Mike Kudzel
Appearances
Planet Money
Is the reign of the dollar over?
They're focused on the costs of having the dollar as a reserve currency. One effect of your currency being the reserve currency is your currency is stronger than it would be otherwise. In the Trump administration, they're like, a strong dollar is great for U.S. consumers. Imports are cheaper. Travel abroad is cheaper. But it is not great for exporters, for manufacturing in this country.
Planet Money
Is the reign of the dollar over?
And this is really clear during recessions, when there's that flight to safety and the dollar strengthens. If you're a business selling stuff to the world and you're struggling because there's a recession, you're actually double struggling because your products are getting more and more expensive abroad. So we asked Barry, how bad is this?
Planet Money
Is the reign of the dollar over?
Like if you subtract the downside from the upside, what does that leave us with? Like a lot of privilege left over or none?
Planet Money
Is the reign of the dollar over?
Historically, buying treasuries has been seen as the safest thing of all. So when the stock market is looking dicey, treasuries are supposed to go up. And... People run towards the U.S. dollar because it's safe.
Planet Money
Is the reign of the dollar over?
So most economists agree we are better off overall. But better off or not, the dollar's status is very gradually, glacially, Barry says, eroding. Central banks have been buying other currencies to at least rely on the dollar less. When the dollar made up 73% of the world's central bank reserves, that was the peak. That was more than 20 years ago.
Planet Money
Is the reign of the dollar over?
And since then, the dollar's share has been slowly drifting lower and lower. It is now down to 58%.
Planet Money
Is the reign of the dollar over?
So, okay, if the U.S. dollar were to stop being the world's reserve currency... What happens? Like if I'm a central banker shopping for a new reserve currency, what are my best options? I asked each far. This is my little list. China, Europe, Germany, France, question mark, question mark. Oh, I forgot the UK entirely. Sorry. Whoops. Japanese yen.
Planet Money
Is the reign of the dollar over?
And then they're like kind of littler guys like Australia, South Korea, Canada. And then there's gold and Bitcoin. Does that sound like the menu of options to you?
Planet Money
Is the reign of the dollar over?
I actually went through every single one of those possibilities with Ishwar. What about our old favorite, our old friend, the pound sterling?
Planet Money
Is the reign of the dollar over?
Slow economic growth. Let's go to Japan. What are we looking at?
Planet Money
Is the reign of the dollar over?
Same problem, not much growth. Plus, Japan's population shape is all wrong. From an economics perspective, they have too many old people drawing down their pensions and not generating money.
Planet Money
Is the reign of the dollar over?
They don't want to be the reserve currency. So I asked about Australia. And it turns out, yeah, the Aussie dollar is on the rise. And so is the Canadian dollar and the South Korean won and even the Indian rupee.
Planet Money
Is the reign of the dollar over?
Oh, dear. Okay. I'm feeling more pessimistic than I expected.
Planet Money
Is the reign of the dollar over?
All those countries have their own governments with their own budgets and policies for taxing and spending. And sometimes that doesn't work out so well. Ishwar remembers the Eurozone debt crisis 15 years ago when suddenly Greece realized its books were not accurate and it did not have the money that it thought it did. In fact, it didn't have any money at all. And everyone freaked out.
Planet Money
Is the reign of the dollar over?
Okay, so not the euro. What about the other obvious candidate, the other biggest economy in the world? Interestingly, China has been actively trying to become a bigger player in the reserve currency world to get more of the world to use its renminbi.
Planet Money
Is the reign of the dollar over?
The renminbi went from being no percent of global foreign exchange reserves to 2.2 percent. Not huge. And that percentage has not been growing.
Planet Money
Is the reign of the dollar over?
That's probably the biggest impediment for China. Trust. Central bankers and foreign investors around the world worry that China will change its rules and they won't be able to get their money out, despite China's promises. So, okay, wow. We have found functionally no viable candidates.
Planet Money
Is the reign of the dollar over?
I heard you almost say flight. It's a capital flight, right? That's the phrase?
Planet Money
Is the reign of the dollar over?
Yes, literally. Good one. But also just the market. There's not enough gold. The global economy is way bigger. Central banks need more in reserve than gold can provide. All right. Come at me, Bitcoin.
Planet Money
Is the reign of the dollar over?
So who is your top draft? Can you make a case for anybody?
Planet Money
Is the reign of the dollar over?
Still, they are reaching for it less and less. And Ishwar says that trend will likely continue. The Trump administration's policies just accelerated it.
Planet Money
Is the reign of the dollar over?
That's what I came up with. You got something better? I think he didn't want to say capital flight because capital flight is like a big thing. It's money sprinting away as fast as it can go, typically from an emerging market country whose government has just done something fiscally reckless or like unforgivable.
Planet Money
Is the reign of the dollar over?
Which is good news for our Kevlar-wearing money manager Mike Epimco. Because in recent weeks, he has not fled U.S. assets. He actually ended up buying more U.S. treasuries. More dollars. And a little bit of debt from Japan, the U.K., and Australia. Just in case.
Planet Money
Is the reign of the dollar over?
This episode of Planet Money was produced by Emma Peasley with help from James Sneed and edited by Marianne McKeown. It was engineered by Kwesi Lee with fact-checking help from Sierra Juarez. Alex Goldmark is our executive producer. I'm Mary Childs.
Planet Money
Is the reign of the dollar over?
So this phrase is not something that any money manager would just throw around casually. But it was the song that was in Mike's head.
Planet Money
Is the reign of the dollar over?
Was there like some kind of tipping point that you're like, if that keeps going, we're beeped?
