Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Hi, it's Salaamsen. Today we have an episode for you
Speaker 2: from our colleagues over at Big Take Asia. It's a
Speaker 2: weekly show that examines the world's fastest growing economies, hosted
Speaker 2: by my colleague Kwan Ha. I'm sharing it here because
Speaker 2: she interviews me. It's a conversation about the power of
Speaker 2: the dollar. In my new book Paper Soldiers.
Speaker 1: Former President Donald Trump says the US dollar is under
Speaker 1: attack and we.
Speaker 3: Will keep the US dollar as the world's reserve currency,
Speaker 3: and it is currently under major siege. Many countries are
Speaker 3: leaving the dollar.
Speaker 1: Since the spring, Trump has been expressing concern over the
Speaker 1: idea that other countries may want to move away from
Speaker 1: the dollar, and he's announced plans to try to keep
Speaker 1: that from happening. This is from a rally he held
Speaker 1: in Wisconsin this month.
Speaker 2: They're not going to leave the dollar with me.
Speaker 3: I'll say, you leave the dollar, I'm not doing business
Speaker 3: with the United States because we're gonna put one hundred
Speaker 3: percent tariff on your goods.
Speaker 1: Sir.
Speaker 3: We would like very much to get back to the
Speaker 3: dollar immediately, Thank you very much. It's so easy.
Speaker 2: Trump. He pioneered new ways of using tariffs as a
Speaker 2: weapon of stay craft during his first presidency.
Speaker 1: Sileiah Mosen is Bloomberg Senior Washington correspondent and host of
Speaker 1: our Big Take DC podcast.
Speaker 2: And he is already promising to go full board next time,
Speaker 2: even deploy this giant tariff to protect apparently the US dollar.
Speaker 1: Welcome to The Big Take Asia from Bloomberg News. I'm wanh.
Speaker 1: Every week we take you inside some of the world's
Speaker 1: biggest and most powerful economies and the markets, tycoons and
Speaker 1: businesses that drive this ever shifting region. Today on the show,
Speaker 1: could the US dollar really lose its special status as
Speaker 1: the world's reserve currency and could the Chinese yun replace it? Sileiah,
Speaker 1: you have this new book out all about the dollar,
Speaker 1: paper Soldiers, how the weaponization of the dollar changed the
Speaker 1: world order. Remind us how the dollar became the world's
Speaker 1: reserve currency in the first place.
Speaker 2: So the owner of the world's reserve asset is always
Speaker 2: the world's largest economy. So before the US, it was
Speaker 2: Great Britain, and in the eighteen eighties the US outstripped
Speaker 2: Great Britain in terms of sheer economic size, but it
Speaker 2: didn't happen so quickly. It was nineteen forty four, after
Speaker 2: two World Wars, when the economic policymakers of forty four
Speaker 2: Allied nations gathered together for what later became the Bretonwoods Agreement,
Speaker 2: and they all decided that the best way to avoid
Speaker 2: another World war would be to create an economic brotherhood
Speaker 2: where the world economy is knitted close together around shared
Speaker 2: economic goals. And they just at that meeting that the
Speaker 2: US dollar, because of the US's economic size and also
Speaker 2: because of the US is very good fiscal trajectory at
Speaker 2: the time, that the US dollar should be the anchor
Speaker 2: currency for the global financial system. And two other important
Speaker 2: things happened. The World Bank was created and the International
Speaker 2: Monetary Fund were created, and all of that put together
Speaker 2: made the US and its dollar become the world's reserve asset.
Speaker 2: And of course, the dollars maintained its strength it has
Speaker 2: the dollar is still strong. Now. There are two definitions
Speaker 2: of a strong dollar. There's strengths in terms of foreign
Speaker 2: exchange rate, how it compares to another currency, the yen,
Speaker 2: the yuan, the euro. The second definition of a strong
Speaker 2: dollar is its sheer dominance. The whole global financial system
Speaker 2: is underpinned by the dollar. That gives the dollar a
Speaker 2: lot of strength and power, and that is another definition
Speaker 2: to a strong dollar.
