This episode features a conversation between Gene Tunny and Stephen Kirchner about the dominance of the US dollar in global finance. They examine the reasons behind the dollar’s strong position, the effects of US fiscal policy and public debt, and the debate over the future role of the US dollar. Kirchner provides insights into how the US’s status as a net oil exporter influences currency dynamics and global trade.
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About Stephen Kirchner
Stephen Kirchner is the Senior Economist at the Business Council of Australia, the former Program Director for Trade and Investment at the United States Studies Centre at the University of Sydney, and a Senior Fellow of the Fraser Institute. An expert in monetary and fiscal policy, financial markets, and trade economics, Mr. Kirchner was formerly a research fellow at Australia’s Centre for Independent Studies, an economist with Action Economics, LLC and a former director of economic research with Standard & Poor’s Institutional Market Services, based in Sydney and Singapore. He has also worked as an advisor to members of the Australian House of Representatives and Senate.
Mr. Kirchner holds a BA (Hons) from the Australian National University, a Master of Economics (Hons) from Macquarie University, and a PhD in Economics from the University of New South Wales. He blogs at http://www.institutional-economics.com and is active on Twitter (@insteconomics).
What’s covered in EP246
- US dollar’s global role as reserve currency, benefits, and potential challenges. (0:00)
- US fiscal policy and its impact on the US dollar’s global role. (8:40)
- Monetary vs fiscal policy dominance in determining interest rates and exchange rates. (14:39)
- US dollar’s role in global finance and its potential replacement by other currencies. (20:39)
- China’s economy, currency, and trade agreements. (29:59)
Takeaways
- The US dollar’s dominant role in global finance is largely due to the unparalleled size, depth, and liquidity of US capital markets.
- Despite concerns about the US fiscal position, the demand for US assets remains strong, which supports the dollar’s value.
- Other economies, like the Eurozone and China, face challenges in rivaling the US dollar due to less developed capital markets.
- The US becoming a net oil exporter has altered the traditional relationship between the US dollar and commodity prices.
- Fiscal policy in the US, while concerning, does not currently pose an immediate threat to the dollar’s global dominance due to strong international demand for US assets.
Links relevant to the conversation
Stephen’s post on dollar dominance:
https://stephenkirchner.substack.com/p/dollar-dominance-if-you-can-keep
Stephen’s US Studies Centre article “The ‘reserve currency’ myth: The US dollar’s current and future role in the world economy”:
Stephen’s post on how the US dollar is now a commodity currency
https://stephenkirchner.substack.com/p/why-is-the-australian-dollar-so-weak
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Transcript: Dollar Dominance: Can the US Keep Its Edge? w/ Stephen Kirchner – EP246
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Gene Tunny 00:00
Gene, welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host. Gene Tunny, I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now on to the show. Stephen Kirschner, welcome to the programme.
Stephen Kirchner 00:36
Thanks for having me back. Gene,
Gene Tunny 00:38
oh, good to have you on, Stephen, you’re doing really interesting things in your newsletter. It’s, well, it’s a sub stack, the institutional economics sub stack. And I wanted to chat with you about some of the things I’ve been reading in your sub stack recently, and also some of these, you know, big international macro economic issues to start with. Might ask you about this recent post. You had dollar dominance. If you can keep it, could we start off? Could you explain what’s what do people mean by this concept of dollar dominance, please.
