Is the reign of the dollar over?

Summary

Planet Money: Is the Reign of the Dollar Over?

Host/Author: NPR's Planet Money
Release Date: May 9, 2025

In the episode titled "Is the Reign of the Dollar Over?", Planet Money delves into the current challenges facing the U.S. dollar's status as the world's dominant reserve currency. Through insightful discussions with financial experts and economists, the podcast examines whether the dollar's long-held supremacy is waning and explores potential alternatives that could emerge in its stead.

Unprecedented Market Movements Amidst Trade Tensions

The episode opens with Mike Kudzel, a money manager at Pimco, recounting the tumultuous day of April 8th when President Trump announced significant tariff increases. Unlike typical market downturns where safe-haven assets like U.S. Treasuries and the dollar gain traction, Mike observed an unusual trend:

Mike Kudzel (00:56): "You had equities go down meaningfully. You had bonds go down in price meaningfully, and you had the US Dollar that went lower."

This anomaly suggested a broader shift away from U.S. assets, hinting at underlying vulnerabilities in the dollar's dominance.

The U.S. Dollar: Pillar of the Global Economy

Planet Money provides a comprehensive overview of the dollar's entrenched position in the global financial system. Central banks worldwide hold vast reserves in dollars, viewing them as a stable store of value. Ishwar Prasad, a professor at Cornell University, emphasizes the dollar's pervasive influence:

Ishwar Prasad (07:08): "Having other currencies gives them a buffer."

Historically, the dollar supplanted the British pound sterling post-World War II, becoming the cornerstone of international trade and finance through the Bretton Woods Agreement.

Characteristics of a Reserve Currency

Barry Eichengreen, an economist and author of "Exorbitant Privilege," outlines the essential features that make a currency suitable as a global reserve:

1. Liquidity:

   Barry Eichengreen (09:19): "One is liquidity, meaning that they should be able to buy and sell that asset easily and in large without disrupting the market."

2. Safety:

   Greg Rosalski (10:07): "So you don't want a reserve currency from a country that's got, like, wild inflation or deflation or whose economy is about to, like, fall apart."

3. Trust in Institutions:

   Barry Eichengreen (10:25): "You need an independent central bank so that you know the value of the currency is going to be preserved."

4. Economic Strength and Growth:
   A strong and growing economy ensures the currency remains stable and valuable over time.

Decades of meeting these criteria have cemented the dollar's role, but emerging challenges question its future.

The Exorbitant Privilege: Boon or Boon with Burdens?

Barry Eichengreen introduces the concept of the "exorbitant privilege," highlighting the benefits the U.S. enjoys due to the dollar's reserve status:

1. Convenience Value:
   Facilitates effortless cross-border transactions without constant currency exchanges.

2. Insurance Value:
   In times of global uncertainty, the dollar strengthens as investors seek safety.

   Barry Eichengreen (16:09): "So when Lehman brothers failed in 2008... the dollar exchange rate didn't collapse. It strengthened because everybody rushed into dollars."

3. Lower Borrowing Costs:
   The U.S. can borrow at lower interest rates, effectively subsidizing national expenditures.

   Barry Eichengreen (16:43): "It's like the US has this special low interest credit card... even when we don't have that money sitting in the bank."

4. Financial Weapon:
   The U.S. can impose sanctions more effectively by controlling dollar flows.

   Barry Eichengreen (17:12): "We can freeze or seize their dollar assets, and we do so."

However, these privileges come with drawbacks. A strong dollar can disadvantage U.S. exporters by making their goods more expensive abroad and reduces the country's control over its own currency value during global economic shifts.

Barry Eichengreen (17:45): "If the US Dollar were to lose its primacy, we as consumers and the US Government, we'd all have to tighten our belts and that would not be such a fun day."

Potential Challengers to Dollar Dominance

The podcast explores various contenders that could potentially replace the dollar as the world's reserve currency:

1. Euro:
   Despite being a major currency, the euro faces challenges due to the financial instability revealed during the Eurozone debt crisis.

   Barry Eichengreen (22:19): "What we learned is that the Greek government bond is not exactly as safe as a German bund."

2. Japanese Yen:
   Japan's stagnant growth and demographic challenges undermine the yen's viability as a reserve currency.

