Hello, and welcome to another episode of the Odd Lots Podcast.
I'm Joe Wisenthal and I'm Tracy Allaway.
Tracy, you know something that has always struck me about I don't know, the financial system, I guess, is that from the US perspective, it feels like any time anyone spends any money anywhere, particularly dollars anywhere, like the US could sort of go after them, even if it's overseas completely out of the country. It feels like the US basically has the prerogative to say, you're breaking the law. So what you're doing something we're not going to allow.
This is what exorbitant privilege looks like.
Right, Yeah, this is it. I guess that's it.
Well, I think you're hitting on something that's kind of fundamental about the current financial system, which is the dollar is the global reserve currency, and there are some pros and benefits that come with that. One of them is that you can use it as a tool of state craft, so you can go after people that you don't like
or people that are breaking the law. But there is also this tension on the other side where it seems like there are some downsides too, right, like maybe at certain times the US would desire a weaker dollar in order to jumpstart economic growth or certain exports, manufacturing, things like that. I think on the whole, most people would agree that the dollar's special status in the financial system
has been a massive benefit for the US, viz. The huge deficit and people willingly funding that and things like that. But there are downsides, and that debate kind of bursts into the public consciousness every once in a while.
Yeah, one thing, obviously since early twenty twenty two, when Russia invaded Ukraine, that sort of seems to have you know, then the US responded with an extraordinary amount of sanctions and cutting off Russia from the dollar base system almost every way imaginable. It's sort of like, you know, maybe catalyzed the new round of talk of, okay or parts.
Of the world power of the dollar, the.
Power of the dollar, exactly right. And I think that was sort of a pivotal moment. I don't know if it will be a pivotal moment for the future of the dollar, but at least it was a pivotal moment at least in this current cycle of people talking about dollar alternatives.
You know, it's interesting you bring that up because you're absolutely right. It feels like that was the catalyst for the current round of discussion about the power of the dollar and the future of the dollar in the financial system.
But thinking back to some all blots history, when I think about that question of the US maybe overreaching or using the dollar in this particular way, in the way they used it for Russia, I think about the conversation we had with the former head of Afghanistan Central Bank. Do you remember that, Yeah, because there was I think like seven or eight or nine billion dollars worth of reserves held by the Afghan Central Bank, and when the Taliban took over, the US basically seized all of it.
They put some of it aside for nine to eleven litigation, and then some of it got put into a fund that was supposed to be dispersed to the Afghan people in some way. But that to me, and maybe we touched on it in the episode, but that to me was sort of the crossing the rubicon moment when you can actually say I'm going to take these central bank reserves.
You know what.
It sort of gets to this idea in my head, and I think that's a great example, which is that a dollar is not really a thing that you have to claim to capacity on this global, complicated dollar network, right, and so we think maybe it's like, oh money, it's you have it. It's sort of like property, but it's
not like really like property. It's really just it's almost like it's almost like a ticket in some way to like a plane, but if the plane doesn't want to honor your ticket, if the airline like it can and so it almost feels like there's sort of a reminder that yes, you could theoretically hold dollars, but in the end, like the US could sort of decide like, actually, your dollars are no good here anymore.
Yeah, there's conditions attached to that ticket or that it's not an actual piece of paper, but that line item in a computer system somewhere.
And so I think it's really interesting, like what is the history of all of this, What are the limits to this power? How did we sort of emerge with this capability to sort of track the dollar flows and decide who gets access and how do we cut people off from the dollar system? It's extremely extremely interesting question.
Yeah, and it's definitely core Audlot's content at this point. So in addition to speaking to the former head of Afghan Central Bank. We've had Sultan Poso Yeah, on a number of times to talk about his vision of dedollarization and Bretton Wood's three. We've had Perry Marling debate Sultan to talk about this particular issue. And I'm happy to say that today we have one of our own Bloomberg colleagues to talk about this.
We literally have the perfect guest. We are going to be speaking with senior Washington correspondent for Bloomberg News, Salia Mosen. She is the author of a brand new book, paper Soldiers, How the Weaponization of the Dollar changed the World order. Seleia, thank you so much for coming on odd Laws.
