WEBVTT 00:00:00.000 --> 00:00:02.459 Hey, everyone. Welcome to the show. So think 00:00:02.459 --> 00:00:05.120 about this for a second. The whole global financial 00:00:05.120 --> 00:00:09.220 system, right, seems rock solid. But maybe, just 00:00:09.220 --> 00:00:14.380 maybe, it's actually more fragile than we think. 00:00:14.599 --> 00:00:16.859 Like, are there hidden battles going on right 00:00:16.859 --> 00:00:19.179 now undermining the U .S. dollar's top spot? 00:00:19.480 --> 00:00:20.800 Well, it's definitely something to consider. 00:00:20.940 --> 00:00:22.780 I mean, history kind of shows us that, you know, 00:00:22.800 --> 00:00:25.120 no single power stays on top forever, does it? 00:00:25.239 --> 00:00:27.820 There are always challenges. Okay. Yeah. Let's 00:00:27.820 --> 00:00:30.100 unpack this. So today we're diving deep into 00:00:30.100 --> 00:00:33.640 Our Dollar, Your Problem by Kenneth Rogoff. It's 00:00:33.640 --> 00:00:37.490 basically an economics and finance book. It looks 00:00:37.490 --> 00:00:39.009 at the whole story of the U .S. dollar past, 00:00:39.170 --> 00:00:42.210 present and, well, maybe the future as the world's 00:00:42.210 --> 00:00:45.170 main currency. Rogoff walks us through who tried 00:00:45.170 --> 00:00:47.890 to challenge it before and like what pressures, 00:00:47.950 --> 00:00:50.210 internal or external, could actually shift things. 00:00:50.350 --> 00:00:51.890 And that really gets you thinking what gives 00:00:51.890 --> 00:00:54.310 a currency that kind of global cloud in the first 00:00:54.310 --> 00:00:56.649 place. What are the ingredients? Exactly. And 00:00:56.649 --> 00:00:58.329 I really liked a few things about this book. 00:00:58.350 --> 00:01:00.170 First off, the historical parallels he draws. 00:01:00.310 --> 00:01:02.369 Really surprising, actually. Helps put today 00:01:02.369 --> 00:01:04.590 into context. Yeah. Seeing those connections 00:01:04.590 --> 00:01:07.500 is useful. And second, he manages to explain 00:01:07.500 --> 00:01:10.019 some really complex international finance stuff 00:01:10.019 --> 00:01:14.200 in a way that's, well, pretty clear. You don't 00:01:14.200 --> 00:01:16.879 feel totally lost. Which is key for this kind 00:01:16.879 --> 00:01:19.439 of topic. Definitely. And finally, it just leaves 00:01:19.439 --> 00:01:23.420 you thinking, you know, about where global finance 00:01:23.420 --> 00:01:26.280 might actually be heading. Quite thought provoking. 00:01:26.340 --> 00:01:28.620 Absolutely. I mean, understanding these these 00:01:28.620 --> 00:01:31.140 dynamics, it's pretty crucial if you want to 00:01:31.140 --> 00:01:32.980 get a handle on the global economy today. For 00:01:32.980 --> 00:01:35.379 sure. Now, if I had to pick maybe one or two 00:01:35.379 --> 00:01:39.400 things. Not spoilers, promise. OK, just that. 00:01:40.010 --> 00:01:42.069 Because it covers so much history and economics, 00:01:42.329 --> 00:01:44.310 some bits might feel a little dense if you're 00:01:44.310 --> 00:01:46.370 like totally new to this stuff. Right. The scope 00:01:46.370 --> 00:01:49.709 is huge. Yeah. And also the main focus is definitely 00:01:49.709 --> 00:01:52.349 on the big picture, the macro stuff. So if you're 00:01:52.349 --> 00:01:55.530 looking for super detailed micro level analysis, 00:01:55.849 --> 00:01:57.909 this might not be the only book you read. That's 00:01:57.909 --> 00:02:00.209 fair. It's a tradeoff, isn't it? Broadview versus 00:02:00.209 --> 00:02:02.930 deep dive on one specific aspect. Totally. But 00:02:02.930 --> 00:02:05.870 overall, yeah, I'd give Our Dollar Your Problem 00:02:05.870 --> 00:02:08.909 a solid four out of five stars. Really worthwhile. 