   Barry Eichengreen (20:25): "They have too many old people drawing down their pensions and not generating money."

3. Chinese Renminbi:
   While China has made efforts to internationalize its currency, trust issues and economic transparency concerns hinder its acceptance.

   Barry Eichengreen (23:32): "People are worried about the state of the Chinese economy and its growth prospects, and they don't necessarily trust the Chinese government."

4. Others (Australia, Canada, South Korea):
   These currencies lack the global influence and stability required to serve as primary reserve currencies individually.

5. Gold and Bitcoin:
   While historically a store of value, gold lacks liquidity, and Bitcoin's volatility makes it unsuitable for central banks.

   Barry Eichengreen (24:08): "Gold is certainly something that over millennia has preserved its value. There is a problem with gold, though, which is that it is not very liquid."

The Path Forward: Gradual Erosion or Impending Shift?

Despite recognizing the challenges, most economists, including Barry Eichengreen, agree that the dollar's decline is gradual and not immediate. The erosion of its dominance is happening slowly, with central banks diversifying their reserves to include other currencies, albeit minimally.

Barry Eichengreen (15:34): "I think there is a broad based consensus that we're better off having the dollar playing this exceptional role."

Mary Childs and Greg Rosalski conclude that while the dollar's primacy is being tested, significant shifts are unlikely in the near future. The entrenched systems and global trust in U.S. institutions continue to reinforce the dollar's position, even as minor declines in its dominance are evident.

Barry Eichengreen (26:02): "I don't think it's coming anytime soon, and I'm not even sure it'll come within the foreseeable future at all."

Conclusion

"Is the Reign of the Dollar Over?" offers a balanced examination of the U.S. dollar's current and future standing in the global economy. While acknowledging the emerging challenges and gradual decline in its dominance, the episode underscores the deep-rooted advantages and global trust that continue to uphold the dollar's supremacy. As the financial landscape evolves, Planet Money provides listeners with a nuanced understanding of the forces shaping the world's monetary systems.

Transcript

[NPR Announcer]

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[Greg Rosalski]

This is Planet Money from npr.

[Mary Childs]

Mike Kudzel, a money manager at Pimco, got to work on Tuesday, April 8th. Ready for a crazy day.

[Mike Kudzel]

Not wearing a suit that day. Dress for your day wearing Kevlar.

[Mary Childs]

Kevlar, like what firefighters wear. Because markets were in flames and the aftermath of President Trump's big tariff announcements.

[Greg Rosalski]

So Mike is looking at his screens and they are all red. Basically every market in the United States, all lines are going down.

[Mike Kudzel]

You had equities go down meaningfully. You had bonds go down in price meaningfully, and you had the US Dollar that went lower.

[Mary Childs]

And that is weird because normally when investors get scared, as they were that day, they sell risky things like stocks to to buy stuff that they see as safer. And historically, that safer thing has been U.S. government bonds, treasuries.

[Greg Rosalski]

When you buy U.S. treasuries, you're handing over a wad of cash to the government today for the promise of getting that wad of cash back plus interest in like 5 or 10 or 30 years. You're helping finance the US government buying its debt.

[Mary Childs]

Historically, buying Treasuries has been seen as the safest thing of all. So when the stock market is looking dicey, Treasuries are supposed to go up and people run towards the US Dollar because it's safe.

[Mike Kudzel]

But in this particular couple few days, that was not happening. A, it wasn't happening and B, it was picking up speed. And so all of that kind of rhymes with kind of moving away from US Assets in general.

[Mary Childs]

I heard you almost say flight. It's a capital flight, right?

[Mike Kudzel]

That's the phrase rhymes with a capital flight.

[Mary Childs]

Map ital height.

[Mike Kudzel]

You know, I would argue that that's not what took place.

[Greg Rosalski]

Map ital height.

[Mary Childs]

That's what I came up with. What, you got something better? I think he didn't want to say capital flight because capital flight is like a big thing. It's money sprinting away as fast as it can go, typically from an emerging market country whose government has just done something fiscally reckless or like unforgivable so this phrase is not something that any money manager would just throw around. Cas. But it was the song that was in Mike's head.

[Greg Rosalski]

So he's looking at his red screens. Treasury prices are dropping because all of a sudden they're seen as riskier.

