Odd Lots - Why the Desire to Move Away From the Dollar Is Getting Real

Episode Date: April 27, 2023

There's been a lot of discussion about the possibility of "de-dollarization," or the idea that the world could move away from using the dollar as the de facto global reserve currency. Some of this desire makes sense. Not only has the Federal Reserve been hiking rates at the fastest pace in decades, which puts economic pressure on other countries through links to the dollar and US trade, but sanctions imposed on Russia have also made some nations more wary of relying on US financial assets and infrastructure. And in BRICS countries (Brazil, Russia, India, China and South Africa), there seems to be growing appetite to usurp the dollar’s hegemony. Of course, we've seen this kind of talk before, yet there has been little change to the dollar's special role. So is it different this time? On this episode, we speak with Paul McNamara, an investment director at GAM and a veteran of emerging markets, about what's driving this renewed clamor for de-dollarization.See omnystudio.com/listener for privacy information.

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That's vanguard.com slash audio. All investing is subject to risk vanguard marketing corporation Distributor. Hello and welcome to another episode of the Oddlots podcast. I'm Tracy Allaway. And I'm Joe Wisenthal. Joe, do you remember what we were doing this time last year? Um, what? No? Oh, no. No, I have no idea. And that feels like ages ago. So no, I have no idea. We were actually talking to Zoltan Pozar about his vision of a Breton Woods three. Do you remember that? Okay. Yes. Yes. Absolutely. I do. remember that conversation very specifically, setting aside that sort of Bretton Woods three frameworks specifically, I do think like overall, like he sort of anticipated extremely well

a lot of the discussions that people are having like over the course of the next year. And so in some respects, I think that's held up well. Right. So there were a lot of different themes in that note, including this idea of more of an emphasis on real assets or commodities. But one of the big ideas that was in there was this theme of a more multipolar world and possible challenges to U.S. hegemony in the financial system, including the dollar's very unique role in that system. And while it is true that the dollar spent most of the past year being really strong, and we put out a couple episodes on that, I think, we have seen efforts at de-dollarization, or at least we've seen a lot of

discussion of de-dollarization, that has really increased in the same time period. Yeah, there's sort of a few interesting dimensions here. So for one, of course, like, price does what it's going to do in the short term. And ultimately, I don't think like price is the ultimate arbiter, but, you know, late last year or middle of last year, the dollar rallied a lot. The other thing is, you know, you get these headlines about de-dollarization or the rise of the UN or some barrel of oil somewhere in the world, is not priced in dollars and everyone starts to flip out about whatever that means. And on the one hand, okay, that's interesting.

But on the other hand, like, again, you and I, like, how many times have we heard this story? People love talking about this possibility. Yeah. Yeah. Oh, suddenly some benchmark barrel of oil somewhere is going to be priced at something. And that's the end of dollar hegemony. But I will say, like, there's a couple things. Like, I don't want to say it's different.

this, well, why I think it's still worth having this conversation, because obviously a lot of things have changed. You know, one of my thesis that I talk a lot about all the time is how like the 2020s are sort of the inverse 2010s. And so I do think to some extent it's a good time to revisit our assumptions. And when you do start to see, you know, expanding China trade and so forth, the talk of decoupling and the rising role of the UN, I think it is worth having that conversation again, even if sometimes it seems like some of these end of the dollar stories are a little bit overcooked. Or premature. Or premature. On that note, one of the things that has been happening is we've heard a lot of noise from the BRICS group of countries. So that's Brazil,

Russia, India, China, and South Africa about possibly creating some sort of alternative to the dollar. So we really need to dive into the de-dollarization story from an emerging market's perspective, And who better to do that with than with Paul McNamara? He's an investment director over at Gam. We've had him on the show before and we are going to do another deep dive with him now. Can't wait. Paul, thanks so much for coming back on all thoughts. Thanks very much for having me. So maybe just to begin with, give us the state of play when it comes to de-dollarization talks. Because I know there have been all these little bits and pieces over the past year or so. But what has jumped out at you the most?