Stephen Kirchner 01:23
Mostly it’s referring to the fact that the US dollar plays an overwhelming role in as the currency of denomination for international finance. So it makes up the vast majority of global ethics turnover. It’s the currency of denomination for most of the world’s debt issuance and a lot of international lending as well. It’s about 60% of global FX reserves, and it’s the predominant currency of denomination for most of the global trade in goods and services. And so the US dollar plays this very prominent role, which I think is ultimately attributable to the fact that the US has capital markets that are really unrivalled in terms of their size, their depth and liquidity. And so that puts the US in a very good position to be a provider of financial services to the rest of the world. And I think that, more than anything else, is what underpins the role of the US dollar, where I think there’s been a lot of interest over many years, is how much longer this role can continue, and there’s constant speculation about the future role of the US dollar. And this speculation goes back a long way. So in my paper for the US study centre a few years ago on the reserve currency myth, I went back and pointed to lots of embarrassing quotes from the Economist magazine and various other sources predicting the dollar’s demise. All those predictions have proven to be incorrect, but it’s remarkable that half a week goes by, I would say, without an op ed in the FT speculating about the US dollar’s future, which I think about Oasis, sort of getting the cart before the horse. I think before you speculate about the US Dollars global role, you kind of need to think about what would actually change in terms of underlying fundamentals to really shift that position.
Gene Tunny 03:39
Got You Can I ask about that the role as the global reserve currency? Economists such as Joseph Stiglitz have argued that this, this gives the US an un an unfair advantage or an exorbitant privilege. Is that right? Is that? Is that a concern is, does it? Does it actually get is it? How, to what extent does it benefit from being that global reserve currency?
Stephen Kirchner 04:06
Yeah, I have a lot of problem with the idea or the term reserve currency, because I think it’s a little bit confusing. And if you look around trying to find definitions of what it means to be a reserve currency, most of them are somewhat tautological. And so when you invoke the term reserves, people will automatically think of central bank holdings, the foreign exchange reserves. And all central banks hold foreign exchange reserves. On average, about 60% of those reserves are denominated in US dollars, but I don’t think that’s what gives the US a dominant role in the US dollar, a dominant role in international finance. And in fact, if, if foreign central banks held no US dollars, I think that would actually have a fairly marginal impact on both the US dollar exchange rate and. And interest rates similar, because the turnover in foreign exchange markets on a daily basis is in the order of trillions of dollars. It’s probably eight or $9 trillion on a daily basis, and central bank holdings the US dollars in the billions. And so the effect that those reserves might have, and changes in reserve balances, I think you’re going to be very marginal. So the way I think, prefer to think about it is that the US provides a very deep set of capital markets which can accommodate the world’s saving and there is a demand for US dollar assets, and so that’s what I think of, in terms of the US dollar having a dominant role, or a reserve currency role, but it’s really a case of us being a supplier of safe assets to the rest of the world, and this is what’s responsible for the US Dollars roles. I think central bank reserves in this context are fairly marginal.
Gene Tunny 06:10
Yeah. Okay, so the couple of things to explore there in terms of, well, safe assets to the rest of the world. Are you talking about US Treasury bonds?
Stephen Kirchner 06:21
Principally, yes. So the US provides not only what is effectively a risk free benchmark asset for the rest of the world in the form of US Treasuries and treasury bills, but even in terms of a medium of exchange, about 40% of the US banknotes in circulation actually circulate outside the United States, so there’s a demand to hold the US Dollar as a medium of exchange as well.