I'm so excited to be here.
Joe and Tracy, why did you write this book? What prompted this book about the weaponization of the dollar.
It's a crazy thing. It might have been January sixth, the insurrection. I don't know. It's hard for me to put a pinpoint where, you know, for a journalist, it's a natural course to say, oh, well, maybe I'll write a book. But something happened that day. A lot of emotions.
Let's set most of them aside and just talk about the Treasury Department and the dollar on January sixth, and in the couple of days that followed, we all saw reports and I reported on how then Treasure Secretary Stephen Mnushan may or may not have been involved in talks about the twenty fifth Amendment, and do we need to sideline President Donald Trump? And I thought to myself, Wow, the Treasure Secretary's job has just gotten so huge. You know, a couple of weeks ago, he was in Congress trying
to get another spending bill through. A couple of days after that, he was in the Middle East pitching our international economic policy and economic sanctions programs and other elements of geopolitics. And here we are now he might be
involved in removing the president. That combined with a op ed that Bob Rubin wrote right after January sixth, And he wrote an op ed. It was about a couple of different things, but there was one sentence that I think it kind of sums up the kind of reporting that I've done for many years now, and it sums up why I wrote the book. He said in this column, faith in democracy and faith in markets go hand in hand. And I just thought, oh my gosh, the dollar is
part of our democracy. Democracy is part of our dollar, and that's kind of what started everything for me in my brain.
So I'm glad he brought up Trump here because this came up on an episode relatively recently. Actually, I think Trump is kind of, for once a very good prism, a very clear prism to view some of the debate around the dollar, because he sort of instinctually understands that a strong dollar might be in the US interest. It sounds good to be able to say, like, we have the world's reserve currency, and the dollar is great, et cetera.
But on the other hand, there were times during his administration where he would talk about the desire for a weaker dollar and we need a weeker dollar in order to boost manufacturing, get more jobs back to the country, et cetera. In your reporting, was it ever clear to you like which side he landed on, or even broadening it out. The US Treasury kind of has a long and complex history when it comes to expressing its desire for the green back, whether it wants a strong one or not.
Absolutely, And that's what Paper Soldiers is all about. It's all about the complexities of Treasury secretaries and any other fed or White House or congressional official talking about the dollar and how sensitive each in every syllable can be. You know, if we talk about Bob Ruba and how many words he used to describe his view on the dollar, what order those words were in currency traders in the nineties used to listen to everything to determine how to
make their trades. Now, on the question of Donald Trump in you know, from twenty seventeen through twenty twenty into twenty twenty one, you know, as usual, he's a mercurial person, lots of gray areas. He definitely saw the benefits of saying, yes, we have a strong dollar policy, we have a strong
dollar because it reflects a strong economy. But he was the first politician who in any real way realized that a strong dollar and that policy from the nineties and that had persisted, was hurting certain parts of the country. And we're talking about the forgotten man in you know, like the manufacturing sector, the roust belt of the country. And I in book I take you into Weir in West Virginia, into Marine Ohio and what happened to those
factory workers in the manufacturing sector. As globalization, which is underpinned by a strong dollar policy sort of overtook everything and people kind of forgot about the economic scarring that happened as the manufacturing sector in the US kind of disappeared. So he kind of looks at it both way. But actually, earlier in March, Trump was on as a presidential hopeful again on CNBC talking about how he thinks it's dangerous
that people are talking about de dollarization. He is wading into the d dollarization to debate, and we've all learned that he puts action behind those kinds of words.
So there's two things, and they're sort of related, but they're also sort of separate. So there is the strong dollar in the sense of the price of the dollar against our trading partners or the price of the dollar again and the end and the euro and all that. And then there is the sort of strong dollar, which is it is the currency that everybody for the most
part uses globally to settle trade. And you know, and this sort of gets to the incredible power that the US has over this network, Like just high level, what is the limits of what the US can do to the dollar network, to the various like banks, et cetera, and messaging services where dollars and goods are traded, like what is this sort of what is the perimeter of America's ability to I guess police transactions.