00:02:09.389 --> 00:02:11.710 Good rating. I think that reflects its strengths 00:02:11.710 --> 00:02:15.169 and maybe where readers might need to focus a 00:02:15.169 --> 00:02:17.189 bit more. OK, so let's get into the meat of it. 00:02:17.250 --> 00:02:20.210 You sent this one over because, well, you want 00:02:20.210 --> 00:02:22.129 to understand these big global finance forces 00:02:22.129 --> 00:02:24.330 without getting totally bogged down in jargon. 00:02:24.330 --> 00:02:27.889 So let's talk contenders. What are the real threats, 00:02:28.129 --> 00:02:31.569 according to Rogoff, to the dollar's reign? He 00:02:31.569 --> 00:02:33.789 kicks off by looking back, doesn't he? Who tried 00:02:33.789 --> 00:02:37.770 before? Yeah, he does. And he looks systematically 00:02:37.770 --> 00:02:41.449 at, well, the Soviet Union, Japan and then the 00:02:41.449 --> 00:02:43.789 euro. Take the Soviets. I mean, yeah, they had 00:02:43.789 --> 00:02:45.689 periods of growth, looked impressive on paper 00:02:45.689 --> 00:02:48.389 sometimes. But the big thing Rogoff points out 00:02:48.389 --> 00:02:51.810 is their currency, the ruble, was inconvertible. 00:02:51.889 --> 00:02:53.849 Right. Meaning you couldn't just easily trade 00:02:53.849 --> 00:02:55.729 it for dollars or pounds on the open market. 00:02:55.849 --> 00:02:59.039 Exactly. So, you know, it's use. outside the 00:02:59.039 --> 00:03:01.360 Soviet bloc was super limited. You couldn't really 00:03:01.360 --> 00:03:03.159 use it for trade easily. You couldn't hold it 00:03:03.159 --> 00:03:06.560 as reserves. The whole economic system just didn't 00:03:06.560 --> 00:03:09.120 support it internationally. It's funny. Rogoff 00:03:09.120 --> 00:03:11.460 reminds us that back in the Cold War, some people 00:03:11.460 --> 00:03:13.939 actually thought the Soviet economy might catch 00:03:13.939 --> 00:03:16.780 up to the U .S. Oh, yeah. There was genuine debate 00:03:16.780 --> 00:03:19.099 about that. And Rogoff, having lived through 00:03:19.099 --> 00:03:21.500 that and later being chief economist at the IMF, 00:03:21.580 --> 00:03:23.180 he brings this great perspective. He's like, 00:03:23.219 --> 00:03:25.650 look. the growth stats didn't tell the whole 00:03:25.650 --> 00:03:28.110 story the underlying reality the limits they 00:03:28.110 --> 00:03:30.669 were always there okay so the ruble was a non 00:03:30.669 --> 00:03:33.129 -starter internationally what about japan and 00:03:33.129 --> 00:03:36.400 the yen that felt Different, right? Like a more 00:03:36.400 --> 00:03:38.340 serious contender for a while. Oh, absolutely. 00:03:38.879 --> 00:03:41.659 Japan's economic boom in the 80s and early 90s, 00:03:41.659 --> 00:03:44.000 huge deal. Their productivity, especially in 00:03:44.000 --> 00:03:47.259 manufacturing, was just soaring. And Rogoff talks 00:03:47.259 --> 00:03:50.680 about the Plaza Accord in 85. That was basically 00:03:50.680 --> 00:03:53.780 an agreement to weaken the dollar against the 00:03:53.780 --> 00:03:55.840 yen and the German mark. Right, trying to rebalance 00:03:55.840 --> 00:03:58.939 things. Yeah. And it did pressure Japanese exports, 00:03:59.080 --> 00:04:01.349 but Japanese companies were smart. They adapted, 00:04:01.509 --> 00:04:03.610 became even more efficient, invested elsewhere 00:04:03.610 --> 00:04:05.830 in Asia. And Rogoz points out this interesting 00:04:05.830 --> 00:04:08.830 twist. The stronger yen actually pushed Japanese 00:04:08.830 --> 00:04:11.289 firms to buy up dollar assets around the world. 00:04:11.469 --> 00:04:14.889 Kind of counterintuitive? Exactly. But then Japan 00:04:14.889 --> 00:04:18.170 hit that massive asset bubble in the early 90s. 00:04:18.230 --> 00:04:21.069 Ah, yes. The bubble. So we're talking land prices, 00:04:21.170 --> 00:04:24.110 stock market, just completely unsustainable levels. 