Odd Lots - How the US Dollar Became an International Weapon of War

Episode Date: March 18, 2024

After Russia's invasion of Ukraine, the US took a number of extraordinary steps to cut Moscow out of the international financial system. The country immediately was hit with a slew of sanctions. It was cut off from the SWIFT payment system and it even had its dollar reserves seized. Prior to that, in 2021, the US took the rare step of seizing dollar reserves from Afghanistan's central bank after the Taliban's re-emergence to power. So how does the US control who gets to hold and transact in US dollars? Where did this power come from? What are the limits to the US policing of its own currency? On this episode of the podcast, we speak with Bloomberg Senior Reporter Saleha Mohsin, author of the new book, Paper Soldiers: How the Weaponization of the Dollar Changed the World Order. We discuss the buildup of this tremendous financial power and also what it means for the dollar's status as a reserve currency going forward.See omnystudio.com/listener for privacy information.

Thanks for listening to Odd Lots. Follow the show on Amazon Music for more future episodes or just ask, Alexa, play the Odd Lots podcast on Amazon Music. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple flashy funds your way and call it a day. But on Vanguard, at Vanguard, institutional quality isn't a tagline. It's a big line. It's a very big. It's a firm. It's a few. commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com slash audio. That's vanguard.com

all investing is subject to risk vanguard marketing corporation distributor. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthall. 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 U.S. perspective, it feels like any time anyone spends any money anywhere, or particularly dollars anywhere, like the U.S. could sort of go after them, even if it's overseas completely out of the country. it feels like the U.S. basically has the prerogative to say you're breaking the law and so what you're doing something we're not going to allow. This is what exorbitant privilege looks like, right? Yeah, I guess you're right.

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 statecraft. 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 U.S. 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 U.S.

of 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 2022, when Russia invaded Ukraine, that sort of seems to have, you know, then the U.S. responded with an extraordinary amount of sanctions and cutting off Russia from the dollar-based system in almost every way imaginable. It's sort of like, you know, maybe catalyzed a new round of talk of, okay, are parts of the world. The power of the dollar. The power of the dollar exactly right. And I think that it 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 odd lots history, when I think about that question of the U.S. maybe overreaching or using the dollar in this particular way and the way they used it for Russia, I think about the conversation we had with the former head of Afghanistan's central bank. Do you remember that? Yeah, that was a great episode. Because there was, I think, like, $7 or $8 billion worth of reserves. held by the Afghan central bank. And when the Taliban took over, the U.S. basically seized all of it.

They put some of it aside for 9-11 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. It's a claim to capacity on this global, complicated dollar network. Right. And so we think maybe it's like, oh, money, 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,

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 U.S. 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. It's like, what is the history of all of this? What are the limits to this power? Or 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 odd lots content at this point. So in addition to speaking to the former head of Afghan Central Bank, we've had Zoltan Pozar on a number of times to talk about his vision of de-dollarization and Breton Woods three. We've had Perry Merling debate, Zoltan, 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, Salae Mosin. She is the author of a brand new book, Paper Soldiers, How the Weaponization of the Dollar,

changed the world order. Salaa, thank you so much for coming on Adla. 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 6th, 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, 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 6th and in the couple of days that followed, we all saw reports and I reported on how then Treasury Secretary Stephen Mnuchin may or may not have been involved in talks about the 25th Amendment and do we need to sideline President Donald Trump. And I thought to myself, wow, the Treasury Secretary's job has just gotten so huge. 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 6th. 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 you 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 U.S. 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 weaker dollar in order to boost manufacturing, get more jobs back to the country, etc. In your reporting, was it ever clear to you, like which side he landed on or even broadening it out? The U.S. Treasury kind of has a long and complex history when it comes to expressing.

its desire for the greenback, 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 Rubin, how many words he used to describe his view on the dollar, what order those words? were in, currency traders in the 90s used to listen to everything to determine how to make their trades. Now, on the question of Donald Trump in, you know, from 2017 through 2020 into 2021, 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 90s 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 rust belt of the country. And I, in the book, I take you into Weerton, West Virginia into Moraine, 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 U.S. 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 CNN. NBC talking about how he thinks it's dangerous that people are talking about de-dollarization. He is wading into the de-dollarization 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 against the yen and the euro. 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 this sort of gets to the incredible power that the U.S. has over this network. Like, just high level, what is the limits of what the U.S. 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 the sort of, what is the perimeter of America's ability to, I guess, police transactions in the dollar?