Gene Tunny 06:53
Yeah. So does this all mean that that the US dollar its value in its exchange rate, so it’s more favourable than it otherwise would be. And so that means that Americans can get, you know, they can buy stuff from the rest of the world a lot cheaper than otherwise. Is that? Is that reasonable to say
Stephen Kirchner 07:17
that’s part of it? I mean, there are people like Michael Pettis, for example, who argue that the US dollar suffers from a structural overvaluation problem that’s because of its dominant role, as you say, would tend to contribute to a higher exchange rate than otherwise. But the way I think about it is in terms of the equilibrium US dollar exchange rate. You would want that exchange rate to reflect all underlying fundamentals, and this is just a one of the fundamentals that feeds into the US Dollars valuation. So I don’t see that as being a problem per se, and it’s certainly not a problem with the United States that there’s very strong demand to invest in the US, whether it’s in the form of debt securities, equity securities, or foreign direct investment. We had this debate in Australia for many years about whether the current account deficit was a problem or not, and I think most of those arguments carry over to the US setting, where it’s certainly not a problem that in the US there’s very strong investment demand, not all of that demand could be met through domestic saving, and it’s actually a vote of confidence on the part of foreign investors that they want to invest in your economy. Yeah,
Gene Tunny 08:39
it’s remarkable. Stephen, you just reminded me, if you go back to say, the mid to late 80s and then the early 90s, there was such an obsession with the balance of payments and the current account deficit. So, I mean, Australia’s now got a current account surplus, haven’t we, thanks to mining, which is a, yeah, very, very positive thing, but yeah, we were, we were obsessed about it, and there was a big debate about whether that made sense or not, or whether this was just a reflection of the great investment opportunities in Australia. So it was good to to remind me of that debate. Can I ask about the safe assets? So you’re talking about us, treasury bonds. And I’ve had guests on this show. I’ve had Romina from, I think she was a Cato. And I’ve had Dan Mitchell from, he’s, he’s got his own Centre for freedom and prosperity. He’s ex Cato, ex heritage. And Dan’s a prominent commentator. And I mean, they’re very worried about US fiscal policy as I am. I mean, it looks like they’re on a very, you know, very bad, well, you know, unsustainable trajectory. They’re gonna have to correct it in some way. But from what you’re saying, I mean, there’s still this healthy demand for US government bonds, isn’t there? So is how. Do. How do you actually reconcile these, these two facts?
Stephen Kirchner 10:04
Well, in fact, a lot of the commentary around the future of the US dollar over the decades has really turned on this question of is the US on an UNSUSTAINABLE fiscal trajectory, to the extent that this might actually compromise the US Dollars global role, and is certainly the case that the US, in terms of the debt held by the by the public, has reached levels that are just a little bit below the levels we saw at the end of World War Two, and the US government was obviously very heavily borrowing. The difference being, of course, that we’ve got this level of debt in the absence of wartime conditions, and with the US economy is still pretty much fully employed. So the question would be, what would happen in the event of an adverse macroeconomic shock when you’ve got such a bad starting point. So I mean on the one hand, the US debt position, the public sector debt position, is one which actually is useful from the point of view of providing a supply of risk free assets to the rest of the world. So there’s no shortage of demand to invest in US Treasury securities. And if there was going to be an issue around the sustainability of the US fiscal position, you’d kind of expect it to show up in the exchange rate and interest rates at some point. But if you if you’re not seeing that in the price, then I think there are fewer concerns about the sustainability of the US deposition. So one way of thinking about this is us, dollar exchange rate actually serves to sort of price this demand to hold us assets. I’d say there’s an excess demand globally to hold us dollar assets, and the US dollar exchange rate reflects that.
Gene Tunny 12:15
So is the market just thinking that, Oh, well, all of these fiscal problems, there still a fair way down the road, and it’s not going to affect our demand for five year or 10 year treasuries. Or are they thinking, Oh, well, the Americans that they’ll eventually sort it out in in Congress, I mean, that they’ll recognise the that they need corrective actions as they have. You know, the Americans managed to do that in the 90s with under Clinton and Gingrich. So is that what they’re thinking? I think
Stephen Kirchner 12:48
from the point of view of the exchange rate, you have to remember that the exchange rate is a relative price, and so it’s the relative price of US, output and assets compared to the rest of the world. And if you look at fiscal policy trajectories in other economies, they don’t look too great either. So Japan, Japan will be an obvious example of an economy which has an even worse net and gross debt position than the US. Fiscal policy settings in places like Italy, which is the world’s third largest market for sovereign debt, don’t look too flashy, either. So with exchange rates, you always have to ask yourself, how does a country look on a relative basis? And so I think the US still looks good in those terms. Yeah, of course, in an absolute sense, you know, I’d certainly agree that the fiscal position in the United States is of a concern. At some stage they’re going to have to address it. But they’re hardly alone in that regard. So thinking about the US Dollars role internationally, I don’t see the US fiscal position, per se as being a problem, okay, but ultimately, I think the issue for the US is that there’s a rising interest Bill associated with its public sector Debt. Just recently, that bill has eclipsed the US defence budget in terms of absolute science, right? And this in itself, is a constraint on US fiscal policy, because that rising interest bill ultimately constrains what the US government can do. Yeah,
Gene Tunny 14:39
yeah, that’s extraordinary. I’ll have to check that out. I mean, to think, I mean, given how large the US military machine is that, how large the Pentagon is, to think that that’s incredible, right? Why I asked that before Stephen was because you’ve got this fascinating chart from macro bond in. Your newsletter on dollar dominance. If you can keep it, I’ll add a link in the show notes that essentially shows practically no correlation between general government gross debt to GDP percentage and the 10 year government bond yield. And I mean, we all know that there’s challenges with doing cross country correlations. But what do you you know and inferring things from from cross country data? But what do you read into that, that that chart? What do you read into those, those data points?