[Mary Childs]

Was there like some kind of tipping point that you're like, if that keeps going, we're beeped.

[Mike Kudzel]

Yeah, we try not to. Yeah, we've certainly used those beep words.

[Mary Childs]

Mike told me the tipping point was when the 30 year treasury hit one of those round numbers that just freak people out.

[Mike Kudzel]

That was kind of a moment like, okay, things are definitely disrupted here and the speed at which it's happening is picking up. And that's. But he was like, oh, that's a little bit interesting.

[Mary Childs]

Interesting in a bad way.

[Mike Kudzel]

Yes.

[Mary Childs]

And Mike is like, okay, this is new. This map, it'll height.

[Mike Kudzel]

We were also trying to figure out, so what does it mean? Like, what's next when that happens? Like, okay, so now what? And the reality is we're looking for a regime break.

[Mary Childs]

A regime break, like maybe the end of the reign of the dollar. The era in which people all over the world turned to US Treasuries and dollars for safety in times of crisis. This could be the end of something. Not just for money managers like Mike, but for everyone.

[Greg Rosalski]

Dollars are the common financial language. Central banks everywhere hold dollars as a way to safely store their wealth. Countries and businesses and people use it to trade. The dollar is the world's money.

[Mary Childs]

For the past 80 years, the dollar has been the reserve currency of the world. And the question Mike and a lot of other people have been starting to ask is, what if that's changing? What if the world stops seeing the dollar as the safest?

[Mike Kudzel]

It's not our base case, but that question entering the conversation is interesting.

[Mary Childs]

Interesting in a bad way. Yes.

[Greg Rosalski]

Hello and welcome to Planet Money. I'm Greg Rosalski.

[Mary Childs]

And I'm Mary Childs. And like Mike, we have some questions because the things we talk about at Planet Money, the world of economics and finance, that world is approaching its own kind of regime break. The regime we have been under was built on some basic ideas. Things like, you know, a dominant dollar is definitely good for Americans. Global trade makes the world richer. It's in America's interest to be the world's cop. Federally funded research pays off, you know, that kind of thing.

[Greg Rosalski]

But the people who originally built this world, they're long gone. And the Trump administration, with actions and statements, has been challenging some of these ideas about what's best for our country and its place in the world.

[Mary Childs]

So this is something we're going to keep covering over the next few months. An occasional series, let's call it Pax Americana, about that post war balance that had put the US at the center of the economic solar system and how that might be changing.

[Greg Rosalski]

Today in the show, a story about a potentially interesting question. Is the US Dollar's reign ending? If so, what will replace it? And what does that mean for the yous and me's around the world?

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[Mary Childs]

So a reserve currency is one that countries around the world hold in reserve in the vaults of their central banks and in bank accounts of their central banks. They can hold any currency or they can hold some of this and some of that. The idea is they need to keep their trillions of money somewhere safe to store value until the day when they need to spend it.

[Greg Rosalski]

And they store other countries money because they have a lot of their own and their own currencies are not always that stable. Having other currencies gives them a buffer.

[Mary Childs]

One way a central bank stores another currency is by buying that country's debt. Because for all intents and purposes, if you're holding U.S. treasuries, you're holding dollars. Same for Japanese government debt, you're holding Japanese yen, et cetera.

[Greg Rosalski]

And there's one currency that central banks store more than any other currency, the US Dollar. To understand why, we called Ishwar Prasad, a professor at Cornell University.

[Ishwar Prasad]

Thank you for joining me today.

[Barry Eichengreen]

Of course. I'm glad the timing worked out. And this is one of my pet subjects. So it's good.

[Mary Childs]

Currencies are his thing because Ishwar spent 17 years at the International Monetary Fund, which lends dollars to developing economies. So a lot of his life has been watching dollars flow all around the world and, and he has seen the dollar's dominance on a more micro level. Like sometimes when he's been traveling, he has found himself without the local currency and he's been like, oh, maybe this could be a little cash experiment.

[Barry Eichengreen]

I've been able to pay for cab rides in places like India, China, even in Italy, the land of the euro, because everybody's willing to accept dollars.

[Greg Rosalski]

The last one, Italy, actually happened recently on a family vacation.