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 U.S. is actually figuring out what that perimeter is, where that boundary is. There's been a couple of moments where the U.S. has realized, ooh, I touched. it and it was too hot. So there was in 2018 when Stephen Mnuchin's Treasury Department sanctioned Oleg Deripaska, a Russian oligarch who owned a majority stake of Rusal at the time, like one of the largest aluminum makers in the world. And Treasury in the U.S. 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 20% 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 OFAC, which sort of oversees the Treasury Department 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 2,800. degrees Fahrenheit. It costs a lot of money to shut it down. 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 Treasury Department learning boundaries. And the other one is the one that Joe Teresa, you guys just mentioned the big sanctions in February 2022 with, you know, cutting Russia off from the dollar. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple flashy funds your way and call it a day.

But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your country. clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com slash audio. That's vanguard.com slash audio. All investing is subject to risk vanguard marketing corporation distributor. Eating well shouldn't be

complicated, but somehow it turns into recipes, prep, clean up, and half your Sunday gone. Factors solves all that. These are fresh, ready-to-eat meals designed by dietitians, delivered to your door, and ready in just minutes. No prep, no cleanup, no excuses. And it's not just about convenience. You're getting real food, balanced nutrition, and zero artificial stuff. Meals that help you stay on track for all of your goals without the grind of doing it all yourself. Grilled chicken, roasted veggies, steak plates, postables. They taste like something you get in a restaurant, but they come out of your microwave in two minutes flat.

If time, cost, or effort have been holding you back from eating better, Factor just took those off the table. Right now, get 11 meals, free shipping, and free sides for life. Hurry, this offer won't last long. Go to FactorMeals.C.A and use code fit. That's 11 meals, free shipping and free sides for life,

but only with the code fit at Factormeals.ca. Factor, Canada's number one ready-to-eat meal delivery service. 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 Oleg Deripaska 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 U.S. Treasury wants to push on that string versus technological ability. It seems like the U.S. 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 know, in the early 1900s up until pretty much 2001, OFAC 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 2001, 9-11 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 24th, 2001, with George W. Bush with a stroke of a pen, giving the U.S. Treasury Department the authority to weaponize the dollar, to use the dollar to find out how did the terrorists finance those attacks?

Because 9-11, it cost those terrorists like $400,000. And later officials found out that that money was moved in the light of day. So the U.S. 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 9-11 in 2004 and built out a basically an intelligence unit within the Treasury Department. So Treasury in the U.S. 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 9-11 was really interesting. So what were this sort of capabilities of OFAC or the Treasury in terms tracking illicit money flows prior to 9-11. And then like sort of what was the difference between specifically what they did, what they could do, and then pre and post-9-11. They didn't have much before 9-11. Like I said, OFAC 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's secretary, which, you know, then you have no one to sort of lift the profile, but also the U.S. 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 to 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 U.S. 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 Kabul or they did in the past, right? That's why the Treasury Department would have an attache in Kabul 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 Treasury 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 9-11, officials realize that they don't have a ton of visibility, the U.S. itself, autonomously, to see how dollars are moving through the global financial system. And this is where it gets interesting. After 9-11, Treasury 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 La Houpe, 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 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 9-11 was Lenny Shrank, really, really interesting guy that I spoke to for the book, a colorful character. And he, he, 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 9-11 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 Tragist Department. They're going to want data. They're going to want to know how did money that finance. 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 12th and 13th. 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 Shrank. an American himself knew that that call was coming. So when Treasury finally called, 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'd always kind of said no. And so they finally got to talking about specifics.

And Lenny Schrank 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 2006 that the Treasury had approached Swift about getting access to more data. 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 of Swift.

