The Economics Show: Trump is accelerating the dollar’s decline

Ethan Wu (0:00)

Listeners, we're taking a break this week. So we wanted to share another great FT podcast about money and markets, The Economics Show. This episode features my esteemed colleague Martin Wolf, the FT's chief economics commentator, talking to former IMF chief economist and Harvard professor Ken Rogoff about the US dollar. Trump's tariffs have weakened the dollar this year, but as Rogoff says, it was already in decline. Is that decline terminal? Will other currencies, even cryptocurrencies, muscle in on the dollar's dominance? And what would that mean for global markets? If you like what you hear, you can follow The Economics Show wherever you get podcasts. Thanks and enjoy the show.

Martin Wolf (0:50)

The US dollar has been the world's dominant currency since the middle of the 20th century. But that long era of supremacy hasn't been without its shocks. Now as President Trump has pressed ahead with a slate of aggressive tariffs, the value of the dollar, so often a safe haven for investors, has slid to multi-year lows. Is the era of dollar hegemony coming to an end? Could cryptocurrencies, or perhaps China's yuan, knock the greenback off its perch? And how would that affect the rest of the world?

This is The Economics Show. I'm Martin Wolf, the FT's Chief Economics Commentator. I'm joined today by Ken Rogoff, who I've known personally since 2001 Ken is a Professor of Economics at Harvard University and former Chief Economist at the International Monetary Fund. But long before his career as an economist, he was a Grand Master at Chess. Ken is an immensely influential thinker on International Monetary and Financial Economics. Together with Carmen Reinhardt, he wrote This Time is Different, Eight Centuries of Financial Folly, a seminal book which was published in September 2009 His latest book is Our Dollar, Your Problem, and it is on the history of the dollar and what might come next for the currency. Ken, welcome to the show.

Kenneth Rogoff (2:32)

Well, thank you, Martin. What a privilege to be here.

Martin Wolf (2:36)

We are in the age of Donald Trump. How concerned should we be about the future of the dollar's role as a global currency? And how much of our concern should really be about already established vulnerabilities, high US deficits and debts, over-reliance on financial sanctions as a tool of US foreign policy and so forth? And how much should our concern be about Trump himself?

Kenneth Rogoff (3:02)

Well, I think the dollar was in gentle decline. I would say it actually peaked around 2015, but a gentle decline. We're talking decades of this going on. And declining in the sense that when you lose market share, it does affect your interest rates. You still have an exorbitant privilege, but it's less exorbitant. You still have the ability to impose sanctions to spy on everyone, but much less, especially as that changes. But Donald Trump is an accelerant. He's a catalyst. And the time when the euro and the renimbi come up much closer to the dollar, which people thought was going to happen 15 years ago, I think that's going to happen a lot sooner now, believe it or not.

Martin Wolf (3:49)

So if we look at what's been going on here, the US has clearly been exploiting its exorbitant privilege in the sense that its financial sector is the dominant financial sector. Transactions go overwhelmingly through New York. That gives the United States tremendous leverage over other countries and other economies. And people have been very frustrated about this for a long time, including Europeans. Is that a significant factor in what you see as the erosion of the US position that people just fed up with, as it were, the abuse of power from their perspective?

Kenneth Rogoff (4:32)

Well, absolutely. The Chinese feel that way. And I think one of the reasons everyone thought some time ago that the dollar would shrink in its footprint was Asia's half the dollar block. Why would China have a fixed exchange rate to the dollar? It makes no sense. The technocrats in China wanted to change that. So that changed already in 2015 when China started to have problems fixing exchange rate. But it got accelerated mightily when the Chinese saw what we did to Russia. We seized some 300 to 350 billion in the Russian Central Bank assets, and we're not calling it a default, but of course it is. I mean, we consider it an honorable default, but it's a default. China has by my estimates, two trillion dollars and trillion directly, the Treasury sees another trillion through various intermediaries where they hide it. They are thinking hard about it. But even countries like India, Brazil, Korea, everybody is a little more hesitant about how safe are their dollars.