What Needs to Happen for the Renminbi to Seriously Compete With the Dollar

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No, I mean, it's never really gone away. That was our intro for the last episode we did on this topic, which is it seems like every couple of years you get this resurgence about, oh, the end of the dollar, the dollar is going to lose its exorbitant privilege. I remember my dad sending me articles about like, oh, Iraq is invoicing oil in euros, like in 1998 or something. Lots of conspiracy theories around that one. But I will say we had that conversation with Paul McNamara. It was a really good overview of some of the talk that's happening right now and why certain countries specifically emerging markets like China might want to get away from the dollar. But I feel like there's more to say. All right, I'm going to make a confession, which is that in all of these conversations, there are certain things that people say. And I just sort of like nod my head to like, that's right. That's right. But I don't totally get them. And one of them, and it's not even so much about the dollar per se, but about dollar alternatives. Right. And the big one is like, well, the Renminbi cannot be a real dollar alternative until China runs a current account deficit. And I got that. That's right. That's right. But like beyond that, like, I actually do not totally get what that means or what actual constraint China's trade position with the rest of the world means for the future of Renminbi internationalization. Well, I think the way I would frame it is one thing we hear is that there isn't a viable alternative to the dollar. There are no other currencies slash country economies that are at the level of the US is that could possibly replace the dollar. And so I think we need to talk about why that is and what exactly that means. What does it mean? So I get the idea that, okay, maybe a country doesn't have enough financial assets for savers to buy to put their excess money in. I get that. But what does it mean that it's not a viable alternative? And right. And I guess the question is like, okay, but what would it take? Yeah. Right. Like, it's like, I guess we could sort of agree this basic premise. Maybe there's some impulse for some countries to move away from the dollar. Also, there are no real alternatives at this point. But maybe at one point, there will be. But actually, what would it take for another currency? Maybe the Renminbi, maybe the Euro to actually become a meaningful global reserve. No, if China woke up tomorrow and put this like at the top of its agenda, I don't think it's going to. But what would that sort of 10 step plan actually look like? That's a great way to sort of frame the conversation. What would it actually look like? So we're going to sort of be having part two to our recent conversation with Paul. Actually, a long time, a friend of Paul's. So maybe a similar different perspective, but sort of like follow on of what would it take for some other currency to be a meaningful global reserve currency. I'm very excited. We're going to be speaking with Karthik Sankaran, a true FX veteran recently at Corpay. He's been at Eurasia Group, multiple banks, an avid maker of dad jokes and puns on Twitter. So I'm. He used to actually cover Paul when he was trading, right? So a perfect guest for this conversation in many respects. And someone who I feel like I've wanted to have on the show for like years, and is like in my mind, an odd lot's guest, even though he hasn't been on the show before. Karthik Sankaran, thank you so much for finally joining us here. Thank you very much for having me. It's an absolute pleasure to be here, Nana. What does that mean? Actually, before I want to get to the alternatives, just before we do, though, real quickly, I mean, you listened to our recent episode with your long time friend and colleague Paul McNamara, in which he said, there is some global impulse for countries to stop using dollars, but there really aren't many alternatives. Do you basically agree with that premise? Yeah, I mean, there are, I'd say two things about that. One is I think going to replacement, and that's how this usually gets framed as replacement. I think that's silly. And the way I think about it is, would it make sense to see creeping regional displacement rather than replacement? And I think that's a possibility. And I would argue that the euro has already done that to some extent in not just in the euro area, but also in central and eastern Europe. I remember when I started my career, if you wanted to trade this law, this law, you traded dollar polish. And if someone asked for a price in March, you traded through the legs. Now it's the other way around. And if someone asked for a price in dollar polish, you trade your polish and your dollar. So it's taken a long time, but I think that's the this regional displacement idea. But what this also brings out, to me at least, is everyone is so excited about the renminbi, kind of this bricks currency and so on. And one way to frame why I think there is the desire, but it's a very long way from being fulfilled is that look at what the euro has, which is kind of a solid number to pretty kind of like Avis to the dollars hurts, at least that's the way the whole commercial is used to go. But the renminbi is really, really, really far behind. And one thing just because I've been introduced as an avid maker of dad jokes. Okay, here we go. First one of the here first one here it is. First one of the evening is that the or whenever this is it played, but you know, you mentioned a 10 step program for renminbi internationalization. And I was reminded that the last person who had a 10 step program that really worked with Genghis Khan. Okay. That's not good. That's not good. Anyway, okay. Sorry, I'm gonna lose it at the dad jokes. Just to back up a second. Oh, it took me a second to get that one. Actually, sorry, I took me a second to get that. That's a good one. Okay, we're gonna have a fun time here. Just to back up and ask this question in a different way. But I mean, there is there is this assumption that China would want to have renminbi internationalization. Should they want