Stephen Kirchner 15:34
Yeah, like the point I was making with that chart, and this probably applies more so to developed markets than emerging economies, but still holds broadly, I would say, is that the fiscal position of an economy is actually not a very good predictor of its borrowing rates, its government borrowing rates. I mean, most obvious example that would be in Japan, which probably has the worst fiscal position on a gross and net basis of any of the advanced economies, and yet has the lowest in interest rates. So I think what that’s telling you is that interest rates are ultimately determined by other things. So underlying productivity growth and monetary policy, and monetary policy, I think, is a much more powerful predictor of cross country variation in interest rates. So if you’re looking to try and predict movements in interest rates between economy and stuff looking at changing fiscal positions, I don’t think you’re going to get very far. And that then flows through to exchange rates, because, yeah, if it’s if it’s the case that interest rates are actually not that sensitive to fiscal policy, then it’s going to imply that exchange rates are probably, by extension, not going to be that sensitive either. So this comes back to the issue of monetary versus fiscal dominance, and that monetary policy ultimately is far more important in terms of determining interest rates than fiscal policy.
Gene Tunny 17:21
Yeah, I think that’s, I think that’s right, certainly in the I mean, I mean you, I can ask you this. I mean, you can, you may have answered this, but I mean, I can understand that in the short term, like I think about how market economists forecast the value of the Australian dollar, and they’ll look at the differential between you know, bond yields or or, you know, they’ll have different maturities, like they might be looking at, I don’t know whether it’s three three month bills or six months or a year, but they, I know they’ll have an interest rate differential or spread, and then they’ll have the terms of trade, for example, in there, but yep, they’re not going to have something like the, you know, what’s happening with the the debt or the budget, I suppose. Or maybe I’m wrong about that, but I take your point. I think it’s a it’s a good one. What does it mean for say, John Cochran theory of the fiscal fiscal theory the price level. I spoke with John Cochran at Centre for independent studies. There was an event we had last, last September in Sydney, and I asked him about the fiscal theory of the price level. What do you think this means for that theory? Have you looked at that at all? Stephen,
Stephen Kirchner 18:41
yeah. I mean this, I’ve addressed that in a number of posts on the newsletter, and I think this goes to your question about the long run. And the long run situation is a little bit different in that it’s possible to imagine fiscal policy and public sector debt getting to a point where it is so unsustainable that you enter a regime of fiscal dominance. In other words, fiscal policy ends up determining the price level, and that is certainly a possibility. So in that situation, the central bank is forced to effectively accommodate expansion fiscal policy. So it’s certainly the case that fiscal policy can play that role. But the way Australia, the United States and other advanced economies have set up their sort of macro policy frameworks is one in which, for the short term, at least monetary policy is dominant. So whatever the fiscal authority is doing with fiscal policy tends to get discounted by monetary policy actions. So as long as you have an independent inflation targeting central bank. Think, then I think you’re in a regime of monetary dominance, but it’s certainly possible that those institutional arrangements might fall apart in the context of a fiscal position that’s unsustainable in the long run, and then you are in that sort of fiscal theory of the price level type world,
Gene Tunny 20:21
yeah, yeah, for sure. Okay, yeah, I think that’s a good point. So if you’ve got an independent central bank, and it’s, it’s not just, you know, it’s, it’s setting monetary policy to target inflation, and it’s, you know, monetary policy doesn’t end up being determined by the government. I mean, if the gov, because you get into that problem in, say, some Latin American countries historically, or Weimar Republic, where the government just prints money to pay its bills, to cover its deficits, rather than borrowing from the bond market. And yeah, that’s where you end up in all sorts of strife, potentially even hyperinflation. So, yeah, I think that’s a fair point. Yeah. Just thought I’d ask you about that, because I think, yeah, John’s, he’s got a really fascinating theory there, and he’s a very, very compelling presenter, and a, you know, really top economist, obviously. So that that’s really good, one of
