What The World Thinks Of The Dollar In Light Of Recent Politics

The political instability over funding the U.S. government and raising the debt ceiling could have international financial implications. Host Scott Simon speaks with Matthew Goodman of the Center for Strategic and International Studies about how emerging economies view the dollar after the current debt crisis.

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SCOTT SIMON, HOST:

While the Democrats and Republicans bickered over the budget and the debt ceiling in the last few weeks, the rest of the world has watched and wondered. The U.S. dollar is still the currency of international reserve because of our wealth and political stability. But a few nations now compete with U.S. wealth and U.S. political stability may look a little shaky following the government shutdown and drawing so close to the debt deadline.

China, which holds the largest amount of U.S. Treasury bonds has called for a de-Americanized world where other nations no longer have to rely on the dollar. Matthew Goodman is a former White House advisor and is now the William E. Simon chair in political economy at the Center for Strategic and International Studies. He joins us from his offices there. Thanks very much for being with us.

MATTHEW GOODMAN: Thank you. Good to be here.

SIMON: Remind us of the advantages there are in being the currency of international reserve.

GOODMAN: Well, for one thing, it allows you to make a little profit on what's called seigniorage where you can issue currency from almost nothing and benefit from the face value, which is much greater than that. The other is that you can essentially borrow for free by issuing this currency and at almost zero interest rates. And so it is a double advantage, plus there's broadly prestige from having this position in the international economy.

SIMON: And recent events have caused some other countries in the world to question whether the U.S. is the best guarantor of these advantages.

GOODMAN: Well, that's right. I mean, I think the recent events have been quite troubling and worrisome to the rest of the world. They're obviously very concerned and frustrated, as you said. Many big countries like China and Japan hold a lot of our treasuries and they worry about the value of those holdings going forward and whether the U.S. can do the things it needs to do domestically to get its economy in shape and avoid these sort of fiscal crises.

SIMON: But I gather this time the rest of the world might not be saying: fix your problems, U.S.A., but saying maybe we should look to a country other than the U.S.A.

GOODMAN: Well, I think there is that frustration building and people looking at alternatives, but the reality is that there aren't really a lot of alternatives for countries today. The U.S. is the only country with a large enough economy and deep and liquid enough capital markets to allow these countries with surpluses and money to invest to put them somewhere safely. So although I think there is real frustration and I think desire to try to look for alternatives, I think the reality in the near term is there really aren't a lot of options for these countries.

SIMON: What about ten years, twenty years down the road?

GOODMAN: Yeah, I think down the road it's likely and possibly even inevitable that the Chinese currency is going to play a greater role and then possibly other currencies could as well, and I think that probably is, as I say, inevitable and maybe not even a bad thing because there are some disadvantages to being the global currency, like having to run these large deficits in order to provide dollars to the rest of the world, which puts us at risk.

You know, I think there is probably going to be a movement in that direction to a more multi-currency world, but it's not going to be in the next couple of years. It's more like the timeframe you talked about, ten, twenty years.

SIMON: Matthew Goodman, former White House advisor, who's the William E. Simon chair in political economy at the Center for Strategic and International Studies. Thanks so much for being with us.

GOODMAN: Thank you very much. You're very welcome.

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