In the dot.
It's a debate that's raging in political and economic circles in Washington and I think in pretty much every capital around the world, because the US is actually figuring out what that perimeter is, where that boundary is. There's been a couple of moments where the US has real ooh,
I touched it and it was too hot. So there was in twenty eighteen when Steven Mnusian's Treasury department sanctioned olag Derpaska, a Russian oligarch who owned a majority stake of Russol at the time, like one of the largest aluminum makers in the world, and Treasury in the US found out kind of the hard way that maybe we overdid it or didn't look into these sanctions deeply enough,
because we had a lot of blowback from them. You know, there was a lot of self inflicted wounds there because commodity prices swung twenty percent on each headline about those sanctions. Any kind of change in the date that they would be implemented, or what kind of carve outs were coming. Markets swung, And that's not actually a goal of OPAC, which sort of oversees the Treasure Department's sanctions implementation. The
Office of Foreign Assets Control. They want to move a little bit, a little bit more softly without triggering this much turmoil. And what we saw was, you know, a little manufacturing plant in Ireland that is realizing that, well, sanctions might completely muck up our cash flow, so we might be forced to shut down our smelter. Okay, that smelter runs at two eight hundred degrees fahrenheit. It costs
a lot of money to shut it down. If it should take days or maybe a couple of weeks to actually physically shut it down, but if they run out of money, they have to shut it down quickly. That means there's going to be all these toxins polluting the air and the water supply. But sanctions are going to trigger that closure. Treasury did not think it through. That
was one example of the Treasure Department learning boundaries. And the other one is the one that Joe Trees you guys just mentioned the big sanctions in February twenty twenty two, with you know, cutting Russia off from the dollar.
So you go into detail on this in your book, and by the way, I love that example of the smelter and sort of an unanticipated consequence of doing this. But you talk in your book about the internal debate of whether or not to sanction Russia, and I think you mentioned that Janet Yellen sort of had to be convinced and that there was this memory of the oh
like dere Paska incident sort of hovering around. I guess what I want to ask is how much of this, this weaponization of the dollar is a question of political will and how far the US Treasury wants to push
on that string versus technological ability. It seems like the US does have the capacity to shut people off in some respects, so for instance through the swift system, which again you go into some detail on, but there is this overarching question of whether or not it should, whether or not it'll backfire either in the short term or in the long term by diminishing the desirability of the dollar as a reserve currency.
It's complicated, as things tend to be in Washington. There is huge political will to use economic sanctions and to make them even more sophisticated than they've ever been. What we've seen is we've gone from you in the early nineteen hundreds up until pretty much two thousand and one. OPHAC was a bit of an orphan of the Treasure Department. No one really paid attention to them. Economic sanctions at that time, they were so blunt. It was just like
embargoes on Cuba. It didn't really have this great big impact. It wasn't discussed in two thousand and one. Nine to eleven hits, and you know, the global War on terror did not start with military tanks rolling into some country or American troops in their boots hitting the ground somewhere.
It started September twenty fourth, two thousand and one, with George W. Bush, with a stroke of a pen, giving the US Treasury Department the authority to weaponize the dollar, to use the dollar to find out how did the terrorists finance those attacks? Because nine to eleven it costs those terrorists like four hundred thousand dollars, and later officials found out that that money was moved in the light
of day. So the US realized that, okay, we can track these money flows and either stop the next attack or just choke off, you know, bad actors or terrorists, organizations, or terrorists themselves from money flow and the ability to get cash by cutting them off from the global financial system because we control the dollar. That's kind of where it started, and sanctions have gotten more and more sophisticated.
Treasury created an entire unit called the Terrorism and Financial Intelligence Unit that was created in the aftermath of nine to eleven in two thousand and four and built out a basically an intelligence unit within the Treasure Department. So Treasury in the US is the only finance ministry in the world with its own intelligence operation.
Basically. Yeah, this is so fascinating, And I thought this part of your book where you talk about nine to eleven was really interesting. So what were these sort of capabilities of o FAC or the Treasury in terms of tracking illicit money flows prior to nine to eleven and then like sort of what was the difference between specifically what they did, what they could could do, and then pre and post nine to eleven.