Speaker 1: And how is it, or actually, why is it that
Speaker 1: other countries are incentivized to use dollars.
Speaker 2: There's a couple of reasons. One, it's a safe investment.
Speaker 2: You will always get a return on that investment. You
Speaker 2: can park your cash a foreign central bank, a foreign
Speaker 2: multinational company, a foreign individual can buy US government debt
Speaker 2: or have any of their asset in American stocks, anything
Speaker 2: that is denominated in dollars coming out of the US.
Speaker 2: You are going to get a return on your investment.
Speaker 2: Because the US has a lot of economic innovation that
Speaker 2: is driven by its very huge fiscal deficit. It is
Speaker 2: also the owner of the world's most powerful military, which
Speaker 2: is also driven by our huge fiscal deficits.
Speaker 1: But now we have Donald Trump out there basically saying
Speaker 1: the dollar is in danger of losing its special status,
Speaker 1: and he's saying that other countries are actually leaving the dollar.
Speaker 1: Why is he saying that now? I mean, are there
Speaker 1: other countries actually thinking about trading less with the dollar?
Speaker 2: He has since March been publicly showing that he has
Speaker 2: paid attention to the d dollarization discussion and actions that
Speaker 2: have launched since the US led economic sanctions on Russia.
Speaker 2: It was really the economic sanctions package in February twenty
Speaker 2: twenty two when they invaded Ukraine, and that was a
Speaker 2: massive package, and what it did was heavily curtail Russia's
Speaker 2: access to the dollar, including its central bank. It really
Speaker 2: put allies even and then a lot of adversaries on
Speaker 2: guard that the US is willing to go quite far
Speaker 2: to fight a proxy war with another country in terms
Speaker 2: of weaponizing the dollar. And so you see the bricks
Speaker 2: plus economies. It's Brazil, Russia, India, China, South Africa, and
Speaker 2: it's a growing club of economies coming together saying let's
Speaker 2: put our heads together and find a way to trade
Speaker 2: less with the dollar and have our own shared currency
Speaker 2: so that we're less beholden two US economic sanctions in
Speaker 2: case we run a foul of whoever the sitting president
Speaker 2: might be.
Speaker 1: Now, Trump has said he'll answer those concerns about trading
Speaker 1: less with the dollar with some really big, sweeping new tariffs.
Speaker 1: He said if he wins a second term, he'll put
Speaker 1: in place a ten percent across the board tariff and
Speaker 1: on goods imported from China, it's going to go as
Speaker 1: high as sixty percent. That sounds like a real ramp up,
Speaker 1: certainly from his first term as president. What do you
Speaker 1: make of that?
Speaker 2: Yeah, you know, he's noticed the economic sanctions fatigue that
Speaker 2: is out there. He talks about how you need to
Speaker 2: be judicious in use of economic sanctions, and maybe tariffs
Speaker 2: is the way to go, because if you're using tariffs,
Speaker 2: on the surface of it, it looks like you are
Speaker 2: leveraging the US consumer market rather than leveraging the strength
Speaker 2: of the dollar to sort of carry out your economic
Speaker 2: policy goals.
Speaker 1: Isn't Trump himself responsible for some countries looking to dedollarise
Speaker 1: with his threat of tariffs and sanctions.
Speaker 2: Trump is not the only president who bears responsibility. I
Speaker 2: would say every president since nine to eleven has used
Speaker 2: economic sanctions to achieve foreign policy goals. And if you
Speaker 2: look at a chart of the use of economic nations,
Speaker 2: the line just goes straight up. And they went up
Speaker 2: a lot under Obama as well, they went up even
Speaker 2: more under Trump and then even more under Biden.