I love that. Yeah, it's great. The turtle and the Swift. Yeah. So if you were at an airport maybe in 2001 through 2006 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 U.S. 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 U.S. 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 and our financial system because after 9-11, the stock market was wiped out, up $1.4 trillion of value disappeared that day. The S&P 500 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. If 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 U.S. There is that idea of

exorbitant privilege and the U.S. is able to issue a lot of dollar-denominated debt and fund a lot of different things, thanks in part to its currency. But I, I'm not a lot of the money. 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 U.S. treasury debt or have large reserves of dollars that it holds at the New York Fed and things like that? Tracy, the answer to that question actually begins like 70, 80 years ago. 1984, Breton Woods, lots of economists and wonks here in Washington and around the world and financial and economic policy circles love to talk about Bretton 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 U.S. was sort of this Hercules in a cradle emerging to take on the global superpower role that 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 wrapped up the war. So the U.S. 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 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 U.S. to lead the way forward because it was a safety net, right? At the time, the dollar was

ped to gold. And so there was this promise that as long as we continue on dollar dependency, then we will all stick together and emerge from the ashes of two wars stronger. And in those 80 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, it's so. 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 in our wealth, in our savings 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 this sort of sanctions in 2022, or as Tracy mentioned, the seizing of the Afghanistan dollars, it seems to have like woken much of the world up, that, yes, there are benefits to holding the dollar for maybe

obviously 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 transactional. in the dollar network and it only clicking later on that is conditions to part of that network that the U.S. essentially has quite a bit of power to police your actions. 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 U.S. has an immense dominance across the world. The world's largest economy is the U.S. The next three countries on that ranking put together,

maybe to wear the size of the U.S. economy. So by sheer strength and just internal power, a lot of innovation happens in the U.S. We have a lot of fiscal spending which drives more research and development. Eating well shouldn't be complicated, but somehow it turns into recipes, prep, cleanup, and half your Sunday gone. Factor solves all that. These are fresh, ready-to-eat meals designed by dieticians, delivered to your door and ready in just minutes.

No prep, no cleanup, no excuses. And it's not just about convenience. You're getting real food, balanced nutrition, and zero artificial stuff. Meals that help you stay on track for all of your goals without the grind of doing it all yourself. Grilled chicken, roasted veggies, steak plates, postables. They taste like something you get in a restaurant, but they come out of your microwave in two minutes flat. If time, cost, or effort have been holding you back from eating better, Factor just took those off the table.

Right now, get 11 meals, free shipping, and free sides. for life. Hurry, this offer won't last long. Go to Factor Meals.C.A. and use code fit. That's 11 meals, free shipping and free size for life, but only with the code fit at factoramills. CA. Factor, Canada's number one ready-to-eat meal

delivery service. You have the desire to aid, to make a real difference? The College, the City, you offer the program Dependance and Sentental Mental. Acquare the competences essential to accompany and support the the people confronted to the

of the challenges of mental and of dependence. Construise a career enriching to service of the community francophone of all the country. Don't know of their quality in French, it's possible with LaCite. Visite Collage, laCite.a, right now. An initiative of the Consortium National

of Formation in Health, supported by Santee Canada. So the other thing that tends to happen in this type of conversation is people will say, oh, well, the dollars, the reserve currency, because it's a unipolar world,

and the U.S. 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 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 1980s, a really interesting and exciting thing happened. I almost wish I was a financial journalist back then covering the Plaza and the Louvre Accord. So in 1980s, let's think, 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 exporters were complaining about how strong the dollar was. And other countries were saying that the U.S. 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 inside are 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 G5. It was West Germany, Japan, the UK, the U.S. And I think France got together at the Plaza Hotel in Manhattan. And I went there to research the room when it looks like. I asked somebody of one of the bellhops or something, like, has this room been the same since the 80s because I got to write about it? And they all secretly met with then Treasury Secretary Jim Baker to collectively agree that they were going to meddle 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 Treasury 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? 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 only been reporters for about 15 years. But if in those 15 years there are like multiple waves of people talk about post-dollar era, multipolar era, new alternative. Does this feel like 2022 to 2024 and beyond? Does this feel like something different where the conversation is like, oh, that's right?