[Barry Eichengreen]

My family knew this was coming and of course, were hugely embarrassed by the whole thing. But I told the limo driver, I'll give you dollars instead of euros, and the limo driver was quite happy to accept dollars. If I tried this experiment in the US with euros or Japanese yen or British pound sterling, I can tell you fairly confidently that they probably wouldn't take it.

[Greg Rosalski]

Eswar's experiment works because when people trade across borders, they usually use the dollar. Around 90% of all foreign exchange transactions do they involve dollars.

[Mary Childs]

That's people, businesses, central banks. US Dollars make up the majority of reserve currencies held by central banks. At its peak, 73% of all central bank reserves were US dollars.

[Greg Rosalski]

And those central banks choose American currency because Eswar told us it has four crucial features, four things you really need in a reserve currency.

[Barry Eichengreen]

One is liquidity, meaning that they should be able to buy and sell that asset easily and in large without disrupting the market.

[Greg Rosalski]

So there needs to be a lot of it and a lot of it changing hands all the time.

[Barry Eichengreen]

If you think about the Swiss franc, for instance, it's not a very big market. You know, Switzerland is a small economy, and if you try to buy, say, 50 or $100 billion worth of Swiss government bonds and then try to sell them at one shot, it's going to destroy the market. You sell $100 billion worth of U.S. treasuries. This is a $33 trillion market. It's not going to register as more than A.

[Mary Childs]

So U.S. treasuries liquid, in fact, the most liquid single market in the world, which means there's always someone there willing to trade with you.

[Barry Eichengreen]

Second, you need safety, meaning that the value of those assets is going to be preserved, more or less.

[Greg Rosalski]

So you don't want a reserve currency from a country that's got, like, wild inflation or deflation or whose economy is about to, like, fall apart. You want that currency to be stable, to hold value.

[Barry Eichengreen]

But there's one other very important thing. A reserve currency issuer needs to have the trust of foreign investors. So you need good institutions. And what are those institutions? One is checks and balances, so you know that a government won't do anything crazy with its policies, crazy like borrowing.

[Greg Rosalski]

More money than they could ever pay back.

[Mary Childs]

So ishwar says you need checks and balances, but you also need rule of.

[Barry Eichengreen]

Law, which means that the government will not change the rules at an instant and say that we're not going to pay back foreign investors. And you need an independent, independent central bank so that you know the value of the currency is going to be preserved. And the central bank will not let inflation run amok.

[Greg Rosalski]

Because if inflation runs amok, your dollar tomorrow can buy less than it can today.

[Mary Childs]

So we need liquidity, big, deep, liquid markets. We need safety, a store of value. And we need to trust the country whose currency it is, that their institutions are strong and reliable, independent, that they play by the rules. And one more thing. Ideally, you want a currency from a country with a strong and growing economy because it's a better bet.

[Greg Rosalski]

The last thing you want to hold is a currency dropping in value.

[Barry Eichengreen]

So those are all of the key attributes of a reserve currency. If one were looking for an ideal reserve currency, this is what you would want to have.

[Mary Childs]

And for decades, that ideal reserve currency has been the dollar. The dollar has checked all those boxes.

[Greg Rosalski]

But it wasn't always that way. Before the dollar was the reserve currency, there was the British pound sterling.

[Mary Childs]

Pound sterling is the only other example of a dominant reserve currency in modern financial history. The British Empire was running trade all around the world. Reserve currencies are often associated with empire, with military dominance, and Britain was dominant.

[Greg Rosalski]

But the pound's dominance started to wane after World War I. And then during World War II. There was an actual moment that the dollar became the money of the world. It was a conscious decision. A bunch of people in a room making a choice. A room in a big hotel in a little place called Bretton Woods, New Hampshire.

[Conference Delegate]

Delegates from 44 Allied and Associate countries arrived for the opening of the United Nations Monetary and Financial Conference.

[Mary Childs]

Regular Planet Money listeners will know this story. The delegates at this meeting arrived on a big train wearing double breasted suits. They got their pocket squares, Norma, 1940s stuff.

[Conference Delegate]

These meetings are designed to promote trade in the post war world and to create a foundation for lasting peace.

