Josh Younger on the Surprising Origins of Eurodollars and Petrodollars

Tracy Alloway (0:10)

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

Joe Weisenthal (0:14)

And I'm Joe Weisenthal.

Tracy Alloway (0:16)

Joe, de-dollarization. There's a lot of annoying stuff in there.

Joe Weisenthal (0:19)

Yeah, we're still talking about that. No, it is, it's interesting, because yes, it's like this sort of, I don't know, I associate it with cranks and stuff, but if you actually take this subject seriously about why the dollar is what it is and where it is, there's many sort of illuminating sub-conversations to be had.

Tracy Alloway (0:38)

Yes, so it is a theme that tends to be dominated by a certain type of person, but setting that aside, one thing that's good about it is it actually gives us a peg to go back and look in depth at the financial system and ask, well, why is it designed this way? Why is it built this way? Why did dollars become popular as FX reserves in the first place?

And beyond that, why do we seem to have all these different types of dollars? So we have Euro dollars, which hopefully everyone has heard of before. We have Petrodollars. There are all these different flavors of dollars floating around the financial system.

Joe Weisenthal (1:16)

Right. There's two interesting points you made. One is like this conversation allows us to like go back and look at things like, well, why are things the way they are? Which is helpful. And you know, a recent episode we did with Karthik Sankaran was good on that.

And then to your point though, like there is no single thing, the dollar, right? And maybe if someone thinks the dollar, the first thing they think about is a dollar in their digital bank account or a dollar bill. But there is no single thing that's the dollar, is a bunch of things that are basically pegged against each other and like are usually roughly stable against each other.

Tracy Alloway (1:47)

That's absolutely right. It's also one of the reasons I tend not to like talking about currencies that much because everything ends up being relative. But setting that aside, I do enjoy talking about the history of the financial system and the decisions that made it the way it is today. And so I'm very pleased to say that we have one of our favorite Odd Lots guests back with us, someone who is going to be taking us down the historical path of how we ended up with things like Eurodollars and Petrodollars.

Joe Weisenthal (2:15)

I'm very excited about this episode as well. I like history lessons as well.

And all of these things tend to have surprising origins and they emerge organically, which is part of what makes them hard to... When eventually things change, maybe one day there'll be a different currency regime in the world, but again, it's helpful to know the origins of these things to anticipate what that might look like.

Tracy Alloway (2:40)

Right, and I think actually there is often an assumption that they do emerge organically when actually there was a very conscious decision that went into making them what they are today and then they evolved from there. But without further ado, I am very happy to say that we are going to be speaking with Josh Younger, formerly at JPMorgan, now a senior advisor at the New York Fed. Josh, welcome back to the show.

Josh Younger (3:03)

Well, thanks, it's great to be back.

Tracy Alloway (3:04)

So I believe, given your new employer, you have to start with a disclaimer, right?

Josh Younger (3:08)

Well, I have to, I guess. This is literally something I've always wanted to say, which is that these views are my own and do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System.

Joe Weisenthal (3:18)

This is why actually it's always been fun to speak with you because in addition to your various employment over time, you're also just a very curious person who discovers new things.

Josh Younger (3:28)

I try to.

It's fun to dig down. So I hope this isn't too much of a rabbit hole, but it is a very-

Joe Weisenthal (3:33)

I like the rabbit hole.

Tracy Alloway (3:34)

We like rabbit holes, yeah. All right, well, why don't we start at the beginning? I sort of alluded to these different flavor of dollars and I think we're gonna be focusing on two of them.

They are Euro dollars. So US dollar denominated deposits at foreign banks. People sometimes look at them as like a liquidity measure. How many Euro dollars are sloshing around in the system and what does that actually mean for risk appetite and things like that?