I think the thing that we're focused on is we've seen very big current account surpluses, especially in the oil exporters, so Saudi Arabia in particular. I mean, Russia is obviously another story. I mean, the surpluses in China are not as big as they've been. But what's been interesting is that the Saudis in particular, and I think there's some evidence that Abu Dhabi as well, have not been pushing money straight into US treasuries or, well, US securities markets in particular, but sort of treasuries.

I mean, there's been a lot of talk. In terms of China, for a long time, you know, China has run the Belt and Road program has clearly been that there is a general drive for those companies which continue to run these big external surpluses. They're clearly trying to branch out significantly away from, well, let's just stick it in medium duration treasuries. You know, and if they're really adventurous into listed U.S. equities, into a more globally diversified basket, it's not just about sanctions and what happened to Russia's reserves in the aftermath of the attack on Ukraine, but clearly that's given it fresh impetus. So, okay, so this is interesting.

There is something going on. Like, I think it sounds like from your answer. And as Tracy and I said in the beginning, and I'm sure you've heard it for many years in your long and illustrious career, this, oh, the dollar's over, the dollar's over. And usually it is sort of overcooked. But just based on even just your preliminary answer, it sounds like there is something going on, that maybe there is some impulse to try something new. I think there is.

And I think you mentioned Zolt and Posse, this idea of a multipolar world. I mean, we have moved away from, you know, the U.S. being by far the globally dominant economy to China. You know, the Chinese economy is now about the same size as the U.S. So, I mean, clearly there's got to be some sort of rebalancing. in terms of finance to match the economic dominance and the political movement that goes with it. Absolutely. I mean, the two people you've always here spoken about in this context is, well, obviously, number one is Zoltan. Number two would be Michael Pettis and his co-author,

Matthew Klein, who would make the point that, okay, if you've got these big surpluses being generated, then they have to end up somewhere else. And the only place they can end up is the US, because the US is the only economic block, which is generating these big deficits to soak up the surpluses. Historically, I think it's not clear that it's as simple as that. But I think as long as the policy in China relies, the whole framework of economic policy in China relies on running very big external surpluses, they invest a lot, but they save even more. Those excess savings, you know, they have to end up somewhere. And it is going to be very difficult to put the somewhere else. The question that comes up is historically, you know, difficult is not the same as

impossible. You know, that before the US dollar, you know, you had the sterling zone and okay, it was linked to gold, but you did have a reserve currency, which wasn't the dissaver of last resort. You know, so, I mean, there are two things which are not the same, which I think are being confused, which is one, the rise of China being an economy of similar importance to the US, which I think is indisputable. And two, you know, does China or, you know, does China or, the global non-Western block have as many options if they don't want to change the policy mix, which has been very reliant on running very large external surpluses. So I definitely want to get into more of the challenges of moving away from treasuries

and into other assets. But before we do that, you mentioned the idea that there are some emerging market economies that have been buying fewer treasuries recently. And I guess my question is like, what is driving that? And is it the case that they're definitely trying to move away from US exposure? Or is it the case that maybe in an environment of high rates and inflation and general uncertainty, maybe it doesn't make a lot of sense to buy US treasuries at that particular moment? There's a bunch of things. I mean, we have more assertive politics in pretty much every large country. We talk about a lot about the bricks, which I think is problematic in. this context because sort of Russia and South Africa and Brazil really don't matter that much

in a global context, whereas, for example, Saudi Arabia, which has, you know, very nearly a trillion dollars of assets abroad, clearly does. You know, and they have different reasons, but, you know, if it's MBS in Saudi Arabia, if it's Modi and India, you know, as you go to countries, you know, there is more and more pushback against, you know, OK, US hegemony, however you want to describe it. I think politics is part of it. The other is, you know, one, you probably want to diversify a bit more generally. Two, you know, you're very dependent on Fed policy. I mean, last year was a horrible year for pretty much any asset. I mean, clearly you might want to look a bit beyond that.