They didn't have much Before nine to eleven, Like I said, OPHAC was this orphan No one really paid attention to them. They did a lot of work, but their budget was small, their staffing was small. They didn't have a lot of access to the Treasury Secretary, which you know, then you have no one to sort of lift the profile. But also the US wasn't looking at how to work in this space. That's between kinetic action, which is you know,
sending tanks and forces in and diplomacy. That's what sanctions are, right, It's that spot in the middle, meaning diplomacy has failed us, but we are not ready for like an actual, live, bloody war. So let's go in the middle and use sanctions. And it's pretty cheap, right, So that's where the like what Tracy asked earlier, that's where the political will is that it's not as expensive and doesn't spill blood as like a war, but it's a good option when diplomacy isn't working.
We talked us a.
Little bit more about technological ability. This is why I was curious, like how much of it is the politics versus what we are actually physically able to do. In the financial system, so if I have a dollar, to Joe's point in the intro, there are certain conditions that are attached to that dollar, and there is to some extent visibility on that dollar as well talk to us a little bit more about what a dollar looks like or how much visibility the US government can have into it.
That's such a good question, Tracy, because dollars are actually transported, sometimes wrapped in plastic shrink wrap and in trucks like loaded into Afghanistan, Like the New York Federal Reserve actually sends money like this to Cobble, or they did in the past. Right, That's why the Treasure Department would have an attache in Cobble there to sort of witness that millions of dollars of actual physical cash greenbacks coming into the country. So that's the really hard part, right, how
to monitor that. Banks do have a responsibility to tell the Treasure Department through these Suspicious Activity Reports sars when they see transactions happening that touch their financial institution that look suspicious to them. But these sars are just it's just like throwing something in some obscure filing box and maybe someone shifting through it will see what they need
to see. It's hard to see a pattern. Basically, after nine to eleven, officials realize that they don't have a ton of visibility the US itself autonomously to see how dollars are moving through the global financial system. And this is where it gets interesting. After nine to eleven, Treasure officials wanted to get that glimpse, and they knew that SWIFT based in Belgium, part of the EU, and that
jurisdiction has data within its fortresses. You know, the building itself in Lahoopa, Belgium is you know, it looks like an actual fortress, but they have the data that shows the routing number and the transaction time in real time.
You know.
Swift is basically the Gmail of the banking system.
It is like that.
Yeah, it's a way for banks to communicate with each other. Here's the bank account number, here is the name, here's the address and the amount that needs to be moved. But it promises privacy. No one will know the nature of the transaction, right And a couple of different central banks are involved in sort of that network that SWIFT has built up, including the Fed, Bank of Japan, Bank of England and a couple of others. And so Treasury
officials got together and they spoke to Swift. The head at the time after nine to eleven was Lenny Shrink, really really interesting guy that I spoke to for the book Colorful Character, and he said, well, they approached me, and he said he knew that that call as soon as those planes hit the Twin Towers in Manhattan. He says he remembers he was in Europe for I think Ireland for a meeting with a Swift board member. He was biting into a sandwich when he heard that nine
to eleven happened. He found out exactly the depth of the problem and then he knew, right then, I'm going to get a call from the Charges Department. They're going to want data. They're going to want to know how did money that financed that attack move through this system, how did we miss it, and how can we catch the next one? Because bring yourself back to September twelfth
and thirteenth, we were terrified. You know, everyone at that time internationally said I'm an American today because if someone can attack this country, they're attacking everyone. If you remember the Queen of England at the time, she sang the national anthem, the American national anthem, because she said I stand with America. So Lenny Shrink, an American himself, knew that that call was coming. So when Treasury finally called
he had he was ready. You know, it depends on who you ask, but it's possible that Treasury might have approached Swift a couple of times before then looking for some data and they always kind of said no. And so they finally got to talking about specifics, and Lenny Shrink spoke to a couple of the different central bank
governors that were involved. According to one source, Alan Greenspan at that time was against it, initially against Treasury having any insight into Swift data because he said gentlemen shouldn't read gentleman's mail, So he didn't like the idea at first.