that? You know, if you consider China as an export driven economy that exchanges goods in return for US dollars, which are relatively stable, currency, does it make sense that it would want to have a different economic model? What are the benefits that it gets out of that? I mean, I disagree with this, you know, and the stuff that Joe mentioned at the beginning, does the country at the center of the international monetary system need to run deficits? And I don't think that's necessary in fact. Because you have a model written under the gold standard with a huge exporter of capital, the US until the mid 1960s was the center of the Bretton Woods system and was also a huge exporter of capital. So what that suggests is that it is possible for a surplus country to run a, to be at the center of the monetary system, you just have to find a way to get that currency out the door in size, in massive size. And you can do that either through the trade account by running very large external deficits. Or you can do it by external great gobs of capital either in your currency or that other countries are denominating in your currency. So when I think that's one way to think about it, but clearly China is not there and will have a very long time getting there, not just because of, you know, the issues with capital account convertibility, but there's a lot of things in the basic way that Chinese financial markets operate that make it difficult even for other people to issue in rem VSI. So let's jump into this because I think this is a point that I have not really heard many people make. So people make the point that it's like, okay, one way to get your currency out there into the world is to run a big trade deficit. But as we know, and I'm even thinking back to some of our conversations with like Lev Menon about the rise of the shadow banking system in Euro dollars, the other part way is just for other entities to start issuing your currency or assets that are denominated in your currency. And theoretically, I could issue a renminbi denominated loan and and often tell someone I'm going to pay them back in renminbi. But you made this point with respect, I was great thread with respect to Brazil, which is that actually like what we need to see as countries like Brazil being willing to take out renminbi denominated debt. Can you talk a little bit about the importance of that? Like, I think that's a very powerful thing. Not many people have talked about like this element of it. Yeah. And I think there are actually two issues. In some ways, it might actually be a good idea for Brazil to issue renminbi debt, right? Because you have a, and I think this is one of the arguments for a multipolar system more broadly is if you're a country whose terms of trade are driven by what's happening in China, if your business cycle is much more responsive to China, that it makes sense to be able to issue in the Chinese currency. Because what you don't want to be in the situation that you see emerging markets end up in all the time, they issued in dollars, the commodity exporters, commodities are priced in dollars, the world slows, China slows, commodity prices tank, the dollar goes up and they're host. I mean, this is like, this is like a rinse and repeat cycle in the international financial system. So it might actually make sense for that thread for, I was saying like, I'll get excited when CBRD issues like a huge amount in Panda bonds. But that's difficult, that's really difficult. And there's so many different reasons for that related to the way Chinese financial markets work. One is if you issue in renminbi, which renminbi do you want to issue it? Do you want to issue in the onshore market, which is deeper? Or do you want to issue in the offshore market, which, you know, which where you might have more people able to transact, but it's a much lesser market. If you do end up issuing the onshore market, obviously there, you know, and you may not want to, the reputation that Chinese investors have is of being somewhat more excitable. I think we've seen that in the equity markets. On the other hand, if you issue offshore, the problem is that China not only has two currencies, CNY and CNH, an offshore currency, an offshore currency, that trade reasonably closely together a lot of the time. But one of the ways they do that is by having different interest rates. And one of the things the Chinese do periodically is when they're worried about the speculative pressure on renminbi, which they think is coming from offshore players, is they will jack up interest rates on CNH. They will take it to the moon. You have seen it a few times, which might work in deterring the speculators, bring, you know, speculator pressure back down again, get CNY and CNH to converge. But that's really not that comfortable if you've issued in, you know, in the offshore currency. So, you know, and one of the things that the US has, the dollar has, is incredibly deep derivative markets risk. So if you want to issue, if you, if you issue in dollars and you want to head your interest rate risk, you can do it by trading your dollars, probably the most like, well, the most liquid financial futures contracts in the world. I remember financial futures, interest rate futures are just a, like a very, very, very small faction of that. The other issue with issuing onshore is, you know, what's your, and China has this huge domestic debt market. It's the world's second largest debt, domestic debt market. But to a very significant extent, it's composed of entities with opaque finances, right? The CGB market, the Chinese government bond market, is a relatively small fraction of the onshore market, just true, you know, which, and treasuries are not the entirety of the US market either. But the opacity of entities issuing domestically is significantly hard. You know, my one line around this is, everyone talks about China not having a rule of law. My view is that the real problem, the China doesn't have rule of accounting. That's the real issue here. So, I was, yeah, I was, I was stealing myself. Karthik, so I guess this brings me to the big question, which is how much of this boils down to just capital controls and the fact