00:04:24.189 --> 00:04:27.889 Totally inflated. And when it burst. triggered 00:04:27.889 --> 00:04:30.410 this long, long period of stagnation, the famous 00:04:30.410 --> 00:04:33.250 lost decades. Right. So Rogoff's point is, yeah, 00:04:33.290 --> 00:04:35.870 this massive internal financial crisis basically 00:04:35.870 --> 00:04:38.209 stopped the yen in its tracks. It couldn't become 00:04:38.209 --> 00:04:41.709 a dominant global currency after that. So a key 00:04:41.709 --> 00:04:43.389 lesson there is, you know, strong growth isn't 00:04:43.389 --> 00:04:45.189 enough if you've got major problems at home. 00:04:45.329 --> 00:04:47.889 OK, so internal issues were key for both the 00:04:47.889 --> 00:04:51.329 Soviets and the Japanese. What about the euro? 00:04:51.430 --> 00:04:53.250 That's different. It was designed as a multinational 00:04:53.250 --> 00:04:56.040 currency. Yeah, the euro. A huge political and 00:04:56.040 --> 00:04:58.439 economic project, really, combining the currencies 00:04:58.439 --> 00:05:02.019 of major European economies. And Rogoff admits, 00:05:02.220 --> 00:05:04.560 you know, he was a bit skeptical at first, but 00:05:04.560 --> 00:05:06.560 he gives credit to the European policymakers 00:05:06.560 --> 00:05:09.199 for their determination. But he still sees challenges. 00:05:09.480 --> 00:05:11.459 Oh, yeah. He points to what he calls inherent 00:05:11.459 --> 00:05:15.259 challenges. The big one. No unified fiscal authority. 00:05:15.259 --> 00:05:18.230 Meaning no single government body. like the U 00:05:18.230 --> 00:05:20.370 .S. Treasury, managing the finances for the whole 00:05:20.370 --> 00:05:22.850 eurozone. Pretty much. There's no central treasury 00:05:22.850 --> 00:05:25.430 backing all the debt in the same way. Plus, he 00:05:25.430 --> 00:05:29.149 mentions the balkanized nature of eurozone government 00:05:29.149 --> 00:05:32.769 debt markets. Fancy way of saying each country 00:05:32.769 --> 00:05:35.850 mostly handles its own debt. So it's not quite 00:05:35.850 --> 00:05:38.310 the same unified backing as the dollar gets from 00:05:38.310 --> 00:05:40.689 the U .S. government. Exactly. And remember the 00:05:40.689 --> 00:05:43.949 European debt crisis back in the early 2010s. 00:05:43.949 --> 00:05:47.709 Yeah. Greece, Ireland. Right. Rogoff argues that 00:05:47.709 --> 00:05:49.550 crisis really exposed those vulnerabilities. 00:05:49.829 --> 00:05:52.529 So while the euro kind of held on to the combined 00:05:52.529 --> 00:05:55.230 share its old currencies had in global reserves, 00:05:55.569 --> 00:05:58.389 it hasn't really, you know, grown that share 00:05:58.389 --> 00:06:00.550 much. It hasn't significantly challenged the 00:06:00.550 --> 00:06:02.949 dollar's dominance. OK, interesting. So past 00:06:02.949 --> 00:06:05.230 challengers had their own major roadblocks. Now, 00:06:05.230 --> 00:06:07.209 the book really pivots to China, doesn't it, 00:06:07.230 --> 00:06:09.930 as the big potential challenger now. What makes 00:06:09.930 --> 00:06:12.259 China different? Well, the obvious thing is just 00:06:12.259 --> 00:06:14.759 sheer size, right? China's economy is massive 00:06:14.759 --> 00:06:17.420 and it's deeply plugged into global trade. Rogoff 00:06:17.420 --> 00:06:19.939 shows this with some pretty striking GDP number. 00:06:20.139 --> 00:06:23.579 There's always a but. Yeah. But he's also really 00:06:23.579 --> 00:06:26.399 clear about the major hurdles China faces if 00:06:26.399 --> 00:06:29.379 it wants its currency, the renminbi, to like 00:06:29.379 --> 00:06:32.379 truly take over from the dollar. It's not straightforward 00:06:32.379 --> 00:06:35.060 at all. OK, what are some of those main hurdles 00:06:35.060 --> 00:06:38.519 Rogoff highlights? Well, a few big ones. First, 00:06:38.680 --> 00:06:41.240 their financial markets. While they've opened 00:06:41.240 --> 00:06:44.040 up somewhat, they're still not fully open, not 00:06:44.040 --> 00:06:46.620 like the U .S. or Europe. So it's harder to move 00:06:46.620 --> 00:06:49.439 money in and out freely. Exactly. And that makes 00:06:49.439 --> 00:06:51.759 the renminbi less attractive for other countries 00:06:51.759 --> 00:06:54.019 to