First of all, I think you wrote in your book that this only came out like in two thousand and six, that the that the Treasury had approached Swift about getting access to more data, like it was done pretty surreptitiously or secretly for a while.
Yeah, so Swift, okay, Speed, that's what it alludes to. Treasury's code name for the whole program was Turtle, the opposite Swift.
I love the Yeah, it's great.
Yeah.
So if you were like if you were at an airport maybe in two thousand and one through six and saw like these government, you know, gray or sort of muted suits. A man may be handcuffed to a briefcase. And if they were talking about a turtle, they were talking about swift. So they used swift. They were able to come to an agreement. They would have to subpoena
the information. There was a lengthy process there. Lenny Schrank said, I want the US to have the information that they need and not a bite more because he didn't want it to be abused and he wanted to set a precedent. He did say to me that the only reason that the US was able to get that information was the power of the dollar. It is the owner of the world's reserve asset. Coming to Swift, saying we need to protect our economy in our financial system because after nine
to eleven the stock market was wiped out. Up one point four trillion dollars of value disappeared that day, the S and P five hundred plunged. Over a couple of weeks, the markets were closed because physically the heart of American stock market had been attacked right the financial district was right by the World Trade Center. So he said, that's why that's the only persuasive power. Any other country had come to us, it was a very easy no. We wouldn't even have to explain.
So one thing that I think often comes up when we're debating the role of the dollar. I mean, obviously people can see the benefits that it has for the US. There is that idea of exorbitant privilege, and the US is able to issue a lot of dollar denominated debt and fund a lot of different things, thinks in part to its currency. But I guess one thing that often doesn't get discussed, or doesn't get discussed as much, is the idea of what the rest of the world gets
from the dollar's special position. Can you talk a little bit about that, Why does the rest of the world agree to do stuff like invoice in dollars or buy US treasury debt or how large reserves of dollars that it holds at the New York Fed and things like that terracy?
The answer that question actually begins like seventy eighty years ago, nineteen forty four Breton Woods. Lots of economists and monks here in Washington and around the world in financial and economic policy circles loved to talk about Breton Woods. This is when, by design, the dollar was crowned as the reserve asset, the most important asset in the world. At the time, the world had just emerged from back to back global wars. Europe's fiscal position most of the countries
there it wasn't good. The UK had held the reserve asset, the British pound. They were no longer the largest economy in the world, and since their actual physical infrastructure was so damaged after two wars, they had a lot of spending they had to do. The US was sort of this hercules in a cradle emerging to take on the global superpower role. It had been heading toward for decades and it was ready for it. Everyone was looking at America like they have got this figured out. They're going
to lead us into the future. All the technology is there and everything is clean and shiny over there. They're a stable country and helped wrap up the war. So the US helped create the infrastructure of the World Bank, the International Monetary Fund, all ways to knit the world together so that we're so economically integrated that we cannot start a war with each other, because then there's that deep and self inflicted wound because we are so economically
aligned so much trade going on amongst us. Everyone kind of relied on the dollar to lead the way forward, the same way they relied on the US to lead the way forward, because it was a safety net. Right at the time, the dollar was pegged to gold, and so there was this promise that is, as long as we can continue on dollar dependency, then we will all stick together and emerge from the ashes of two wars stronger.
And in those eighty years, global GDP did grow a lot because of globalization, because of that economic integration, and so as the United States rose and consolidated power, its superpower status, people were more and more invested in dollars
themselves and depending on the dollar. And it turns out that when you know a crisis hit, whether it's a regional crisis in some part of Asia or Europe or Latin America, or there was political instability in another country, or something that was more global, a pandemic, a global financial crisis, even if that financial crisis started in America, the dollar has been seen as a safe haven. Let's all flee to this place because we know that this country has rule of law, free and fair elections, a
strong and stable democracy. If we park our cash and our wealth and our savings in there in this asset. It'll be there when we come back to it.