Speaker 1: After the break. How the US and China have tussled
Speaker 1: over allegations of currency manipulation in the past and could
Speaker 1: the Chinese yun replace the US dollar as a world
Speaker 1: reserve currency. We've been talking about former President Donald Trump
Speaker 1: and concerns that the US dollar could be replaced as
Speaker 1: a world's reserve currency. And when it comes to the
Speaker 1: dollar in global trade, Trump's also accused other countries of
Speaker 1: currency manipulation, and one country he's pointed the finger at
Speaker 1: repeatedly is China.
Speaker 3: But that's happening, and it's happening even worse with China.
Speaker 3: They manipulate their currency better than any country in the
Speaker 3: history of the world in history history. And we are
Speaker 3: now working on a new trade deal with China, but
Speaker 3: it must include real structural change to and unfair trade practices.
Speaker 3: Not only has China declined to adopt promise reforms, it
Speaker 3: has embraced an economic model dependent on massive market barriers,
Speaker 3: heavy state subsidies, currency manipulation product.
Speaker 1: And besides China, there are other Asian countries that the
Speaker 1: US Treasury Department says it's mono for currency practices, places
Speaker 1: like Malaysia, Singapore, Taiwan, Vietnam, and Japan was added to
Speaker 1: the list this summer. What is the US's concern overall
Speaker 1: about what could happen with these other currencies.
Speaker 2: The general concern is just that countries will meddle with
Speaker 2: the terms of trade, with the natural laws of supply
Speaker 2: and demand, and keep down the value of their currencies
Speaker 2: against the dollar in order to capitalize on the US
Speaker 2: consumer market, and that is not good for American manufacturers
Speaker 2: and companies and blue collar workers. In the mid two
Speaker 2: thousands and around the global financial crisis, there allegedly was
Speaker 2: a case to be made to charge China with actual
Speaker 2: currency manipulation, but the US decided not to do it
Speaker 2: because they wanted China's cooperation and they were trying to
Speaker 2: sort of use backdoor channels and talks to slowly wean
Speaker 2: China off that habit.
Speaker 1: And of course that relationship between the US and China
Speaker 1: has been a symbiotic one, right, which you also talk
Speaker 1: in the book as well. I mean, how does that
Speaker 1: work through currency?
Speaker 2: Yeah, And it's a chapter that I call a turbulent marriage,
Speaker 2: because the US and China they need each other. They
Speaker 2: are deeply entrenched with each other still, but they're at
Speaker 2: odds with each other now. The example that I can
Speaker 2: give is that in the aftermath of the global financial
Speaker 2: crisis in two thousand and eight, you know it was
Speaker 2: an American made crisis that spilled into the rest of
Speaker 2: the world. Everyone suffered. And the Chinese had a humongous
Speaker 2: holding of assets in US dollars, whether it was shares
Speaker 2: or ownership stocks and Fanny and Freddie or in US
Speaker 2: treasuries are US government bonds. So if treasuries and the
Speaker 2: US economy was not doing well, it was bad for
Speaker 2: China because of their investments. And so China couldn't say, Okay,
Speaker 2: we're pulling out of the US economy because as they
Speaker 2: would pull out of this massive stake, the first ten percent,
Speaker 2: maybe you'd win, and then the next ninety percent, prices
Speaker 2: would just plummet and you would take a loss. Right,
Speaker 2: And the US also realized that we need to keep
Speaker 2: in close contact with China because we need their support.
Speaker 2: We don't want them to pull out. And that relationship,
Speaker 2: just that one tiny example, it tells you how deeply
Speaker 2: integrated the two countries are.
Speaker 1: We've talked a lot about Trump and his plans to
Speaker 1: try to protect the US economy and its status as
Speaker 1: a world's reserve currency. What do we know about what
Speaker 1: his opponent, Kamala Harris has said or has in mind
Speaker 1: to around the dollar.