hold as reserves or use for international 00:06:54.019 --> 00:06:57.160 transactions, limits its global appeal. Makes 00:06:57.160 --> 00:06:59.939 sense. What else? Second, Rogoff talks about 00:06:59.939 --> 00:07:02.879 structural issues inside China's economy. Things 00:07:02.879 --> 00:07:06.220 like relying too heavily on investment in the 00:07:06.220 --> 00:07:08.620 past and now these big issues in the property 00:07:08.620 --> 00:07:10.240 sector we hear about. Right. The real estate 00:07:10.240 --> 00:07:12.279 problems. Yeah. He kind of suggests that the 00:07:12.279 --> 00:07:15.180 era of super fast double digit growth is probably 00:07:15.180 --> 00:07:18.720 over. And that, you know, affects how attractive 00:07:18.720 --> 00:07:21.139 the Renminbi looks long term. He also gets into 00:07:21.139 --> 00:07:23.360 their exchange rate policy, right? The Balancing 00:07:23.360 --> 00:07:26.910 Act. Yes, exactly. For a long time, they kept 00:07:26.910 --> 00:07:29.829 the renminbi's value pretty closely tied to the 00:07:29.829 --> 00:07:32.589 dollar. That helped exports, but it also, well, 00:07:32.689 --> 00:07:35.410 it limits your own control over monetary policy. 00:07:35.569 --> 00:07:37.790 Like you can't fully adjust interest rates just 00:07:37.790 --> 00:07:39.970 based on what your economy needs. Precisely. 00:07:40.290 --> 00:07:43.189 Rogoff suggests a more flexible exchange rate 00:07:43.189 --> 00:07:45.009 would probably be better for them in the long 00:07:45.009 --> 00:07:47.709 run, give them more independence. There was also 00:07:47.709 --> 00:07:49.829 that interesting bit about how China managed 00:07:49.829 --> 00:07:53.490 inflation during its rapid growth phase. about 00:07:53.490 --> 00:07:56.029 managing migration ah yeah that was fascinating 00:07:56.029 --> 00:07:59.389 basically by controlling the flow of people from 00:07:59.389 --> 00:08:01.970 the countryside to the cities they helped keep 00:08:01.970 --> 00:08:04.350 wages from rising too quickly which helped keep 00:08:04.350 --> 00:08:07.750 inflation down Wow but as Rogoff argues that 00:08:07.750 --> 00:08:09.870 same system might be linked to some of the current 00:08:09.870 --> 00:08:12.189 property market issues too it just shows how 00:08:12.189 --> 00:08:14.910 interconnected everything is in an economy okay 00:08:14.910 --> 00:08:18.420 so China huge economy Deeply integrated, definitely 00:08:18.420 --> 00:08:21.699 a potential challenger, but also facing its own 00:08:21.699 --> 00:08:24.060 complex internal stuff, plus the challenge of 00:08:24.060 --> 00:08:26.019 opening up its financial system more. You got 00:08:26.019 --> 00:08:30.120 it. So Rogoff's bottom line seems to be the dollar's 00:08:30.120 --> 00:08:32.539 dominance might fade a bit around the edges, 00:08:32.639 --> 00:08:36.179 gradually decrease maybe, but a full -on replacement 00:08:36.179 --> 00:08:39.799 by the renminbi or anything else. Not looking 00:08:39.799 --> 00:08:41.860 likely soon. That's pretty much the core takeaway. 00:08:42.100 --> 00:08:44.600 He argues the dollar still has massive advantages. 00:08:44.860 --> 00:08:47.440 Think about how deep and liquid U .S. financial 00:08:47.440 --> 00:08:50.299 markets are easy to buy and sell huge amounts 00:08:50.299 --> 00:08:53.440 of dollar assets. Plus, the U .S. has a strong 00:08:53.440 --> 00:08:55.879 legal framework, relatively stable institutions, 00:08:56.259 --> 00:08:59.000 things global investors really value. What about 00:08:59.000 --> 00:09:01.220 other things? Like he touches on crypto, doesn't 00:09:01.220 --> 00:09:03.720 he? And central bank digital currencies. Any 00:09:03.720 --> 00:09:06.159 threat there? He's pretty skeptical, actually. 