Could the world move away from the dollar?

I think dollar dominance uh started. slowly declining actually back in 2015. uh when China really started realizing. that they couldn't peg as closely to the. dollars they'd been doing. Uh they had. problems with exchange rate attacks and. they needed to they spent a trillion. dollars in reserves back then and the. Asia block accounts for half of the. dollar block. So as China parts so will. uh you know so will Asia in part at.

least move along. Gita already alluded. to that and China's working hard at this. again going back to the point about the. sanctions on Russia. They they know you. know it's coming to a theater near them. uh if it hasn't already. Uh there are. also problems within both the Fed. independence but certainly uh debt uh. during the 2010s. uh many in uh western economists but I'd. say particularly United States decided.

debt was a free lunch and that was a. very popular view. I was debating at. these fora over the years people like. Larry Summers and Paul Krugman who kind. of insisted on that view and interest. rates were were really low but you know. I said well that's happened before and. they're really low till they're not and. now they're not and when you're the. world's biggest debtor and during this. period the United States has. promiscuously increased its debt in the.

global financial crisis in uh the. pandemic and then a lot in between and. we're doing it now and yeah absolutely. people look at this and I I don't think. it's so much a moment that comes but you. know it's one of the reasons interest. rates haven't come down more than they. uh might have and uh it makes you less. resilient to a shock I think just in the. reason that very high debt weighs on. growth is stuff happens we might have a.

war. We might start a war and you. suddenly, you know, need to spend more. You need to build up your military. Uh I. I how it ends is a I won't, you know, there many possibilities of how this. ends. Inflation, financial repression, uh Donald Trump's team has floated the. idea of default already. And yes, if. you're a reserve manager in almost. anywhere, you're looking at this and.

you're saying, "Well, they can't be that. nuts. unless they are." And so that's one of. the reasons absolutely gold has been. going up. So you have the things that. economists are used to talking about. public debt, central bank independence, but then you also have this sense that. maybe America isn't what it was uh in. terms of its. attempts to expand in terms of the. apparent turn towards authoritarianism. uh domestically what ICE are doing and.

so on. Gita, I'm hoping that liberated. from uh the bureaucratic uh demands of. the IMF, you're a bit more more able to. comment on this sort of thing. Do you. think those those sorts of trends are. relevant for thinking about the. trajectory of the dollar? In addition to. those uh economic principles, >> the dollar has sustained itself and and. remained its dominant position because. of the rule of law, because of. predictability of institutions, because. of the fact that you have contract. enforcement, you know. Um, I think what.

we haven't seen so far, which may be the. shoe that is yet to drop, are. disruptions in financial markets. There. was April 2nd. April 2nd was clearly a. moment when if they had not reversed. course on what was being done with. Liberation Day tariffs, something would. have broken, which is why they did. reverse course. It was like a 3-day. period between April 2nd and April 5th. when markets really looked like they. were getting to the edge and something. was going to go bad. After that, it's.

been not much. I mean, little blips here. and there. It's been relatively. forgiving, right? Markets have been. forgiving. So, we are in easy financial. conditions everywhere in the world. thanks to everybody wanting to diversify. some out of the US. Yeah, emerging. market spreads are very tight. You know, they're getting capital fairly easily. Europe, everywhere in the world, financial markets look quite easy. So if. all of this tension that now seems to be. constrained to the trade side spills. over to finance, I think that's where we.

will see much more action, including on. the dollar. Now in [snorts] terms of. dollar resilience, I do want to make one. point because Ken brought it up about. the 1971 and the end of Bretonwoods. you know exanti if you said well if the. US was to break its commitment to the. world and go off its backing to gold. that would be it the dollar would lose. its dominance right but it didn't and so. ultimately it comes down to what are the. alternatives at the end of the day you.

can actually have a pretty big shift in. your institutions and still survive as a. currency if indeed you know events and. and other countries aren't able to take. the all in one right so I think this is. something we have to keep in mind which. is why there remains the faith in the. dollar despite everything that's going. on. >> okay so uh [clears throat] reasons for. global investors to worry about America. and the dollar about the relative. attractiveness of a few of the other. alternatives maybe if we start with the.

euro which as you say in your book Ken. you know the infrastructure was proved. to be the architecture was proved to be. inadequate through the sovereign debt. crisis there were some fixes made and. then again after pandemic. But how if. you if you're a reserve manager or a. global investor, how will you be. thinking about the euro right now? >> Well, I think they are, you know, not. cutting back on euro and the. [clears throat] euros has a large uh. increasing share of global reserves. I. mean, I'm maybe putting my neck out, but.

I'm actually somewhat constructive on. Europe despite this being a real dark. moment. There is this saying attributed. to Winston Churchill that Americans. always do the right thing after they've. tried everything else. And I think you. know one can say that about Europe to. some extent here. I don't think Europe's. going to disappear and become. irrelevant. Don't ask me how you know. that this is going to happen. Uh but you. know in many ways I think historians may.

look back on this and say that Trump was. the best thing that ever happened to. Europe and you know brought policy not. only more unity but policy has been. let's say you know very dominated by. certain progressive strands of thought. that really were not competitive uh. thinking of a world with China and the. United States and I think Europe will re. reinvent itself in a way that's more.

competitive. But I have to say when I. say that to my European friends, they. just know their own country and they're. very skeptical. But I'm going to stick. with it. Gosh. Yes. Uh that's. provocative thought. Trump uh best thing. that's ever happened to Europe. Kita, do. you think that's plausible? Do we get uh. a influx of energy now into Europe that. manages to make the euro a more. plausible alternative to the dollar? >> Yeah. Well, I I mean I think Europe. gets, you know, beaten up quite a bit. about its inability to.

act and move and do the do the, you. know, the integration of the um of the. union and so on, deepen the market. I. feel that's a bit that's overshot. because if I look around the world right. now, I'm actually pretty impressed with. Europe going around and making good. trade agreements. what they did with. Marosour, which by the way was not all. the members didn't really weren't. terribly excited about it, but they. still made it happen, is a promising.

sign to me that this can, you know, Europe is able to go and do that. They're trying to be the adults in the. room, at least when it comes to global. rules, institutions, trying to hold that up. And I'm glad. they're there to doing that. And I wish. they do more of it. So I I actually. think we think we've overshoten the. cynicism on Europe and I think yes I. think this is a moment for them if they. wish to to seize in terms of gaining. momentum in terms of having the euro. play a bigger role. uh and also just to.

want to emphasize one of the points in. terms of noting that things have changed. in terms of currency use in China in. 2010. 0% of China's transactions with the rest. of the world was in reninb today it's. 50% of their transactions with the rest. of the world is in reninb right they. it's not no longer small numbers it's. big so in their own dealings with the. rest of the world they use the renmb a. lot whether other countries use it or.

not that tiny but they are so so we have. seen shifts and it is uh slow moving uh. but but yes I think we're we could be in. this phase where the dollar remains. promising but as we know usually changes. can happen it can take a long time like. nothing is happening and then it can. happen very rapidly.