You know, so there's, I wouldn't say it's just one reason, but it really is striking. You know, that, for example, just how big the surpluses, especially in the OPEC countries, have been over the last year, and how little we've seen a tick up, you know, not just in holdings of treasuries, but in, you know, specifically U.S. securities themselves, you know, I mean, part of the problem is that it really is quite hard to put large amounts of money. You end up putting it in stuff like the Vision Fund or Credit Suisse or, you know, or stuff like that is actually money. All the soft bank investments. Right. Oh, you already said Vision Fund, right? Yeah, yeah. I mean, there's a whole rabbit hole here and it's always tricky. But, you know, it's very difficult.

there aren't a lot of places to put large chunks of money like this, and especially where you could expect, you won't be the dominant investor, which, yes, it brings some perks, but it also brings some, you know, some very significant problems with it as well. You could build, like, what is it, like a 100-mile-long city in the middle of the desert and have it be a blockchain capital at the universe. Anyway, I'm digressing a little bit. I want to actually go back to the comment you've made about assertive politics. Because we could talk economics, we could talk about the rise of trade with China.

But obviously, a lot of some of these impulses are going to come from domestic political choices. What is going on? Like, what are you seeing specifically? And what is the sort of common threat across multiple countries that you say is driving this sort of like shift in political or global political consideration? I think the sanctions applied to Russia after, you know, after the invasion of Ukraine stand out. because it's usually spoken about in the context of a possible Chinese attack on Taiwan, but you go around pretty much every country has reasonably severe disagreements with the US, with the West in various ways.

There is a huge amount of resentment, which really is not something I should be trying to diagnose the politics. But I think, you know, just in sheer practical terms that at least 300 billion, and we think probably a decent chunk more of Russian money was put beyond the use of the Russians simply because it was placed within the US financial system. I think that's given a lot of urgency. You know, even to countries, you know, who might not expect to have a major dispute with the US the way that the Russians have, it really does become then a question of, well, you know, how do we protect this savings pot? Today's show is brought to you by Vanguard.

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Thinking about buying the right home, but not sure when. What if you had the right design, the right lot, and finishes at the right price? Not someday, but right now. Register at democrathomes.com and get everything you want right now. You know, there is that argument, and you touched on it already a little bit, but there is an argument to be made that maybe for reasons of financial stability, this would make sense. So, you know, if you're an emerging market economy, maybe you don't want your country to be tied too closely to what the U.S. is doing because maybe the U.S. is raising rates at a time when you really need financial conditions to loosen. And we've spoken with Yun-sung-S. at the Bank for International Settlements a lot about this. He's done a lot about this. He's done a lot. of research on the topic. How valid are those concerns and how do you disaggregate the sort of financial conditions, diversification argument versus the political sanctions, concerns about future financial control type thing? I mean, it comes back to the old quote. I mean, I think this is from

the 70s that, you know, a US policymaker said, you know, it's our currency and your problem. that we've seen that US financial conditions just affect anywhere else. If you look at, I mean, you have to disaggregate that. We've had a big burst of inflation everywhere, and interest rates would have gone up everywhere. This has not been the Fed chasing everybody else's interest rates around the last year or so. But high US rates have led to a stronger dollar, and a stronger dollar does mean significantly tighter financial conditions for anyone who borrows in dollars,

the cost of repaying that debt. And this is, I think, a lot of what people are talking about, when they say that, you know, that they want independence from the dollar. I mean, whether you necessarily want the renminbi instead, and if you think the renminbi is going to be much easier, that's another question. But yeah, I mean, as long as the borrowing currency of choice, and, you know, and I kind of agree with Joe that, you know, just because somebody invoices a barrel of, you know, or some gas that they bought from Abu Dhabi for dollars and then they sell it to somebody else for renminbi, I'm not sure that's quite the game changer it's being pitched to be. I mean,

mean, you can send me a gas bill in Bitcoin and I will turn my pounds into Bitcoin and I will pay the gas bill and whoever sell will be that gas will sell the Bitcoin for Sterling. And I'm not really sure that's quite the game changer it's being pitched at. What does matter is, you know, especially these surplus countries. One, are they going to continue to run these surpluses? And two, to what extent can they immunize themselves from US political influence to the extent that they're still holding a lot of their assets in dollars. My view is, and the impact on markets will be, is it's very, very difficult because, you know, the surpluses coming out of China are a fraction of what they were. I mean, they're down to about two and a half percent of GDP now,

when they were up at 10 around the time of the financial crisis. But if, you know, if the renminbi is going to become a reserve currency, then effectively it becomes impossible for China to run surpluses, you know, so at a minimum you're closing off possible policy options in the future. And really, I mean, does the rest of the world really, you know, wants to start denominating its debt in that of a currency where they might suddenly start, you know, moving to huge surpluses versus the rest of the world? And then that's going to impact the monetary policy everywhere else on earth. Yeah, I mean, it's not simple as never a satisfactory answer. But I think, you know, the problems are it's very easy to say that these countries want to be independent of U.S.

