Here’s Who Really Benefits From The Dominance Of The U.S. Dollar

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:17)

So Tracy, I have to say that throughout this whole crisis, there has been sort of one genre of article or one genre of discussion that I've never really been comfortable with, and that is people making really big picture forecasts or statements about sort of the future of the world, I guess.

Tracy Alloway (0:38)

Yeah, I get what you mean. It feels like a little bit early to be jumping to discussing the second order effects, right? Like there's so much to talk about right now as these things are actually unfolding.

Joe Weisenthal (0:50)

Yeah, exactly. And of course, one of the big questions that's out there and that everyone wants to have a view on, and I'm guilty of it too, and I've written about it, and I've talked about it, is what happens with sort of globalization? What happens with the future of the dollar? And the US is a preeminent role in the global financial system. We sort of talked about it a little bit with Adam Tooze. We talked about it with other people as well.

And it's of course incredibly intriguing to discuss, but we still, we just don't know anything.

Tracy Alloway (1:24)

Yeah, I think that's true. And it definitely falls into one of those sort of big picture things that people are talking about at the moment.

And it's something that we've sort of discussed on various episodes before, right? Dollar dominance has definitely been a theme for the past year or so on our show.

Joe Weisenthal (1:43)

Exactly. You sound a little skeptical. Like when I was like, oh, I don't think we should have, you know, these big picture future conversations. You seem a little skeptical of mine.

Tracy Alloway (1:51)

No, I get it.

I mean, I don't think anyone really knows at the moment. So a lot of it is speculation, but also markets are always forward looking. So I kind of get why people are naturally tempted to be looking at those big picture topics.

Joe Weisenthal (2:04)

True.

Yeah, I guess you have to do that. So anyway, we're not going to make a big, we're not trying to make a big forecast here today, but as we talk about globalization, as we talk about the dollar, I do think it is useful to at least kind of understand how we got to the current system, what the current setup is, and what's actually, yeah, basically understand the current world order and how we got here.

Tracy Alloway (2:32)

Yeah, I think that that's a great idea. And the dollar is so much a part of the global financial system that we sort of take it for granted, but it's definitely worthwhile to step back for a second and think like, well, how did we get into a position where emerging markets are all like rushing to issue billions of dollars worth of dollar denominated debt? How did we get to a position where all of trade finance is basically denominated in dollars? Why has that happened?

Joe Weisenthal (3:00)

Right, exactly right.

And there's a lot of misconceptions about all of this, how trade works, who benefits from the strong dollar, or who benefits from the dollar's preeminent role. We often hear of the US's ability to issue dollars as quote, a privilege, but it's not really that clear. We talked about this a little bit recently on an episode with Matt Klein, but the sort of the preference of different actors within the global economy regarding the current arrangement is not as clean as one might, as one might think.

Tracy Alloway (3:35)

Right. And there is an argument that pops up every once in a while that having the dollar so enmeshed in the financial system can actually be a negative for the US. And we've seen that crop up, I guess, most recently with, you know, people talk about the Fed being the world's central banker. Does that sort of constrain what it can do at times like this and even before then? So yeah, definitely worth talking about.

Joe Weisenthal (4:00)

Okay, so today we are going to talk about that and we have a recent guest. We actually talked with him several weeks ago about municipal debt, but he is the co-author of a recent essay titled The Class Politics of the Dollar System for the website Phenomenal World.

He is Yakov Feygin. He's the Associate Director of the Future of Capitalism Program at the Berggruen Institute.

And we're going to talk about how we got to this state, how the dollar got to the state and who really benefits from it, who gets hurt from it and what it really means to preserve it. So Yakov, thank you very much for joining us. I should note that your co-author, Dominic, couldn't make it unfortunately today, but glad we have you. Why don't you start by telling us the big picture of what your goal was with this essay, The Class Politics of the Dollar System and sort of what that means to you.