[Mary Childs]

At the meeting, those representatives tinkered out articles of agreement for a new global economic structure. International trade had broken down. So to reduce chaos between currencies and restart global trade, they needed some standard, like a common language. They needed their money to talk to each other. So in that room they decided that basically every currency would have to be pegged to US dollars. Everything had to be convertible to dollars.

[Greg Rosalski]

And the world agreed to it. Because the US had become the center of the capitalist world, biggest military, biggest economy. And it was growing and people trusted American institutions.

[Mary Childs]

And since those delegates in their suits met up in New Hampshire, the dollar has become globally indispensable. The more people have used it, the stronger it gotten. And the stronger it's gotten, the more people have used it.

[Greg Rosalski]

So the dollar has been at the center of this economic solar system absolutely on purpose, because the US Built it that way.

[Mary Childs]

But now economists and policymakers are debating if the reserve currency status is a good thing or if it's too much. So which is it? Is it a privilege or a burden?

[Greg Rosalski]

And if it's not the dollar in the world's pocket, what is it? That's after the break. As US Trade with China exploded, American manufacturing shriveled and workers struggled. They saw their communities decline. And then the world changed very rapidly around them. Well, they kind of aged in place. Data doesn't speak in words, but that's a very dramatic story. In a recent Planet Money bonus episode, we hear from the economist who helped tell that story and changed the way economics thinks about the costs of free trade. To hear it, sign up for NPR, just go to plus.NPR.org There's a phrase everyone uses to describe the luxury of your money being the money used around the world. The phrase is exorbitant privilege. It actually comes from a French finance minister who coined it back in the 1960s. And when you're thinking about reserve currencies and the exorbitant privilege, there's kind of one person you gotta call. Barry Eichengreen at UC Berkeley.

[Conference Delegate]

I've been predicting the gradual loss of the dollar's exceptional status for 15 plus years.

[Mary Childs]

Barry wrote this book about the dollar called exorbitant Privilege.

[Conference Delegate]

That book came out in 2011, so I'll keep predicting it until I'm right.

[Greg Rosalski]

As Barry sees it, the United States has benefited from the reserve currency status of the dollar in four main ways.

[Conference Delegate]

Number one, US Banks and firms and US Tourists have the convenience of being able to do cross border business in.

[Mary Childs]

Their own native currency, like Ishvar in his taxi experiments. And like businesses that don't have to exchange their dollars for other currencies all the time in order to buy and sell things. Because all that costs time and money.

[Conference Delegate]

So there's convenience value. Number two, there has been traditionally insurance value.

[Greg Rosalski]

Insurance value. When things hit the fan in the global economy, investors flock to buy US Treasuries. It's called the flight to safety. And the dollar gets stronger instead of collapsing.

[Conference Delegate]

So when Lehman brothers failed in 2008, you know, we did that. We caused the bad thing. The dollar exchange rate didn't collapse. It strengthened because everybody rushed into dollars, valuing their liquidity and safety. Number three, the US Government can borrow at lower interest rates than otherwise.

[Greg Rosalski]

Foreigners want to buy US debt. That means the US Gets to borrow for cheaper than we would otherwise. It's kind of like the US has this special low interest credit card that other countries don't have and we can spend on things like infrastructure and Medicare and the military, even when we don't have that money sitting in the bank.

[Conference Delegate]

And number four, it gives us financial weapon to use, hopefully judiciously.

[Mary Childs]

The fact that the US Dollar is at the center of the global financial system means the US has this unmatched power to sanction other countries. We can stop dollars from flowing to foreign banks. We can freeze or seize their dollar assets, and we do so.

[Greg Rosalski]

To Barry, those are the four big things that make the dollar's reserve currency status a privilege, an exorbitant privilege. But there have been some economists, including in Trump's orbit, who have argued that the reserve currency status of the dollar, it's more like a burden.

[Mary Childs]

They're focused on the costs of having the dollar as a reserve currency. One effect of your currency being the reserve currency is your currency is stronger than it would be otherwise. In the Trump administration, they're like, a strong dollar is great for US Consumers, imports are cheaper, travel abroad is cheaper, but it is not great for exporters, for manufacturing in this country.

[Greg Rosalski]

Another problem with the dollar being the reserve currency, it means every other country is using it for their own purposes. So the US has less control over the dollar's value.

