38:18,520 --> 00:38:20,520 Speaker 1: I think, you know, once we see that, once we 677 00:38:20,600 --> 00:38:22,799 Speaker 1: see the light at the end of the tunnel, that's 678 00:38:22,800 --> 00:38:25,799 Speaker 1: going to change the general complexion of the discussion. I 679 00:38:25,800 --> 00:38:29,120 Speaker 1: would say, I like that optimistic end. Yeah, there's a 680 00:38:29,200 --> 00:38:31,480 Speaker 1: chance that maybe it's the head wind turns into a 681 00:38:31,520 --> 00:38:35,360 Speaker 1: tail wind. All right, Well, we could easily talk to you, 682 00:38:35,360 --> 00:38:37,880 Speaker 1: you know, for another hour on this, but thank you 683 00:38:37,920 --> 00:38:40,080 Speaker 1: so much for coming back on the show. And you know, 684 00:38:40,160 --> 00:38:42,640 Speaker 1: if you're a listener who is interested in this, please 685 00:38:42,719 --> 00:38:45,000 Speaker 1: check out the bulletin from the b I S and 686 00:38:45,080 --> 00:38:49,320 Speaker 1: some of Juan's previous academic work as well. Thanks Tracy, 687 00:38:49,440 --> 00:38:54,280 Speaker 1: Thanks Joe, thank you so much. Always great conversation. Yeah, great, thanks, 688 00:38:54,560 --> 00:39:10,279 Speaker 1: thanks you and really appreciate it. So, Joe, I thought 689 00:39:10,440 --> 00:39:13,120 Speaker 1: it was great to get that kind of historical and 690 00:39:13,280 --> 00:39:17,439 Speaker 1: nuanced perspective on this issue. Because it is true with currencies, 691 00:39:17,680 --> 00:39:20,640 Speaker 1: it tends to bring out a lot of emotions and 692 00:39:20,840 --> 00:39:23,840 Speaker 1: strong opinions on either side. I would say there's so 693 00:39:23,960 --> 00:39:27,080 Speaker 1: much good. I mean, first of all, it is interesting 694 00:39:27,120 --> 00:39:29,560 Speaker 1: and novel, this idea of a dollar up cycle in 695 00:39:29,560 --> 00:39:31,680 Speaker 1: a commodity up cycle at the same time. So to 696 00:39:31,760 --> 00:39:35,239 Speaker 1: start like, that's just a really interesting phenomenon that's going 697 00:39:35,280 --> 00:39:38,319 Speaker 1: on that makes this moment different than the other. I also, 698 00:39:38,520 --> 00:39:41,560 Speaker 1: obviously I liked when Hughan sort of talked about I 699 00:39:41,560 --> 00:39:44,840 Speaker 1: guess maybe you'd call it the interlocking puzzle pieces or 700 00:39:44,880 --> 00:39:49,560 Speaker 1: the layers of dollar dominant. You start with invoicing, that 701 00:39:49,640 --> 00:39:52,440 Speaker 1: leads to hedging, that leads to you know, you invest 702 00:39:52,480 --> 00:39:55,560 Speaker 1: in dollars you need to, you know, borrowing dollars, you know, 703 00:39:55,600 --> 00:39:58,839 Speaker 1: to avoid f X risk, and then that leads into 704 00:39:58,920 --> 00:40:01,759 Speaker 1: the question of, well, if there are different components of 705 00:40:01,880 --> 00:40:04,759 Speaker 1: dollar positioning, you get in the situation in which the 706 00:40:04,840 --> 00:40:08,880 Speaker 1: financial trip lawyers break before the real economy cools down. Yeah. 707 00:40:08,920 --> 00:40:11,240 Speaker 1: I thought that was a really important point. And also, 708 00:40:11,440 --> 00:40:13,120 Speaker 1: you know, we kind of touched on this with John 709 00:40:13,120 --> 00:40:14,960 Speaker 1: Turk as well. But the idea that when we talk 710 00:40:15,000 --> 00:40:17,560 Speaker 1: about something breaking in the market. You know, the idea 711 00:40:17,600 --> 00:40:20,480 Speaker 1: of the FED hiking until something breaks has