Why The Dominant U.S. Dollar Refuses To Go Away

Joe Weisenthal (0:11)

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

Tracy Alloway (0:17)

And I'm Tracy Alloway.

Joe Weisenthal (0:19)

Tracy, we've both been covering financial markets and the economy for, I think, roughly the same amount of time, right?

Tracy Alloway (0:27)

You are four years older than me. I know you forget this from time to time, but yeah.

David Beckworth (0:32)

Wait, are you a millennial?

Tracy Alloway (0:35)

I'm on the cusp of a millennial. I'm what they call an elder millennial, Joe.

But roughly the same, sure.

Joe Weisenthal (0:41)

So one of the things that I think has been a persistent theme for as long as I've been following this stuff is people predicting the inevitable demise of the US dollar as the global dominant safe asset. Would you feel the same way?

Tracy Alloway (0:59)

Oh, for sure. And there are certain, let's say, conspiratorial leaning websites and commentators who love to take up this topic. In fact, I still remember my dad emailing me about how the Iraq war was caused by Iraq demanding or starting to offer crude oil in euros as opposed to the US dollar. So this is something that comes up all the time that there's gonna be-

Joe Weisenthal (1:25)

Seriously, I just had a really good idea. Can we have your dad as a guest on the show sometime?

Tracy Alloway (1:31)

Oh my God.

Joe Weisenthal (1:32)

No, I'm serious, because a number of times now your dad has come up as a character in your thinking, whether it's like we're talking about precious metals or some other conspiracy or something political.

And it's like, why do we keep talking about him? Why don't we have him as a guest sometime?

Tracy Alloway (1:49)

I will ask him. You can definitely ask him about silver if he comes on.

Joe Weisenthal (1:54)

Okay, good. Don't tell him, don't show him any of my writings where I talk about how crazy silver people are though. Okay, I don't want him to dislike me.

Tracy Alloway (2:00)

All right.

Joe Weisenthal (2:01)

But anyway, you're right. So a lot of like fringe, gold bug, zero hedge, silver bug, all that kind of stuff. They've been talking about the inevitable demise of the US dollar for as long as I think both of us can remember.

But what's interesting is that rather than the dollar having collapsed as many people would have predicted maybe after the financial crisis or beforehand due to various reasons, it's actually gotten stronger and it's going nowhere. It's still here just as strong as ever. And arguably, it's becoming even more dominant on the global stage over the last decade or so.

Tracy Alloway (2:38)

Yeah, and in addition to that, you now have quite a bit of academic research that's actually pointing out just how dominant the dollar is in the financial system and starting to write about how this is a problem. So Hengsheng Xin from the Bank for International Settlements who was on Odd Lots is a really good example of this. But probably the most recent one was Bank of England Governor Mark Carney, who gave that speech at Jackson Hole. We mentioned it on last week's episode of the podcast, and you actually weren't there, but he proposed potentially replacing the dollar in the financial system with a sort of multipolar digital currency. I think he called it a synthetic hegemonic currency.

Joe Weisenthal (3:23)

I know, I love that expression. It's so sci-fi.

But yeah, so what's interesting is like the conversation about the dollar, it's not that the dollar's got collapsed as everyone predicted or as a lot of people thought was inevitable. It's actually gotten stronger. And now the conversation is, oh my God, it's becoming too dominant. And so we do have all these sort of elite circles, whether it's Mark Carney or the BIS, and they're also talking about the post-dollar world, but from kind of the opposite perspective that we would like to see it recede, and it's stubbornly refusing too much to the chagrin of maybe your dad and other conspiracy theorists.

Tracy Alloway (4:03)

So we're gonna be talking about the dollar's not so inevitable demise on this episode.

Joe Weisenthal (4:09)

Exactly, the dollar's refusal to weaken, just how everyone thinks it should. So previous Odd Lots guest from way back in the day, I think we talked to him right in the wake of the Trump election about various topics. He's an economist. He's been talking and writing about the dollar a lot lately and sort of thinking about these issues kind of on a similar trajectory as Mark Carney.

I wanna bring in this week's guest, David Beckworth. He's a senior research fellow at the Mercatus Center at George Mason University, longtime economics researcher and commenter, public voice on these issues. David, thank you very much for joining us.