So you know, you hold dollars like, there's the network effects of everyone using the same currency. There's the general
price stability, there's the rule of law, et cetera. Now, as we said in the introduction, or we were talking about earlier, like the sort of sanctions in twenty twenty two, or as Tracy mentioned, the seizing of the Afghanistan dollars, it seems to have woken much of the world up that yes, there are benefits to holding the dollar for maybe obvious economic reasons, but it comes with strings, or
it comes with risks. Do you think that there's like a sort of I don't know, maybe a gap in that realization where maybe it's like people sort of around the world actors understood the benefits of transacting in the dollar network, and it only clicking later on that is conditions to part of that network that the the US essentially has quite a bit of power to police reactions.
Absolutely, I think that this was something that kind of crept up on us without maybe us realizing right away. I mean, for one thing, the dollar and the US has an immense dominance across the world. The world's largest economy is the US. The next three countries on that ranking put together and you get maybe to wear the size of the US economy. So by sheer strength and just internal power, a lot of innovation happens in the US.
We have a lot of fiscal spending, which drives more research and development.
So the other thing that tends to happen in this type of conversation is people will say, oh, well, the dollars the reserve cur andy, because it's a unipolar world and the US has dominated at least up until relatively recently. But as you point out, it's kind of it's almost the opposite, Like there was a lot of consensus building going into the initial stages of building up the dollar as the reserve currency, and it feels like even now there is still a degree of cooperation here. And you
mentioned Swift for instance. I mean, Swift seems to have the cooperation of several central banks, which you already mentioned. But I guess my question is like, A, how much cooperation goes into the dollar's special position, and then B how vulnerable do you think some of that consensus is in current day.
That's such a good question. There is so much consensus, and I'm going to point you to history again. If you look at the nineteen eighties, a really interesting and exciting thing happened. I almost wish I was a financial journalist back then, covering the Plaza and the Louver Accord.
So in nineteen eighties, let's think it's inflation was really high, the dollar was really strong because interest rates had been hiked up to combat inflation, and manufacturing sector farmers, a lot of x you know, our exporters were complaining about how strong the dollar was, and other countries were saying that the US has this quote benign neglect of the dollar. They don't care that it's so strong it's damaging its
own economy. They're, you know, folks insider complaining, and overseas, it's making it hard for other countries to buy goods that America is making and trying to sell. So at the time, it was the G five, it was West Germany, Japan, the UK, the US, and I think France got together at the Plaza Hotel in Manhattan and I went there to research the room. What it looks like. I asked somebody of one of the bell hops or something like, Okay,
has this room been the same since the eighties? Because I got to write about it and they all secretly met with then Treasure Secretary Jim Baker to collectively agree that they were going to medal in currency markets to weaken the dollar, and you know, that's kind of what triggered the whole strong dollar policy lore of journalists and currency traders trying to figure out what does a treasure
secretary say about the dollar? Because maybe there's going to be government intervention in the dollar because they did it right, what about now?
Like, so, does this feel like a different moment? Because, as Tracy and I have talked about on multiple episodes, and you know, both of us have aaly been reporters for about fifteen years, but within those fifteen years there are like multiple waves of people talk about post dollar ear multipolar era, new alternative. Does this feel like does
twenty twenty two to twenty twenty four and beyond. Does this feel like something different where the conversations like, oh, that's right really might be a change or does this feel like another time in multiple cycles where yes, there's plenty of talk about a post dollar ero, but it doesn't really amount to much.
You're right, A lot of people for decades since the Bretonwoods Agreement in the nineteen forties, have been wondering when is the dollar's hegemony going to end? Where who's going to be the one to take over? Is it gonna be the Japanese yen? When the Euro came on the landscape, Oh maybe the Euro will take over the dollar, and no one has really done that. What's different now is Trump.