Planet Money
Is the reign of the dollar over?
Mike told me the tipping point was when the 30-year Treasury hit one of those round numbers that just freak people out.
Planet Money
Is the reign of the dollar over?
Interesting in a bad way. Yes. And Mike is like, okay, this is new. This map at all height.
Planet Money
Is the reign of the dollar over?
A regime break, like maybe the end of the reign of the dollar, the era in which people all over the world turned to U.S. treasuries and dollars for safety in times of crisis. This could be the end of something not just for money managers like Mike, but for everyone.
Planet Money
Is the reign of the dollar over?
For the past 80 years, the dollar has been the reserve currency of the world. And the question Mike and a lot of other people have been starting to ask is, what if that's changing? What if the world stops seeing the dollar as the safest?
Planet Money
Is the reign of the dollar over?
And I'm Mary Childs. And like Mike, we have some questions. Because the things we talk about at Planet Money, the world of economics and finance, that world is approaching its own kind of regime break. The regime we have been under was built on some basic ideas. Things like, you know, a dominant dollar is definitely good for Americans. Global trade makes the world richer.
Planet Money
Is the reign of the dollar over?
It's in America's interest to be the world's cop. Federally funded research pays off. You know, that kind of thing.
Planet Money
Is the reign of the dollar over?
So this is something we're going to keep covering over the next few months, an occasional series. Let's call it Pax Americana, about that post-war balance that had put the U.S. at the center of the economic solar system and how that might be changing.
Planet Money
Is the reign of the dollar over?
So a reserve currency is one that countries around the world hold in reserve in the vaults of their central banks and in bank accounts of their central banks. They can hold any currency or they can hold some of this and some of that. The idea is they need to keep their trillions of money somewhere safe to store value until the day when they need to spend it.
Planet Money
Is the reign of the dollar over?
Mike Kudzel, a money manager at PIMCO, got to work on Tuesday, April 8th, ready for a crazy day.
Planet Money
Is the reign of the dollar over?
One way a central bank stores another currency is by buying that country's debt. Because for all intents and purposes, if you're holding U.S. treasuries, you're holding dollars. Same for Japanese government debt. You're holding Japanese yen, etc.
Planet Money
Is the reign of the dollar over?
Currencies are his thing. Because Ishwar spent 17 years at the International Monetary Fund, which lends dollars to developing economies. So a lot of his life has been watching dollars flow all around the world. And he has seen the dollar's dominance on a more micro level. Like sometimes when he's been traveling, he has found himself without the local currency.
Planet Money
Is the reign of the dollar over?
And he's been like, oh, maybe this could be a little cash experiment.
Planet Money
Is the reign of the dollar over?
Kevlar like what firefighters wear because markets were in flames in the aftermath of President Trump's big tariff announcements.
Planet Money
Is the reign of the dollar over?
That's people, businesses, central banks. U.S. dollars make up the majority of reserve currencies held by central banks. At its peak, 73% of all central bank reserves were U.S. dollars.
Planet Money
Is the reign of the dollar over?
So U.S. Treasuries, liquid. In fact, the most liquid single market in the world, which means there's always someone there willing to trade with you.
Planet Money
Is the reign of the dollar over?
So Ishwar says you need checks and balances, but you also need rule of law.
Planet Money
Is the reign of the dollar over?
So we need liquidity, big deep liquid markets. We need safety, a store of value. And we need to trust the country whose currency it is, that their institutions are strong and reliable, independent, that they play by the rules. And one more thing, ideally, you want a currency from a country with a strong and growing economy because it's a better bet.
Planet Money
Is the reign of the dollar over?
And for decades, that ideal reserve currency has been the dollar. The dollar has checked all those boxes.
Planet Money
Is the reign of the dollar over?
Pound sterling is the only other example of a dominant reserve currency in modern financial history. The British Empire was running trade all around the world. Reserve currencies are often associated with empire, with military dominance. And Britain was dominant.
Planet Money
Is the reign of the dollar over?
Regular Planet Money listeners will know this story. The delegates at this meeting arrived on a big train, wearing double-breasted suits. They got their pocket squares, normal 1940s stuff.
Planet Money
Is the reign of the dollar over?
And that is weird. Because normally, when investors get scared, as they were that day, they sell risky things like stocks to buy stuff that they see as safer. And historically, that safer thing has been U.S. government bonds. Treasuries.
Planet Money
Is the reign of the dollar over?
At the meeting, those representatives tinkered out articles of agreement for a new global economic structure. International trade had broken down, so to reduce chaos between currencies and restart global trade, they needed some standard. like a common language. They needed their money to talk to each other. So in that room, they decided that basically every currency would have to be pegged to U.S.
Planet Money
Is the reign of the dollar over?
And since those delegates in their suits met up in New Hampshire, the dollar has become globally indispensable. The more people have used it, the stronger it's gotten. And the stronger it's gotten, the more people have used it.
Planet Money
Is the reign of the dollar over?
But now economists and policymakers are debating if the reserve currency status is a good thing or if it's too much. So which is it?
Planet Money
Is the reign of the dollar over?
Barry wrote this book about the dollar called Exorbitant Privilege.
Planet Money
Is the reign of the dollar over?
Like Ishwar in his taxi experiments and like businesses that don't have to exchange their dollars for other currencies all the time in order to buy and sell things. Because all that costs time and money.
Planet Money
Is the reign of the dollar over?
The fact that the U.S. dollar is at the center of the global financial system means the U.S. has this unmatched power to sanction other countries. We can stop dollars from flowing to foreign banks. We can freeze or seize their dollar assets. And we do.