Speaker 2: We don't know anything we have not heard. There is
Speaker 2: an absolute paucity of policy when it comes to Harris's
Speaker 2: campaign right now. We don't know much about her foreign
Speaker 2: policy or her international economic diplomacy and plans. Part of
Speaker 2: that has to do with the fact that she launched
Speaker 2: her campaign very, very late. Part of it has to
Speaker 2: do with the fact that she could rely on the
Speaker 2: Biden administration and lean on some of those policies.
Speaker 1: Okay, so we've talked a lot about concerns that the
Speaker 1: dollar could be replaced as a world's reserve currency. But
Speaker 1: based on your reporting, how likely is it that this
Speaker 1: could actually happen.
Speaker 2: One thing to point out is that the tide is turning,
Speaker 2: but only in terms of rhetoric. No one has abandoned
Speaker 2: the dollar. There is slightly less trade in the dollar
Speaker 2: compared to before, but it will be very hard to
Speaker 2: actually supplant the dollar. There's three main reasons for that.
Speaker 2: It's because the dollar is big, it's stable, and it's entrenched.
Speaker 2: So the dollar rules. Because the US economy is the biggest,
Speaker 2: it is almost biggest, as numbers two, three, and four
Speaker 2: on that list, China, Japan, and Germany combined banknotes have
Speaker 2: the words in God we trust printed on them. But
Speaker 2: it's the strength of American institutions that underpin investors faith
Speaker 2: in the dollar, rule of law, independent institutions, and fair elections.
Speaker 2: And as I illustrate in paper soldiers the treasure secretaries
Speaker 2: in the way they've dealt with foreign governments, the dollar
Speaker 2: has this power of incumbency on its side. You know,
Speaker 2: it's like trying to say the English is not going
Speaker 2: to be the world's universal language. So that's sort of
Speaker 2: a starting point. But there is definitely more discussion about
Speaker 2: de dollarization. It's a lot of rhetoric, a few small moves. Now,
Speaker 2: nothing would happen quickly. This could take a decade, maybe
Speaker 2: two decades to actually play out, but it would mean
Speaker 2: that multinational companies, smaller emerging markets, frontier markets, and mid
Speaker 2: size economies would need to consider how they trade. So
Speaker 2: it's really hard to say exactly how this would play out.
Speaker 2: In the past, it's taken an economic crisis for a
Speaker 2: world's reserve asset to be dethroned.
Speaker 1: Obviously it would have hugemifications for the global economy, but
Speaker 1: you know, you do have China, the world's second largest economy,
Speaker 1: could China could the yan be a currency that supplants
Speaker 1: the dollar potentially? I mean, is there a contender to
Speaker 1: supplant the dollar?
Speaker 2: There really isn't contender. A lot of people talk about
Speaker 2: the Chinese yran. Now, China's economy is the world's second largest,
Speaker 2: but it is still second place by a long gap.
Speaker 2: The other thing is that investors are really tied to
Speaker 2: the world's reserve asset being backed by a democracy, an
Speaker 2: open democracy, and that is not what China has. And
Speaker 2: the reason investors want democracy underpinning the anchor to the
Speaker 2: world's financial system is because that comes with transparency, which
Speaker 2: is also something that the Chinese yuan doesn't offer.
Speaker 1: This is the Big Take Asia from Bloomberg News. I'm
Speaker 1: wan Ha. This episode was produced by Jessica Beck and
Speaker 1: Young Young. It was mixed by Blake Maples and fact
Speaker 1: checked by Thomas lou. It was edited by Kaitlin Kenney.
Speaker 1: Our senior editor is Elizabeth Ponso, Nicole Meamster Bower is
Speaker 1: our executive producer, and Sage Bauman is Bloomberg's head of Podcasts.
Speaker 1: Saleya's book Paper Soldiers, How the Weaponization of the Dollar
Speaker 1: Changed the World Order is now available in Korean and
Speaker 1: Chinese translations. Please follow and review The Big Take Asia
Speaker 1: Wherever you listen to podcasts. It helps new listeners find
Speaker 1: the show. See you next time.