It 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 era, but it doesn't really amount too much? You're right. A lot of people for decades since the Bretton Woods Agreement in the 1940s have been wondering, when is the dollar's hegemony going to end? Who's going to be the one to take over? Is it going to 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 State 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 Frenchoring. All of this, to me, sounds like populace.

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 U.S. Treasury 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 did I get a hold of this report. Because everyone wanted to know, is the U.S. 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 U.S. wanted to get a bunch of countries together to manipulate the dollar, it's a totally different ballgame. And 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 U.S. in that? The U.S. does not have the same standing that it did 10 years ago or 40 years ago when the Plaza Accord happened. Now we're in 2024. You know, in 2018 and 19, 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 U.S. 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 Reserve. and things like that. I know you're not covering the Treasury specifically now, but presumably you're still talking to plenty of people in D.C. 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 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 into. 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 G20 country that in 2022 was the world's 11th 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 2022, that was just seen as like this, like watershed moved, 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 U.S. sanctions because Trump then reimposed 971 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 U.S. 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 U.S., 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 wonky 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 BRICS plus. And a lot of them are closed autocracies. They are not open democracies the way the U.S. 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 flee to the dollar. The next time there's some kind of global crisis, if everyone runs to the dollar, I think you can put a big period on that question of is de-dollarization happening because we are still the safe haven. And so then what's going to happen if Putin or Xi Jinping 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.

Saleh Amosin, 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. It was an honor to join. Trace, I really like Sala'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, debt 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 U.S. is a stable country with the rule of law and probably the most stable with the, the strongest rule of law in the world. No, absolutely. I really liked her final answer, sort of linking a lot of the network effects and the politics together. And I think Charlie Kindleberger

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 U.S. 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 U.S. 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 Solaea 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 a internal policy stability after that leader leaves. I thought it was a really fascinating point. Also, until her book, I hadn't like really appreciated the degree to which 9-11, specifically was a turning point for 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 2000. So 24 years ago when the U.S. 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 9-11 was a watershed moment, but also in terms of the financial system. Yeah, totally. 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 consent, 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, like 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 that 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 guest, Salae-Mosen. She's at Salaia 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 Armin, Dashel Bennett at Dashbot and Kel Brooks at Kel Brooks. and thank you to our producer, Moses Ondom. For more Oddlots content, go to Bloomberg.com slash oddlots, where we have transcripts, a blog, and a newsletter, and check out the Discord. Discord.G. slash oddlots, where you can chat about all of these topics 24-7 with fellow listeners.

And if you enjoy Oddlots, if you like it when we discuss the history of U.S. dollar dominance, then please leave us a positive review on your favorite podcast platform. And don't forget, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free, all you need to do is connect your Bloomberg subscription to Apple podcasts. Thanks for listening. The news doesn't stop on the weekends. Context changes constantly. And now Bloomberg is the place to stay on top of it all. Hi, I'm David Gura. Join us every Saturday and Sunday for the new Bloomberg this weekend. I'm Christina Ruffini. We'll bring you the latest headlines, in-depth analysis, and big interviews, all the stories that hit home on your

days off. And I'm Lisa Mateo. Watch and listen to Bloomberg. this weekend for thoughtful, enlightening conversations about business, lifestyle, people, and culture. On Saturday mornings, we put the past week's events into context, examining what happened in the markets and the world. That on Sundays, we speak with journalists, columnists, and key political figures to prepare you for the week ahead. Join us as soon as you wake up and bring us with you wherever your weekend plans take you. Watch us on Bloomberg Television. Listen on Bloomberg Radio, stream the show live on the Bloomberg Business app, or listen to the podcast.

That's Bloomberg this weekend. Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg television, radio, and wherever you get your podcasts. What separates good leaders from transformational ones? I'm Jessica Chen, and in season two of Leading By Example, we'll sit down with executives like Grace Chen of Bertie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't. and find people who can fill those gaps. Listen to leading by example,

executives making an impact on the IHeart Radio app, Apple Podcast, or wherever you get your podcasts.