Stephen Kirchner 21:18
the Argentina, Argentina, good example of the sort of situation you’re referring to. So they’ve had a number of experiments with managed exchange rate regimes that have blown up, and the reason for the blow up in each case was basically that fiscal policy was incompatible with that regime, and it was fiscal policy the one out in the end. So the issue around Argentina, addressing both its inflation problem and the issues around its exchange rate ultimately depend upon it putting in place institutions that will constrain fiscal policy. Yeah,
Gene Tunny 21:58
one of the other posts that I’ll put a link to in the show notes, Stephen, I think it was a post of yours where you’re talking about how the US dollar, how it’s been or the exchange rate, how that’s been affected by the fact that the US has become such a Strong producer of was it shale oil and shale gas? I mean, it’s become a has it become a net energy exporter? Or have I got that wrong? Or how do you
Stephen Kirchner 22:29
Yeah, the United States is now a net oil exporter. Has been since about 2018, 2019, yep. And in fact, produces more oil than Saudi Arabia, which I think is a a fact that would surprise most people. Yeah, so. So the significance of this is that US dollar now trades, you know, as a positive correlation with its terms of trade. It’s it’s trading in much the same way as we’re familiar with here, where the Australian dollar has a very close relationship with our terms of trade. And so the US dollar is trading like a commodity currency. This has big implications for the Australian dollar exchange rate, because what it means is the US dollar is now positively correlated with commodity prices, and in terms of the Australian dollar, traditionally, the Australian dollar has exchange rate has been correlated with commodity prices, but we typically quote The Australian dollar in terms of the US dollar, if its correlation with commodity prices is increasing, then our exchange rates correlation with those prices is going to weaken. And you can see that in the data that the relationship between Australian dollar and commodity prices is essentially broken down since 2018 2019 coinciding with the US becoming a net oil exporter? Yeah,
Gene Tunny 24:06
yeah. But do we do? Is there still a correlation with trade weighted index? Do you know? I mean, I can check that myself, but just wondering, because I think that’s what, where you’re going at there. I mean, because we, we tend to, yeah, quoted in terms of US dollars, but there’s this broader exchange rate concept that you could use instead,
Stephen Kirchner 24:27
no, it affects the Australian dollar trade weighted index as well. So that was actually the charts that I used in that post were the Australian dollar twy. And the reason is, US dollar still has a big weight in the tui China has a big weight as well. But of course, China is running a managed exchange rate regime, largely targeting the exchange rate with the US dollar. Yeah, so China’s weight effectively becomes a US dollar weight in that measure. Gotcha. Yeah. Yeah. So this has huge implications for us, because it means that the with these australian dollar being less sensitive to commodity prices, we’re going to lose some of the shock absorbing role of the Australian dollar. The Australian dollar is not going to moderate those fluctuations now in terms of trade and quality of prices as it has historically. And I think one implication of this is that the reserve bank is going to have to become more activist in its conduct of monetary policy, because it won’t be able to rely on the exchange rate to do a lot of the heavy lifting in terms of setting monetary conditions. So if the exchange rate is not adjusting as aggressively as it has historically, then I think by implication, the cash rate is going to have to do more of the work. I
Gene Tunny 25:50