become something 712 00:40:20,480 --> 00:40:22,560 Speaker 1: of a trope or a meme at the moment. But 713 00:40:22,680 --> 00:40:26,640 Speaker 1: it's really like something that would cause something in the 714 00:40:26,760 --> 00:40:29,799 Speaker 1: US to break, because to some extent we've already seen 715 00:40:29,840 --> 00:40:33,400 Speaker 1: things internationally start to break down, like, for instance, the 716 00:40:33,400 --> 00:40:35,640 Speaker 1: b o J having to intervene in the end and 717 00:40:35,719 --> 00:40:38,319 Speaker 1: things like that, the Bank of England UM and the 718 00:40:38,400 --> 00:40:41,719 Speaker 1: situation in the UK. So the thing that we're kind 719 00:40:41,719 --> 00:40:44,520 Speaker 1: of looking for is the trip wire that ends up 720 00:40:44,680 --> 00:40:47,319 Speaker 1: impacting the US directly. You know. I also think just 721 00:40:47,440 --> 00:40:50,200 Speaker 1: and again listeners should go check out the new B 722 00:40:50,320 --> 00:40:52,400 Speaker 1: I S bulletin out today. But this idea of like, 723 00:40:52,560 --> 00:40:56,600 Speaker 1: it's unusual that it's the e M countries the currencies, 724 00:40:56,719 --> 00:40:58,560 Speaker 1: and not just the currencies, because I kind of knew 725 00:40:58,600 --> 00:41:01,600 Speaker 1: that on the currency front, but the spreads on domestic 726 00:41:01,719 --> 00:41:05,399 Speaker 1: bonds also being staying pretty tame and not blowing out 727 00:41:05,440 --> 00:41:07,759 Speaker 1: the same way that we're seeing and say the UK 728 00:41:08,000 --> 00:41:11,759 Speaker 1: or Germany and elsewhere. I think that's also an interesting phenomenon, 729 00:41:11,880 --> 00:41:14,560 Speaker 1: And of course there are multiple drivers of that, both 730 00:41:14,600 --> 00:41:16,520 Speaker 1: the terms of trade and the fact that many of 731 00:41:16,560 --> 00:41:19,320 Speaker 1: these countries actually got a jump start on the hiking, 732 00:41:19,800 --> 00:41:23,799 Speaker 1: so very interesting dimensions to this dollar rally. Absolutely all 733 00:41:23,880 --> 00:41:25,600 Speaker 1: right on that note, shall we leave it there? Let's 734 00:41:25,640 --> 00:41:28,160 Speaker 1: leave it there. This has been another episode of the 735 00:41:28,239 --> 00:41:30,880 Speaker 1: All Thoughts podcast. I'm Tracy Halloway. You can follow me 736 00:41:30,960 --> 00:41:33,920 Speaker 1: on Twitter at Tracy Halloway, and I'm Joe Wisenthal. You 737 00:41:33,960 --> 00:41:37,000 Speaker 1: can follow me on Twitter at the Stalwart. Please follow 738 00:41:37,040 --> 00:41:40,560 Speaker 1: our guest Hunsong Shin. He's at hun Soong Shin. Follow 739 00:41:40,600 --> 00:41:44,720 Speaker 1: our producers Kermen Rodriguez at Kermen Armin and Dashel Bennett 740 00:41:44,760 --> 00:41:47,880 Speaker 1: at Dashbot. And check out all of our podcasts at 741 00:41:47,880 --> 00:41:51,520 Speaker 1: Bloomberg under the handle at podcasts. And be sure to 742 00:41:51,680 --> 00:41:54,840 Speaker 1: check out the Bloomberg odd Logs newsletter. Go to Bloomberg 743 00:41:54,840 --> 00:41:57,320 Speaker 1: dot com slash odd Lodge. It's a blog that Tracy 744 00:41:57,320 --> 00:42:00,480 Speaker 1: and I have right there pretty regularly, post trade in scripts, 745 00:42:00,640 --> 00:42:02,600 Speaker 1: and once a week we also do a newsletter on 746 00:42:02,680 --> 00:42:04,880 Speaker 1: the various topics that we talk about. I'm here and 747 00:42:05,000 --> 00:42:07,600 Speaker 1: anything else that's on our mind. Thanks for listening.