[Mary Childs]

And this is really clear during recessions when there's that flight to safety and the dollar strengthens. If you're a business selling stuff to the world and you're struggling because there's a recession, you're actually double struggling because your products are getting more and more expensive abroad. So we asked Barry, how bad is this? Like, if you subtract the downside from the upside, what does that leave us with? Like a lot of privilege left over or none.

[Conference Delegate]

There's debate amongst economists. We debate everything, of course, but there's debate amongst economists about whether the benefits on net are small, medium sized or large. But I think there is a broad based consensus that we're better off having the dollar playing this exceptional role.

[Mary Childs]

So most economists agree we are better off overall. But better off or not, the dollar's status is very gradually, glacially, Barry says Eroding. Central banks have been buying other currencies to at least rely on the dollar less. When the dollar made up 73% of the world's central bank reserves, that was the peak. That was more than 20 years ago. And since then, the dollar's share has been slowly drifting lower and lower. It is now down to 58%.

[Greg Rosalski]

Part of that drift is America's adversaries. They don't really love this role for the dollar, so they've been looking for alternatives.

[Mary Childs]

So, okay, if the US Dollar were to stop being the world's reserve currency, what happens? Like, if I'm a central banker shopping for a new reserve currency, what are my best options? I asked Ishvar.

[Ishwar Prasad]

This is. This is my little list. China, Europe, Germany, France. Question mark? Question mark. Oh, I forgot the UK entirely. Sorry.

[Mary Childs]

Whoops.

[Ishwar Prasad]

Japanese yen. And then they're like kind of littler guys like Australia, South Korea, Canada. And then there's gold and Bitcoin. Does that sound like the menu of options to you?

[Barry Eichengreen]

That is about right.

[Mary Childs]

I actually went through every single one of those possibilities with Ishvar. What about our old favorite, our old friend, the pound sterling?

[Barry Eichengreen]

Yeah, it's a potential rival.

[Greg Rosalski]

Yeah, potential. But Brexit, when the UK Left the.

[Barry Eichengreen]

European Union, the British economy has really struggled since then.

[Mary Childs]

Slow economic growth.

[Ishwar Prasad]

Let's go to Japan. What are we looking at?

[Barry Eichengreen]

So, I mean, this is a very rich economy, but they're just not growing very much.

[Mary Childs]

Same problem, not much growth. Plus, Japan's population shape is all wrong from an economics perspective. They have too many old people drawing down their pensions and not generating money.

[Barry Eichengreen]

And they really need exports to grow.

[Greg Rosalski]

Which means they need a weaker yen.

[Barry Eichengreen]

So for them, they don't really want it.

[Mary Childs]

They don't want to be the reserve currency. So I asked about Australia, and it turns out, yeah, the Aussie dollar is on the rise, and so is the Canadian dollar. And the South Korean won, and even.

[Barry Eichengreen]

The Indian R. Collectively, it's a lot. But individually, each of these reserve currencies doesn't amount to very much.

[Ishwar Prasad]

Okay, okay. So it's like a Franken reserve currency.

[Barry Eichengreen]

Yeah, it's. Yeah, I wouldn't put that negative spin on it.

[Ishwar Prasad]

Oh, dear. Okay, I'm feeling more pessimistic than I expected.

[Greg Rosalski]

But we still had some major contenders to go through, like the euro. The euro launched in 1999. Today, it unites 20 countries with one common currency.

[Barry Eichengreen]

It has pretty big financial markets. So why not the euro?

[Mary Childs]

Liquid safe. Why not the euro? Well, Ishwar says to Put it mildly.

[Barry Eichengreen]

It's a mess.

[Mary Childs]

All those countries have their own governments with their own budgets and policies for taxing and spending. And sometimes that doesn't work out so well. Ishwar remembers the eurozone debt crisis 15 years ago, when suddenly Greece realized its books were not accurate and it did not have the money that it thought it did. In fact, it didn't have any money at all. And everyone freaked out.

[Barry Eichengreen]

What we learned is that the Greek government bond is not exactly as safe as a German bund.

[Greg Rosalski]

And if you only look at the ones that are considered safe, suddenly the market is really small. Too small.