think that’s a really excellent point, because I remember when I was in Treasury, yeah, we always used to talk about that shock absorbing role of the Australian dollar. And there was a view that that’s why Australia got through the Asian financial crisis so well. So I think that’s a really excellent point. Just trying to remember where I was, where, what I was going to ask about the Yeah, so we’ve got the point about the the twy. I’ll the trade weighted index. I’ll link to that article. Is it China? Is that the in terms of who, which country could replace, the which currency could replace, the US dollar? Is it the the Chinese currency, or is it the euro? What are what are people speculating on? I
Stephen Kirchner 26:40
think the problem that people have there have trouble wrapping their head around is the idea that the US dollar and its role is somewhat disconnected from the relative size of the US economy and its importance in global trade. So the Chinese and the eurozone economies rival the US in terms of size, and they certainly rival the US in terms of their prominence in international trade. And people kind of expect that the respective roles of their currencies should reflect those GDP shares and trade shares where both Eurozone and China fall down is in terms of not having the capital markets that rival the US in terms of size, depth and liquidity. And so the US dollar’s role is essentially a function of the dominant role that the US has in global finance. Yeah, and I think that’s always going to be more important in determining the role that the US dollar plays. Certainly, when the Euro was launched in 1999 there were expectations that it would rival the US dollar and the ECB produces a an index which essentially tries to measure the role of the euro in global finance. So in terms of FX turnover, currency of denomination for debt securities, currency of denomination for global trade. And it does pick up a little bit immediately following the Euro’s launch. But of course, with all the problems in the eurozone and the Eurozone debt crisis, that role has essentially flatlined more recently. So I’d say the Euro has basically disappointed the expectations that were held for it in terms of taking on a global role, and the same with China. So China launched a campaign to internationalise the renminbi and toyed around with a more flexible exchange rate setting around about 2015 2016 but very quickly walked away from it when the exchange rate started to exhibit more volatility than they would like, and so they’ve clamped down in terms of exchange rate setting. They’re still running a managed exchange rate regime and a closed capital account, yeah, and if you’ve got a closed capital account, I think that’s always going to limit the prospects for internationalisation of your currency. And we saw exactly the same thing with the yen as well. In the late 1990s early 2000s the Japanese Ministry of Finance had this idea that they would internationalise the yen, make it the main currency of denomination for trade in the Asia region. They wanted to set up an Asian Monetary Fund without participation with the United States. And all of those efforts really went nowhere. Yeah.
Gene Tunny 29:59
Yeah. I think it’s Yeah, very good point, Steve. And I just remembered what I was going to note before, because why I thought that was interesting, that post of yours talking about how the US has become an oil exporter, and you were explaining why, more recently, the Australian dollar relative to the US, hasn’t got up to the highs that it got up to in the first in mining boom, mark one in the 2000s so where it got to parity, I think at one time. So I think that was a really good explanation of that.
Stephen Kirchner 30:36
I think the contrast is quite dramatic, because we had a big terms of trade boom around about 2011 when, as you say, the Australian dollar got about parity with the US. Well, the terms of trade actually got even higher in 2022 In fact, they were the highest terms of trades going back to about 1860 and yet you certainly don’t see that in the Australian dollar exchange rate. And so the difference is, by 2022 we had this situation where the US had become a very substantial oil exporter, and that just really changed the relationship between commodity prices and the Australian dollar. Yeah, yeah,
Gene Tunny 31:15
good stuff. Just for clarity. And I think this is a simple, I think this is a quick question, the capital control. So you’re talking about how they’ve got a closed capital account. So they’re, they’re limiting the the exchange of of their currency for others, they’re all, they’re limiting people’s ability to pull money out of China is that, is that what people will be concerned about and why they’re limiting the ability of investors to repatriate funds home? Is that why it it may be limited in its potential to be a reserve currency?