He came onto the scene. He disrupted so many of our long held economic assumptions to the point where we've got Biden and his first Date of the Union speech, give it a different delivery, emphasize different words, capitalize different letters, and it could have been something that Trump said because Biden was talking a lot about buy America and now we hear Janet Allen talking about friend shoring. All of this to me sounds a lot populism and make America
great in America first. And so we are seeing that Trump's disruption continued. He shifted the trajectory. You know, now, let's get really wonky. The US Treasure Department twice a year releases a currency policy report, and when I was covering Treasury, I loved this report. I even sprung it loose once ahead of schedule, and you know, even civil servants were wondering, how on earth it's to like I get a hold of this report because everyone to know.
What everyone wanted to know, is the US going to designate China a currency manipulator because they were the most obvious contender for that tag. And what we've seen is that Trump has brought action behind his words and he has shifted the debate. So now if the US wanted to get a bunch of countries together to manipulate the dollar, it's a totally different ballgame. For one thing, currency markets are just too big to be able to allow a
couple of governments to influence it. And then who's going to join the US in that The US does not have the same standing that it did ten years ago or forty years ago when the Plaza a cord happened. Now we're in twenty twenty four. You know, in twenty eighteen and nineteen, there's a deep chapter in the book on this when Trump actually talked about intervening in the dollar,
which would have been a huge deal. And Larry Kudlow, you know, he's sitting on the other side of the resolute desk inside the Oval Office said to Trump, who's going to join us? No, ally is going to want to work with us on this.
So on a similar point, you know, there is this vibrant debate now about whether or not the sanctions against Russia have been effective, whether or not the US in one way or another, overstepped the bounds when it decided to cut off Russia from the banking system or even going back to the Afghanistan reserves and things like that. I know you're not covering the Treasury uh specifically now, but presumably you're still talking to plenty of people in
DC where you're based. What are they saying now about that decision.
The current administration has ended up in a bit of a defensive posture when it comes to talking about the dollar. The minute we started hearing Janet Yellen say there's no threat against the dollar, and I'm going to give you the extreme example, it's like when Nixon said I'm not a crook, right, So it's like, oh, there's nothing to
see here. That's super extreme. But if she's talking about it, if the Treasury Secretary and the Fed Fed chair Powell earlier in March, testified and said to Congress there's no threat to the dollar from russia sanctions. FED official Christopher Waller did a speech dedicated to the dollar's role in the global financial system and what its outlook could be, and he also said Russia's sanctions are not affecting the dollar. So it's kind of like, well, if you're saying it,
that means you're studying it. That means you thought it was worth looking in, So maybe there's something there. At the same time, we have a lot of countries who are wondering, like, oh, are we too dependent on the dollar? Because if they cut off Russia, a G twenty country that in twenty twenty two was the world's eleventh largest economy, so closely knitted with Europe, and they cut them off,
and it was pretty wild for the country. Right here in the US, our gas prices at the pump went up because of those sanctions, and at the time Americans were willing to pay that price. But that's not going to last forever.
By the way, I looked up the Swift headquarters after you mentioned that it looks like a fort. It is an incredible building. Actually, you were not exaggerating in fact, it's far grander than what I expected. When Russia was cut off from SWIFT in twenty twenty two, that was just seen as like this, like watershed move the sort
of like the finance equivalent of a nuclear option. Do you see, like when you talk about going back to your answer just now, like a building up of new networks, of alternative networks of moving money around.
When the Trump administration blew up the JCPOA, the agreement around Iran's nuclear program and withdrew from it, we saw European countries wondering, how can we continue to transact with Iran and abide by our agreement with Iran and not violate US sanctions? Because Trump then reimposed nine hundred and seventy one or more economic sanctions on Iran, and so
Europe didn't want to be in a violation of those. Now, the interesting thing that happened was that no European country wanted to own that non SWIFT network and get blamed by the US for creating that. The thing that I would point to and the thing that actually, you know, I end the book on a note of hope that I think that the US, you know, as a democracy
is supposed to be self critical. We're in a very self critical moment right now, and that extends from social problems, political problems, economic finance, and like let's get long key currency policy. So I think that we're going to emerge from this hopefully stronger. Like that's my pie in the sky, hopeful thinking. If you look at some of the countries that are trying to create a network outside of the dollar, it's like the bricks plus and a lot of them
are closed detocracies. They are not open democracies. The way the US is now. Where I find hope is that hopefully in a decade or two, we have shown that we continue to be a country that has a stable democracy, rule of law, free and fair elections, all those things, independent agencies. But those other countries, you know, if they're run by dictators, then that dictator, just like everyone else, their life will come to a close. What's going to
happen at that moment? And when there's political instability, people lead to the dollar the next time there's some kind of global crisis. If every one runs to the dollar, I think you can put a big period on that question. Is dedollarization happening? Because we are still the safe haven. And so then what's going to happen if Putin or Cheson Paying, or some of these other countries lose their dictators or their authoritarian leaders. There's a power vacuum, and
there's a power grab, and there's instability. They don't have time to deal with trying to become a reserve asset or trying to outskirt or outrun the world's reserve asset. By creating this network, they're going to be dealing with their inside problems.
