Trump vs. the Dollar
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What is the history of dollar dominance?
For decades now, America has dominated the global financial system. Our currency is the currency that international trade runs on. Our financial plumbing is a plumbing that basically everybody to some degree or another uses. This has been called our, quote, exorbitant privilege. Because of it, our borrowing costs are lower. Because of it, we know things about the global economy nobody else knows, have access to information nobody else has access to. We can wrap sanctions around our enemies in a way no one else can. The worry for a long time has been that the world will slip out of this system. There have been challengers. Japan in the 80s the EU in the 2000s, now China. But no one has really come anywhere near dislodging it. And that was partially because it's hard to build something new and partially because we were fairly, at least until recently, restrained in how we used it. We are in a way selling the world, our currency and our financial system to make it easier for them to do their transactions.
We don't want to make it too hard to use the thing we're selling. The Trump administration is at a much more complicated relationship with this, to say the least. They've come to see dollar dominance and its cousin, our military dominance, as a burden we bear on behalf of the rest of the world and a burden they should be paying more for the privilege of using. They think that having dollar dominance has made our dollar too expensive, which has hurt manufacturing, even if it's meant cheap consumer goods. And they think that it's given us leverage. that all these idiots who came before them just haven't used, but they're going to use it. Ken Rogoff is the former chief economist at the International Monetary Fund.
How has the Trump administration altered dollar dominance?
He's a professor of economics at Harvard, and he has a new book coming out, very well-timed. It drops on May 6th, called Our Dollar, Your Problem, which is a history of dollar dominance, a history of how we built it, a history of the challenges to it, and a warning written before the Trump administration that the rest of the world was already beginning to look for exits from it.
What are the risks of dollar dominance today?
But now the Trump administration has taken the stress that system was under and begun to put true cracks in it. Rogoff doesn't think we're going to be able to unring that bell. But even bigger than that, the possibility that when you bring together our debt, now pressure on the dollar, Trump's behavior, that these things together could create a genuine financial crisis, a debt crisis, an inflationary crisis. He thinks we are way underrating the risk of it. As always, my email, EzraKleinShow at NYTimes.com. Ken Rogoff, welcome to the show. Thank you for having me, Ezra. So I want to get at the basics of how the dollar works in the international financial system. We sell dollars to other countries. Other countries buy them. Why?
So the most important thing is the English analogy. It's something everyone understands. Partly they know what it is, and partly they like it. It's something they know and trust. There are, I think, 150-plus currencies in the world, and just imagine two people trying to communicate with two currencies they never saw. Let's just deal in dollars. So that's a big part of it.
Why do other countries prefer using the dollar?
It's like a common language. How did we build that trust? Part of how we built the trust early was the dollar was good as gold. And used to be your dollar bill that you have in your pocket actually said how much it was worth in gold. And you could take it to banks and get gold for it. And that actually continued for countries until just over 50 years ago.
And then we moved to it not being based on gold, it being based on trust in the United States and how we would manage the dollar.
Well, we did. But we didn't tell anyone we were going to do that, and they weren't very happy about it. I mean, they were holding dollars because they were good as gold, and they literally meant gold. And when President Nixon in 1971 decided, hmm, I don't want to do that anymore, it was just a shock. It was actually, I think, the biggest shock until recently.
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Chapters
8 chapters
1
What is the history of dollar dominance?
0:31–2:17
2
How has the Trump administration altered dollar dominance?
2:17–2:37
3
What are the risks of dollar dominance today?
2:37–3:56
4
Why do other countries prefer using the dollar?
3:56–7:10
5
What are the economic benefits of dollar dominance for the U.S.?
7:10–10:01
6
How does dollar dominance affect manufacturing jobs?
10:01–12:58
7
What are the implications of the U.S. financial system's weaponization?
12:58–16:12
8
Could dollar dominance lead to a financial crisis?
16:12–1:02:27