00:09:06.179 --> 00:09:08.679 On crypto, yeah, he sees its role maybe in niche 00:09:08.679 --> 00:09:11.580 areas, less regulated spaces. But he expects 00:09:11.580 --> 00:09:13.500 governments will eventually regulate it heavily, 00:09:13.620 --> 00:09:15.600 preventing it from really replacing dollars or 00:09:15.600 --> 00:09:18.539 euros for everyday legal stuff. OK. And the government 00:09:18.539 --> 00:09:22.059 backed digital currencies, CBDCs. He sees those 00:09:22.059 --> 00:09:24.179 more as an evolution of the current system, like 00:09:24.179 --> 00:09:26.440 a digital dollar or digital euro. Not necessarily 00:09:26.440 --> 00:09:28.419 something that fundamentally shifts the balance 00:09:28.419 --> 00:09:30.519 of power away from the dollar. More like updating 00:09:30.519 --> 00:09:33.750 the plumbing. Gotcha. So the dollar isn't invincible, 00:09:34.009 --> 00:09:36.590 its share might fluctuate, but its core advantages 00:09:36.590 --> 00:09:38.690 mean it's likely to stick around as number one 00:09:38.690 --> 00:09:40.909 for a while. That seems to be Rogoff's view. 00:09:41.110 --> 00:09:43.610 And he finishes by saying, if the U .S. wants 00:09:43.610 --> 00:09:46.669 to keep the dollar strong, it needs to manage 00:09:46.669 --> 00:09:49.789 its own shop well, right? Think about its own 00:09:49.789 --> 00:09:52.549 debt, its policies, how they impact the rest 00:09:52.549 --> 00:09:55.210 of the world. Exactly. He really emphasizes that 00:09:55.210 --> 00:09:57.990 point. The risk of high inflation, like the U 00:09:57.990 --> 00:10:00.509 .S. saw in the 70s, that's a key vulnerability. 00:10:00.649 --> 00:10:03.629 It erodes trust. And he notes, you know, other 00:10:03.629 --> 00:10:05.909 countries have mixed feelings about dollar dominance, 00:10:06.210 --> 00:10:09.129 especially when U .S. domestic policy, like managing 00:10:09.129 --> 00:10:11.309 inflation, has huge knock -on effects for their 00:10:11.309 --> 00:10:14.250 reserves and economies. It really is our dollar, 00:10:14.289 --> 00:10:17.250 your problem. Wow. Yeah. Really fascinating stuff. 00:10:17.350 --> 00:10:18.620 Makes you look at the news about globally. global 00:10:18.620 --> 00:10:20.340 economics in a different light. It definitely 00:10:20.340 --> 00:10:22.399 provides some important context for understanding 00:10:22.399 --> 00:10:24.980 what's going on globally. Well, if you found 00:10:24.980 --> 00:10:27.879 this deep dive as fascinating as we did, definitely 00:10:27.879 --> 00:10:30.519 hit that like button and subscribe for more explorations 00:10:30.519 --> 00:10:33.980 into the ideas shaping our world. And hey, if 00:10:33.980 --> 00:10:36.220 you want to read the book yourself, there's a 00:10:36.220 --> 00:10:39.820 link to Our Dollar, Your Problem on Amazon down 00:10:39.820 --> 00:10:41.519 in the description. You could dive even deeper. 00:10:41.659 --> 00:10:44.299 Yeah, there's way more detail and nuance in the 00:10:44.299 --> 00:10:46.259 book itself. Highly recommend checking it out. 00:10:46.549 --> 00:10:48.850 So thanks for joining us on this deep dive today. 00:10:49.289 --> 00:10:51.929 What was the most surprising thing you took away 00:10:51.929 --> 00:10:55.110 from this discussion? Let us know down in the 00:10:55.110 --> 00:10:56.889 comments. We always love hearing your thoughts 00:10:56.889 --> 00:10:58.549 and we really appreciate it when you share these 00:10:58.549 --> 00:11:00.870 conversations with anyone you think might find 00:11:00.870 --> 00:11:02.830 them interesting. Yeah, your comments and shares 00:11:02.830 --> 00:11:05.490 really do make these discussions better. And 00:11:05.490 --> 00:11:07.289 maybe one last thought for you, the listener. 00:11:07.429 --> 00:11:11.629 If the dollar's global role does start to shrink, 00:11:11.769 --> 00:11:14.960 even gradually. What unexpected ripple effects 00:11:14.960 --> 00:11:18.559 might that have? On things you buy, maybe international 00:11:18.559 --> 00:11:21.200 travel costs, stuff like that. Something to think 00:11:21.200 --> 00:11:23.940 about. Until our next deep dive, take care.