Why the Desire to Move Away From the Dollar Is Getting Real

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, do you remember what we were doing this time last year?

Joe Weisenthal (0:19)

No, oh, no, no, I have no idea. That feels like ages ago, so no, I have no idea.

Tracy Alloway (0:28)

We were actually talking to Zoltan Pozar about his vision of Bretton Woods III. Do you remember that?

Joe Weisenthal (0:35)

Okay, yes, yes, absolutely. I do remember that conversation very specifically.

Setting aside that sort of Bretton Woods III framework specifically, I do think like overall, like he sort of anticipated extremely well a lot of the discussions that people are having like over the course of the next year. And then so in some respects, I think that's held up well.

Tracy Alloway (0:59)

Right, so there were a lot of different themes in that note, including this idea of more of an emphasis on real assets or commodities.

But one of the big ideas that was in there was this theme of a more multipolar world and possible challenges to US hegemony in the financial system, including the dollar's very unique role in that system. And while it is true that the dollar spent most of the past year being really strong, and we put out a couple episodes on that, I think, we have seen efforts at de-dollarization or at least we've seen a lot of discussion of de-dollarization. That has really increased in the same time period.

Joe Weisenthal (1:43)

Yeah, there's sort of a few interesting dimensions here. So for one, of course, like price does what it's going to do in the short term. And ultimately, I don't think like price is the ultimate or bitter, but late last year or middle of last year, the dollar rallied a lot. The other thing is you get these headlines about de-dollarization or the rise of the UN or some barrel of oil somewhere in the world was not priced in dollars and everyone starts to flip out about whatever that means.

And on the one hand, okay, that's interesting. But on the other hand, like again, you and I, like how many times have we heard this story?

Tracy Alloway (2:20)

People love talking about this possibility, yeah.

Joe Weisenthal (2:24)

Yeah, oh, suddenly some benchmark barrel of oil somewhere is going to be priced at something and that's the end of dollar hegemony.

But I will say like, there's a couple of things, like I don't want to say it's different this, well, why I think it's still worth having this conversation because obviously a lot of things have changed. You know, one of my theses that I talk a lot about all the time is how like the 2020s are sort of the inverse 2010s. And so I do think to some extent, it's a good time to revisit our assumptions. And when you do start to see, you know, expanding China trade and so forth, the talk of decoupling and the rising role of the UN, I think it is worth having that conversation again, even if sometimes it seems like some of these end of the dollar stories are a little bit overcooked.

Tracy Alloway (3:10)

Or premature.

Joe Weisenthal (3:11)

Or premature.

Tracy Alloway (3:11)

On that note, one of the things that has been happening is we've heard a lot of noise from the Brics group of countries. So that's Brazil, Russia, India, China and South Africa about possibly creating some sort of alternative to the dollar.

So we really need to dive into the de-dollarization story from an emerging markets perspective. And who better to do that with than with Paul McNamara? He's an investment director over at GAM. We've had him on the show before and we are going to do another deep dive with him now.

Joe Weisenthal (3:44)

Can't wait.

Tracy Alloway (3:45)

Paul, thanks so much for coming back on Odd Lots.

Paul McNamara (3:47)

Thanks very much for having me.

Tracy Alloway (3:49)

So maybe just to begin with, give us the state of play when it comes to de-dollarization talks. Because I know there have been all these little bits and pieces over the past year or so, but what has jumped out at you the most?

Paul McNamara (4:03)

I think the thing that we're focused on is we've seen very big current account surpluses, especially in the oil exporters. So Saudi Arabia in particular, I mean, Russia is obviously another story. I mean, the surpluses in China are not as big as they've been.

But what's been interesting is that the Saudis in particular, and I think there's some evidence that Abu Dhabi as well, have not been pushing money straight into US treasuries or US securities markets in particular, but sort of treasuries. I mean, there's been a lot of talk in terms of China for a long time. You know, China has run the Belt and Road program, has clearly been that there is a general drive for those companies which continue to run these big external surpluses. They're clearly trying to branch out significantly away from, well, let's just stick it in medium duration treasuries.