Sleia Mosen, author of the new book Paper Soldiers, How the Weaponization of the Dollar Change the World Order. Thank you so much for coming on odd Lots and congratulations on the book.
Thanks so much. I was an honored adjoin.
TSEA. I really like Sleia's perspective that dollar strength is sort of downstream from political stability, and I think that's a really important element of all of this, which is that you know, we look at measures get to GDP and inflation, et cetera. But the real thing that sort of undergirds at all and that sort of needs to be maintained, is just this assumption that the US is a stable country at the rule of law, and probably the most stable with the strongest rule of law in the world.
Now absolutely, I really liked her final answers, sort of linking a lot of the network effects and the politics together. And I think Charlie Kindelberger made this point ages ago that like, the reason the dollar reigns supreme, the reason there is this dollar hegemony like isn't necessarily because the US is imposing it on the rest of the world or because there is this unipolar world. Instead, it's because, like there has been decades of sort of consensus building
and network building around this. And so the question is, Okay, if people are uncomfortable with the dollar because they're worried that the US can over exert its control of the system, such as what we saw with Russia getting kicked out of the banking system or Afghanistan reserves getting seized and that sort of thing, then they need to build up an alternative, which means they have to build a network.
And frankly, as Sleia was sort of intimating towards the end, like dictators, they might not they might be busy, they might be too busy to build up a network, but also they might not be that good at it.
Or yeah, I thought that was a great answer, or they might that no one could just have the confidence of sort of an internal policy stability after that, Leader Leaves, I thought it was a really fascinating point. Also, until her book, I hadn't really appreciated the degree to which nine to eleven specifically was a turning point for our our aggressiveness maybe or our ability to essentially monitor global financial flows.
Yeah, it's such a it's taken for granted so much now, and it is such a given that it's kind of weird to hark back to a time. I mean, I guess it would have just been the year two thousand, so twenty four years ago, when the US wasn't using something like Swift to aggressively monitor terrorist financing. It is crazy to think about how much I mean, I guess it's a little bit obvious that nine to eleven was a watershed moment. But also in terms of the financial system.
Yeah, totally't. I hadn't really appreciated that all. And also just this idea too of like there was a point and maybe we can never go back to that where it's like you actually have leaders coming together and coming to some consensus, not just in terms of like the sort of weaponization of the dollar or the ability to track dollar, but also coordination on price, as in the
case of the Plaza Accord. All of these things that are like so rapidly changed, so dramatically different, the current system feels simultaneously obvious and also very new.
Yeah, yes, it's like inevitable and also kind of mind blowing. Yeah it's happened at all. I'm sure we could go on for longer, and I'm sure we will have many, many more episodes on exactly this topic, but for now, shall we leave it there?
Let's leave it there.
This has been another episode of the All Thoughts Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
And I'm Joe Wisenthal. You can follow me at the Stalwart. Follow our guests Seleia Mosen, She's at Seleia Mosen and check out her new book Paper Soldiers, How the Weaponization of the Dollar Changed the World Order. Follow our producers Carmen Rodriguez at Carmen Arman, dash Ol Bennett at Dashbot and kel Brooks at Kilbrooks. And thank you to our producer Moses On. For more Oddlots content, go to Bloomberg dot com slash odd Lots where we have transcripts, a blog,
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