of the U.S. dollar. But in almost every case, that's going to involve policy choices, which are going to have difficult policy ramifications. I mean, we got here for a reason. You know, speaking of policy choices, however, and you talk about the sort of assertiveness of some of various nations, there's also policy choices happening in the U.S. it appeared, I mean, arguably the U.S. itself is becoming more inward looking. And arguably it started under Trump, but there seems to be a lot of continuity with Biden in terms of some of these domestic investments, whether it's semiconductors, whether it's energy, some of these investments,

particularly antagonizing allies or friends in Europe who feel we're sort of like pulling away the supply chain from them. Like how much of this is also like not, not. just a story about U.S. trading partners turning away from the U.S. or turning away from sort of dollar assets, but a U.S. decision to sort of focus more inward and, you know, rely less on the rest of the world. I, yeah, I don't really see that. I mean, the, whatever your objections to the U.S. as a Hedgeman, you know, try somebody else. I mean, the, the specific example that sticks with me is the dollar swap lines, which were extended to, you know, the big Western ally central bank. and specifically the Western allies that, you know, they weren't extended to certain other countries which could have benefited from them.

While the US does make it clear that monetary policy is not run for the benefit of anybody but Americans, you know, that we had a big push in the 97 Asian crisis and then 98, everybody was saying, well, you know, you can't keep hiking because that's going to screw things up for everybody else, to which the US response was rightly, well, too bad, you know, US monetary policy, you know, the Fed has no mandate to look after any. anybody who isn't an American. But, you know, these, the swap lines were absolutely critical in protecting the rest of the world, especially during 2008, but, you know, but also during COVID, we saw, we saw the lines rolled out in the past that, you know, however much, you know, the rest of us might, you know, complain or be unkind about, you know, about Donald Trump or anybody else. The US has always, you know, go back to the Marshall Plan or whatever.

You know, the US has always, at a minimum, had a defensible case that of enlightened self-interest. And, you know, and I think there are question marks about whether, you know, the alternatives, whether it's gold, whether it's the renminbi. And I mean, let's be honest, those are the only two, you know, the roubles no use to anyone, you know, or Bitcoin or whatever mad scheme you have, that, you know, that there are policymakers in the US who are making choices, which I think benefit the rest of the world. and it's not clear that the alternatives would be adequate for the rest of us. So just to kind of crystallize this idea in our minds,

like walk us through what would need to happen in order to make some other types of reserve assets more viable options than U.S. treasuries. Like what would make a South African bond a proper replacement for a U.S. tenure? or what would make, I don't know, a Brazilian bond a replacement? Well, I mean, those two countries, I think, are you're making absolute maximum difficulty because I got to ask the hard questions. Both of those economies rise and fall with commodity prices. You know, Brazil, it's iron ore and soybeans, South Africa, sort of platinum palladium in particular, also coal.

That, you know, as commodity prices rise and fall, that dictates everything for those economies. It even takes the credit cycle because Brazil or South Africa are in a much better position to cut interest rates when the external balances are healthy. And commodity prices are overwhelmingly driven by China. I mean, especially Brazil. I think Brazil, you know, comes second after Australia in terms of economies sort of most driven by the Chinese property cycle. So, you know, I don't see scope there. I mean, what you're looking at are, well, one is alternatives to US treasuries sort of within U.S. financial markets. But, you know, a US investment-grade corporate bond doesn't really trade that much.

I mean, an investment-grade emerging market debt bond in dollars, you know, does tend to trade very much off the treasury market, and to the extent it doesn't very much of US dollar-denominated corporate credit. It's very, very difficult. I mean, the question is also, is China, and again, it's China, it's not anyone else, maybe the Saudis to a certain extent, doing this in a context where they're continuing to use the external surplus. they're continuing to have massive excess savings for domestic policy means, because deploying 10% of GDP is a colossally more difficult task than deploying 2% of GDP, which is where they are at the moment. You can probably slip 2% of GDP into emerging markets and venture capital and Europe and whatever else.