[Mary Childs]

Okay, so not the euro. What about the other obvious candidate, the other biggest economy in the world? Interestingly, China has been actively trying to become a bigger player in the reserve currency world to get more of the world to use its renminbi.

[Barry Eichengreen]

Most of China's trade with other countries was still being conducted in US dollars. And the Chinese said, why the heck are we still relying so much on dollars? Why don't we and other countries get with the program and start using our currency, the renminbi, more?

[Greg Rosalski]

So they opened new relationships with other countries. Like in 2010, China for the first time traded directly with Russia without converting anything into dollars. Then China started trading directly with Japan. No dollars.

[Mary Childs]

The renminbi went from being no percent of global foreign exchange reserves to 2.2%. Not huge. And that percentage has not been growing.

[Barry Eichengreen]

People are worried about the state of the Chinese economy and its growth prospects, and they don't necessarily trust the Chinese government.

[Mary Childs]

That's probably the biggest impediment for China trust. Central bankers and foreign investors around the world worry that China will change its rules and they won't be able to get their money out despite China's promises.

[Ishwar Prasad]

So, okay, wow. We have found functionally no viable candidates.

[Barry Eichengreen]

No. But of course we have to talk about gold and bitcoin, which are on your list.

[Ishwar Prasad]

Okay, let's do gold. I love gold.

[Barry Eichengreen]

Who doesn't?

[Mary Childs]

I have some right here.

[Barry Eichengreen]

I got a bit of gold the other day at the tooth filling.

[Mary Childs]

Nice carrying around with you.

[Barry Eichengreen]

Sorry.

[Ishwar Prasad]

Store of value. That's what I'm talking about.

[Greg Rosalski]

The price of gold has been on an absolute tear lately.

[Barry Eichengreen]

Gold is certainly something that over millennia has preserved its value. There is a problem with gold, though, which is that it is not very liquid.

[Mary Childs]

Yes, literally. Good one. But also just the market. There's not enough gold. The global economy is way bigger. Central banks need more in reserve than gold can provide.

[Ishwar Prasad]

All right, come at me.

[Barry Eichengreen]

Bitcoin so from a central banker's perspective, Bitcoin doesn't look safe. Its value is very volatile and it's not liquid.

[Ishwar Prasad]

So who is your top draft? Can you make a case for anybody?

[Barry Eichengreen]

I wrote a book in 2014 called the Dollar Trap, and the point I made in that book is that there are no better alternatives. Of all the shirts hanging in the closet, the dollar seems the least muddied and least stinky one by far. This is not to say it is pristine by any means, but when even you have to wear a shirt, it's the shirt that much of the world reaches for.

[Mary Childs]

Still, they are reaching for it less and less, and Ishwar says that trend will likely continue. The Trump administration's policies just accelerated it.

[Greg Rosalski]

And if the dollar is less dominant, that exorbitant privilege, it would slowly dissipate, including that bit about our government being able to borrow cheaply and subsidize our lifestyles.

[Barry Eichengreen]

If the US Dollar were to lose its primacy, we as consumers and the US Government, we'd all have to tighten our belts and that would not be such a fun day.

[Ishwar Prasad]

Is that day coming?

[Barry Eichengreen]

That day has been anticipated for a long time. I don't think it's coming anytime soon, and I'm not even sure it'll come within the foreseeable future at all.

[Ishwar Prasad]

Okay, so we have until like aliens.

[Barry Eichengreen]

For a while at least.

[Mary Childs]

Which is good news for our Kevlar wearing money manager, Mike at Pimco, because in recent weeks he has not fled US Assets. He actually ended up buying more US Treasuries, more dollars and a little bit of debt from Japan, the UK And Australia. Just in case.

[Greg Rosalski]

To support planet money and NPR, you can donate directly at donate.NPR.org or you can become a Planet Money plus member and get bonus episodes and sponsor free listening. For that, go to plus.NPR.org or you can click the links in the show.

[Mary Childs]

Notes Notes this episode of Planet Money was produced by Emma Peasley with help from James Snead and edited by Marianne McCune. It was engineered by Kwesi Lee with fact checking help from Sierra Juarez. Alex Goldmark is our executive producer. I'm Mary Childs.

[Greg Rosalski]

And I'm Greg Rosowski. This is npr. Thanks for listening.