that China does not have an open economy. And you might expect that one of the requisites for having an international currency would be to have relatively free movement of that currency. Absolutely. I mean, that's, I think capital controls are a, you know, and that's the obvious, that's the obvious one. And they're trying to tinker with it at the edges, allowing inflows and outflows, but even at those edges, you know, what I was trying to get at was this idea that you have an offshore renminbi that's much, that's more freely tradable than the onshore renminbi. But there are very sizable disincentives to issuing in size in the offshore renminbi because of these things like on a smaller market, how do you hedge? So, capital controls are a huge part of it. But if you dig deeper into the capital controls issue, I think it raises more questions. Well, then I sort of want to maybe just go back to a question Tracy asked, which is like, is there a reason China should pursue the internationalization of the renminbi or should pursue having more global central banks hold renminbi as part of their reserve stock? Like, is there some obvious reason why, you know, it's not going to be number one on the agenda, but is there a reason why it should be in the top 10 or top 20 of the agenda? I mean, one of the things that they've said for years is that they want to see a more international internationalization, maybe, but I think when they look at the trade offs that they might need to make, I don't think they're ready to, you know, take a, to take a huge jump. And I think the, the other issue is that we've seen this before, right? Japan didn't want to, Japan didn't want to either. And we're, you know, about 30 years ago, people were talking about the extent to which Japan and the yen could act as another reserve currency. The Japanese just decided they simply didn't want to because of the pressure it would put on the profitability of the industrial base. Things are somewhat different from China in the sense that they seem to have a hankering for kind of broad spectrum global power in a way that the Japanese did not have. And maybe having an international currency is, is part of that. But to the extent that it happens, it would likely be much more halting. But they've got a really, really long way to go. At public.com, you can earn a 5.1% yield with a treasury account. That's a higher yield than a high yield savings account, all with government backed fixed rate treasury bills. It's one of the safest ways to put your cash to work. And it's one of the easiest to. There are no minimum hold periods, no settlement delays, just a safe place to park your cash and earn a reliable yield. Your account will automatically reinvest your treasury bills at maturity, and you can access your cash at any time. Earn 5.1% with a treasury account only at public.com. When was the last time you were truly focused? Meet remarkable, the only digital notebook designed to help you focus. Just you and your thoughts. The remarkable paper tablet provides a revolutionary way to take notes and read and review documents. With a paper field never before experienced on a digital device, remarkable is faster, thinner and smarter. 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And so people tend to accumulate a lot of savings or maybe rely on their children, but given the one child policy that's been in effect for a long time until recently, that wasn't really viable. What if China just built a social safety net to reduce the excess savings? Would that go some way towards retooling the economy in such a way that you could have RMB internationalization? I mean, I think so. To my mind, it would actually take care of two or three different issues. And one is the underlying growth model in and of itself, right? Because you've kind of all the little hanging fruit on investment, particularly real estate investment, you know, they're gone. And I've kind of tended to be an optimist about China because I think you kind of need two things. One is a kind of demonstrated capacity for technological convergence and income convergence for the rest of the world, which they've shown. But the other thing you really need is internal convergence between kind of the coast and the interior. More middle income in the middle kingdom. That's my dad, Joe. Thank you. I like that. Thanks. And you kind of look at, you know, works about what rural China is like. There's just there's a huge incentive, both socially and economically, to do that, to do that. And the other thing that lower precautionary savings would achieve is that would be a contribution to ending this kind of like really horrible nexus of excess savings, no place to put them and underfunded mandates for local governments, which then end up having to sell real estate to developers in order to, you know, in order to get the money to provide the services the central government won't. So there's this really nasty nexus right there that a larger social safety net would also help with financial stability, I think. Joe, this is something that I've never really understood about China, that it's ostensibly a socialist country, but it actually doesn't have that big of a safety net. Not much of a safety net, I think, like anti unions. And weren't there like some stories like they didn't want kids reading marks and stuff like that? I don't, maybe I think I read something like that. Anyway, I don't want to speculate on things that I don't. Well, you know, this is the socialist, the Chinese wrote to socialism is the aleneness wrote to capitalism is kind of how you could think of it. There you go. Going back to the US real quickly, so you pointed out that like, Japan decided in the end, it didn't want to make the trade offs that would have required for the for the end to be a big international currency. And maybe China will not anytime soon choose to make those trade offs. But that of course brings back to another sort of like other debate that people have and again, Klein, Pettus and some of these others, it's like, well, is the dollar strength of burden. And you know, should we reverse that basically, should we try on some level, at least at the margins to de