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.