You can't put 10% of GDP. I mean, the problem with emerging markets is that they're allocated as a special asset class to people like me, because they are different. You know, the legal rules are very difficult. You know, the idea that a minority shareholder should get some benefit from the success of a company in Russia is really regarded as ludicrous by most, you know, by most people of influence within Russia. It's, you know, if you can go through the history, if you, you know, you look at

you cost, you look at the contact, you know, sort of, I mean, Russia is a particularly bad example, but it's not out there. you can look at what's going on with Adani in India. You know, the returns on a long horizon from emerging market investments have been absolutely dismal for a long time. And I think that institutional backdrop, that, you know, that does narrow the field for profitable investments. So is there a supply of, you know, not necessarily liquid because there's nothing remotely as liquid as treasuries, but, you know, investable with a reasonable chance of positive economic returns in the medium term that isn't plus.

into the US or its allies. I think, you know, there's quite a big question mark over that. I mean, that's not to say that you can't do what Turkey is doing, you know, and sell influence, you know, and I think that there's a lot of money going into places like Turkey sort of to buy influence rather than, you know, for purely economic reasons. Wait, what do you mean? I want to ask you a question about China, but can you explain what you mean by by influence? What's going on in Turkey? Yeah, I mean, Turkey's an interesting one because you're never sure if this is purely driven by what the current Turkish administration wants to do purely, you know, for its own reasons or

whether they're doing it. The Turks are running a very big external deficit. They've, they've pegged the lira effectively to the US dollar for about nine months now, even as they're running sort of double-digit credit growth, growing external surplus. And yet at the same time, their gross foreign exchange reserves are growing. With it, you know, it's pretty clear that there's Saudi and Qatari money, probably some Abu Dhabi money in as well. At the same time, Turkey is a major conduit for sanctions-busting gas flows out of Russia. They've been instrumental in holding out the expansion of NATO. At the same time, the NATO airbase in Inchilic is still open. There's a question of whether this is just Turkish pre-electoral politics or whether they're relying on,

or they're being paid off sounds awfully crude, but there are financial. There are financial flows, which are playing part of that calculation. You know, we've seen it with Hungary, the promise of cheap gas. That doesn't seem to have been fulfilled. But, you know, as you go around, even stuff like, you know, Honduras recently took itself off the very short list of countries which recognized Taiwan as an independent country, you know, that's not a huge amount of money in Chinese terms, but certainly there were financial flows involved there. Since you mentioned China there, and I wanted to ask a broader follow-up on it, which is that, okay, like, Tracy asked the really hard question, the almost a possible question of what is the world look like, where a Brazilian

or a 10-year or a South African 10-year is a replacement for a treasury. But like, let's ask the less hard question of like, okay, what would it entail for the RMB or Chinese debt to start really becoming a meaningful global reserve asset? What would be the policy choice that China would have to make domestic? or the trade-off that China would have to make beyond just trading globally and expanding its trade position in order for its financial assets to play that role globally. The Chinese would have to stop creating such vast surpluses, which means that all the various incentives in place to create massive excess saving in China, or some of them are going to have

to be relaxed. If you're a Chinese person, there's a very weak social safety net. Until recently, you're only allowed one child. So to protect yourself for the future, you had to make much higher levels of financial saving than pretty much anyone else in the world. You know, financial repression, you can't invest abroad. That whole apparatus for creating, you know, savings, 40, 50% of GDP has to be at the very least wound back. You probably need to relax capital controls materially. You need to reframe economic policy very seriously.