Stephen Kirchner 31:59
Yeah. I mean, part of it is just a function of having a managed exchange rate regime that you need to control your capital flows in order to do that, I think it’s worth pointing out that a lot of the outbound capital controls are really not targeting foreign investors. They’re targeting Chinese savers, who they worry might send, there might be capital flight from the Chinese themselves to offshore, and so they place strict limits on the amount of money you can take out of the country.
Gene Tunny 32:35
Yeah, good point. And we’re, we’re a significant recipient of that, aren’t we? I mean, if there was a lot more cap, if there was that capital flight, or a lot more of it, then, yeah, a lot of it would go into Australian real estate, I expect. So yeah, that’s more of a comment, right? Final question, Stephen, there’s a lot of talk about the breakdown of this agreement. That was apparent, I think, is it Jim Rickards, who I’m trying to remember, who goes on about this, but apparently there was some agreement in 1974 between Richard Nixon and the Saudis that all oil sales would be denominated in US dollars. And that agreement has expired. And so there, there are people arguing that this will have profound implications for the US dollar and the US economy. Are you across that issue? And what are your thoughts on it?
Stephen Kirchner 33:34
Yeah, I think people make too much of this issue of in which currency is global trade in goods and services denominated and there’s certainly been moves in the past to re denominate more of the global oil trade and other currencies, including euros. But I mean, in this sense, I think, you know money, the exchange rate is really just a veil. Ultimately, the demand for the US dollar is a function of people either wanting to purchase US goods and services or wanting to purchase US assets. And so that’s where the demand comes from. You can, and that’s a real that’s a real demand. You can denominate global trade in whatever currency you like. There’s no reason why the Saudis and the Chinese could not denominate their trade in oil in renby, for example. But ultimately, the US, US dollar exchange rate is going to reflect the demand for US goods and services and US assets. So, you know, I don’t think it really matters. Is that much what the currency of denomination is. So to give an example, a lot of our iron ore exports would be denominated effectively in US dollars, because it’s a US dollar market. But I don’t think that affects the issue of the demand for the Australian dollar, because ultimately, that money, to the extent that it comes back to Australia, has to be converted into Australian dollars. So yeah, the demand for Australian dollars still reflects the demand for international demand for our iron ore. Yeah,
Gene Tunny 35:38
I think that’s a good answer. I was just thinking about it then. I mean, so if you think about it, Say yes, say the Saudis are accepting US dollars. So they, they sell their oil, they get the US dollars, and then they’ll, they will want to convert it to either their own currency, or they’ll want to convert it to pounds because they want to buy properties in Knightsbridge or or Mayfair or wherever, or wherever they want to invest in around the world. So I think, I think that’s a fair point to make. That’s a, yeah, I think that’s a really good perspective, righto Steven, it’s been illuminating. I’ve really enjoyed this conversation, and I’ll put a link to your great newsletter, institutional economics. I think you’ll Yeah, you’re actually doing some really deep analysis. You’re thinking carefully about these issues, the theoretical considerations, the empiric so I’ve been really impressed by it, and I would recommend it. Are there any any final comments or any reactions to anything I’ve said in this conversation before we wrap up, please.
Stephen Kirchner 36:49
I think that’s been great. Gene. Thanks very much for having me back on.
Gene Tunny 36:52
Oh, it’s been terrific, Stephen. And yeah, keep up the great work, and hopefully we’ll catch up with you again soon.
Stephen Kirchner 36:59
Thanks very much. You.
Credits
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