I mean, the thing that makes China so important to the global financial system means that it's actually not a great destination for capital because, you know, to the extent that the Chinese want to get rid of these excess savings, they certainly don't want excess Saudi or Indian or anybody else's savings because that just makes the task that much more difficult. But I think, you know, it has to address this issue of huge excess savings. You have the desire to help to make a real difference? The College, the City, you offer the program, dependents,

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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. So the idea of certain emerging market economies kind of banding together. together to do this. And I mentioned this in the intro, but we have seen the bricks, for instance, make some noises about this. I think Russia slash Vladimir Putin talked explicitly about this common currency bricks idea. But what is what is the driving force there? Like who stands to benefit the most? Is it Russia or China? And I guess what I'm kind of getting at is what is the common

thread that unites these countries, if there are any? I mean, I think it's a negative rather than a positive. It's independence from, you know, one, the effect of the US policy actions on asset prices, that if you have asset prices that aren't overwhelmingly denominated in US dollars, then you have a little bit more detachment from the US. Two is independence from US financial regulation and US sanctions. And I think those two are really the big driver. ideally there's a delinking from the impact of the US dollar that you but I mean whatever you switch to you're going to have the same issues with so I'm not sure that's as central as it's been it's been pitched

at but mostly it's you know it's delinking from the dollar it's a negative rather than that there's some holy grail out there that might be attainable I mean I you know I made this comparison before but you know the bricks really isn't you know that it's not the bricks that matter. It's China that matters. China is 72% of bricks GDP. It's 80% of bricks growth. It's, you know, it's the bulk of the external surplus. It's, you know, it's everything else. I mean, I made the dictator of Albania and Bohoha used to sort of say together the Chinese and the Albanians are a quarter of the world's population. You know, and I think, you know, it's an overstatement. I mean, I mean, India clearly, you know, matters a bit. But.

I think we spend a lot of time talking about the bricks when we really should be talking about China. Well, we did an episode recently with Henry Williams and David Oggs sort of taking a long-term view on global development. And it was sort of the same theme that there are all these numbers that look really good in terms of the globe is getting richer and people are rising, et cetera. and really that number is just, it's in large part, basically the incredible boom in Chinese wealth over the last decades when you sort of look X China, the numbers are significantly less rosy. So that makes sense. You know, let's just say there is, let's accept the sort of premise that there is this sort of new impulse among multiple countries to tilt somewhat the reserve mix, to think about maybe

being less inclined to automatically put money in treasuries. Is there a cost to the U.S. from that? Because, I mean, if we go back to the sort of like Michael Pettis, Matthew Klein framework that you mentioned, the dominant role of the dollar, maybe it was making it artificially or sort of like, I don't know if artificial is the right word, but a premium that was costly in some way to U.S. workers and so forth.

Like, in your view, like, what is the cost of some of these shifts to sort of U.S. interests? That's, I mean, it's an incredibly complicated question. You know, does the U.S., you know, the exorbitant privilege? I mean, the main thing the U.S. has, which nobody else has, is that it really doesn't have to care about anybody else, you know, that not only have you got relatively closed economy, but nobody else is really, you know, the decisions of other central banks aren't affecting U.S. monetary conditions.

you don't have to adjust for that. And I think that's the key case. I think the very low cost of borrowing in the US, I mean, it's most clearly felt in the treasury market. I mean, the total treasury stock is about $30 billion. And about a quarter of that is owned by foreigners. You know, the biggest holder is Japan, so it's not all bricks, and it's not all countries which are looking at the paradigm.

But I think the idea that excess savings elsewhere feed through to the US exceptionally because of dollar dominance, so you've had a lower cost of capital. But have financial conditions, has the US benefited unconditionally from looser financial conditions over the last 20 years? I think there's a very strong case that it hasn't. The impact of the dollar has been that financial conditions have been weak, have been looser, that treasury yields have been lower as a result of it. But, I mean, it's a removal of control, I think, and it's having to factor in decisions made by people who don't have your best interests at heart, that that suddenly becomes a consideration for US policymakers again. I want to go back to this idea of, you know, a lot of emerging market narrative being basically all about China. And this is, again, Joe already mentioned the episode that we recently did on the failure of globalization. but is the takeaway from all of this that, you know, we have been having conversations about

the global economy pivoting towards EMS, pivoting towards places like China, India, Brazil for literally decades now. And maybe in the case of China, there is some evidence that it's happening. China is now the world's second biggest economy. But for the most part, a lot of the EM strength that was anticipated hasn't actually materialized. Is that the big takeaway here that the EM narrative just is failing? Yeah, I mean, as an EM professional. Am I basically asking, are you in the wrong job? You're asking, you know, have I wasted my career?

I think there's a reasonable case that I have. It's just, I mean, you divide it in sort of two, that sort of pre-2008, before the global financial crisis, you had emerging markets reliably growing about 2, 3%, faster than developed markets. And you could use that to build the narrative of the bricks, you know, that there's catch-up, that a wildly disproportionate part of marginal growth is going to accrue to emerging markets.

And as you say, people got very confused and started attributing to emerging markets when they actually meant China. But pre-2008, you could really make a case that something important was happening in emerging markets that weren't China or India. I think since the global financial crisis or more precisely since 2011, when we got past the immediate impact of the huge Chinese stimulus,

which whacked up commodity prices, and got Brazil and Peru and all the metals exporters humming again. Since then, it's been very, very hard to make a convincing case that there's anything that's really going to matter to the rest of the world that isn't really pretty much all about China and maybe India, which is something for me to reflect on. Yeah. I think that's a good point. place to leave it with Paul in existential crisis. Yeah. Paul McNamara, thank you so much for coming on Oddlots. Appreciate your insights and your reflection on your own career.

Thanks very much. Cheers. Yeah, that was great, Paul. Thank you so much. Great talking. Joe, I found that really interesting. I mean, I do think we have to get Zoltan back on the podcast at some point. But this was like a very good overview of some of the issues because people throw around

the de-dollarization idea all the time without actually thinking through a lot of the technicalities. And I think Paul's point about what are the viable alternatives or substitutes is a really salient one. And we have seen, it is true that we have seen some central banks start to move away from U.S. Treasuries. I know there's been a big boom in gold buying by official accounts over the past year. But realistically, you need a big market to actually put that money into. And there aren't that many viable options. No, totally. I mean, I think you nailed it well.

What's striking to me just sort of broadly is this is a perennial or every decade conversation. At the end of the dollar, de-dollarization, et cetera. It's usually and probably even still is today somewhat overhyped and overcooked. But to hear someone like Paul say, like, look, there is something real here going on. They can't be entirely dismissed. That there is a political shift in several countries around the world, whether they look at the loss of foreign reserves that Russia experienced or other things that even preceded the war, perhaps related to inflation as well. I think we have to stand up and sort of take note and watch of it. And it's still a long way.

Yeah. Absolutely. And it is it's never, it's never good. when, you know, if you think about the U.S.'s biggest export, it's financial assets, right? It's U.S. treasuries. And it's never good when your customers are actively and vocally trying to get away from you. I do think it's worth discussing. And even thinking back to a year ago, again, when Zoltan's first research note came out and there was this idea of the multipolar world, de-dollarization, there was a lot of pushback on that. But over the past year or so, we've seen that theme sort of calcium. But the other thing, too, I completely agree.

Like, the other thing, too, is I think to some extent, like the U.S. starting under Trump is making this sort of, I don't know how purposeful it is, but kind of purposeful sort of assessment of, well, maybe we don't want our biggest export to be financial assets. And so when you see, like, some of the shift towards domestic manufacturing, domestic chip capability, building more LNG export terminals, etc. Sure, but. No, I think, but I just think like both parts, both are moving parts. Like, I don't think we could totally dismiss that there's something going on domestically, the U.S., where it's like, we are also making this decision where we don't really love the status quo either. But the counter argument to that would be, do you want an economy in which the main buyers of U.S. treasuries are all domestic financial institutions like banks? Sure. And then.

Yeah, sure. And then we have problems like what we saw over the past month. I think you and I could talk about this probably for another hour and go round and round. We'll get some guests on instead and follow up. Let's do that. Okay. Shall we leave it there? Let's leave it there.

This has been another episode of the Oddlots podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway. And I'm Joe Wisenthal. You can follow me on Twitter at the stalwart. Follow our guest Paul McNamara. He's at M underscore Paul McAwe. Amara, follow our producers, Carmen Rodriguez, at Carmen Armin and Dash Bennett at Dashbot.

And for all the Bloomberg podcast, check us out under the handle at podcasts. And for more Odd Lots content, go to Bloomberg.com slash Oddlots, where we post transcripts. We have a blog. We have a weekly newsletter that comes out Friday. And for even more, check out our Discord where we have listeners hanging out and chatting about these topics 24-7. Discord.g.g. Slash oddlots. You'll find it there.

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