internationalize the US dollar that maybe it's not so great? I'm curious like where you stand on that question. My personal view is that the my response to the burden discourse is check your exorbitant privilege. Because you know, I've been around, you know, em long enough that I think that if you think being able to print dollars to pay your debt is a problem. Try owing dollars without having any. Right? So that's, you know, that's that's extreme. But I guess more substantively, I would say that there are lots of reasons I don't think the dollar is is a burden. It certainly is a burden for certain sectors of the US economy that are very exchange rate sensitive and very exposed to kind of catch up growth in other countries. You know, and those regions also fall basically along America's political fulcrum, which is the upper Midwest and Western Pennsylvania. You know, so so I think that adds a political urgency to this debate. That said, you know, the US in in total, I think is a much more interest rate sensitive economy than it is an exchange rate sensitive economy. It's basically it's a much more close economy than either China or Europe. And if you think that the flip side of dollar centrality leading to dollar strength, which I'm also not convinced is always true, is lower interest rates than otherwise, then you have to ask the question, why are we not doing more with that windfall from low interest rates? Why would we stick? Why did we sink it all in countertops as opposed to doing things like, you know, improving LaGuardia, you know, 15 years ago, or building a better BQE. I've only been here five years, so all my analogies are still East Coast and West Virginia. But you know, and I think they're, and we, I think finally we're moving that direction of having a more activist government that uses that potential windfall from issuing currency to do something more in terms of building out essential infrastructure, rather than being, oh, the government always do stupid things. Let's give it the household. So you don't end up what happened before 2008. But that said, the evidence that dollar centrality, which has been true is basically since 1945 and one form. And since 1971 and another always leads to dollar strength, I think is not really true. Because in the 50 years since 1971, and Bretton was essentially ended the dollar, you know, I'm an FFX guy, the dollar has appreciated for 55% of that time, and depreciated for 45% of that time. The period of maximum current account deficits by the US is between 2002 and 2008. We were running current accounts deficit up close to 6% of GDP in 2006. The US current account deficit, the largest in terms of rest of the world GDP back then close to two and a half percent. And no one wanted to hold dollars. I remember that. I remember, you know, that was when there's a giselle wanted euro, that's when, you know, so this idea that you have an excessive demand for the safety of US assets, the least dollar strength, is not true. It's not true in the 1970s. It's not true between 2002 and 2008. People want to hold dollars when US interest rates are rising, when you have terms of trade shock like shale, when you have a perceived technological productivity miracle like the internet boob in 1995 and 2002, those are strong dollar movements. But the dollar goes up and down all the time. It's been central. And I think that's not appreciated enough in the burden discourse. So what about X US? And, you know, I take the point about maybe, you know, the dollar's centrality doesn't always lead to dollar benefits necessarily, but one argument that has been made, and I think it came up in the episode with Paul, is that the dollar can be a problem for the rest of the world at various points in time. And, you know, we've had Hyun Sung-shin on the show talking about this idea that the stronger dollar basically acts as an economic drag on other economies because of its role in the world and in trade and business activity. Is there an argument to be made that maybe it would make sense from a financial stability perspective, for instance, to have alternatives to the US currency? Absolutely. I am 100%. I am like a total multiple, a political auditorium on that front, right? And the reason is this idea, you know, like I was saying earlier, if you think about the global real economies organized around some hubs and there are spokes, right? And, you know, if you think about Germany or kind of Germany, France as being a hub, what the EU has done and what the eurozone has done, and the extent that the EU has done, has created a financial cycle that kind of parallels the real cycle in the hub, right? Because if you're borrowing in euros and you're highly exposed to what's happening in Germany or the core European economy or the broader core European economies, when that economy slowed, the euro will go down, the ECB will cut rates unless it's doing something really stupid, which it does periodically, that could not be excluded. But still, you have this kind of, and to me, that's that kind of coincidence of real and financial cycles is really important. And a world in which the dollar is the only currency and the most important cross-border liability currency, which is something also I keep harping on is that the big role is as a liability denomination, not as reserves, not as invoices, not as just stuff, and that's where the financial stability issues come from. If you are indebted to currency that tends to strengthen every time the global economy slows, it's bad news for everybody and that's consumption that's what I'm going to be able to do. But I think that's what I'm going to be able to do. But I think that's what I'm going to be able to do. I think that's what I'm going to be able to do. I think that's what I'm going to be able to do. I think that's what I'm going to be able to do. I think that's what I'm going to be able to do. I think that's what I'm going to be able to do. I think that's what I'm going to be able to do. I think that's what I'm going to be able to do. I think that's what I'm going to be able to do. I think that's what I'm going to be able to do. I think that's what I'm going to be able to do. I think that's what I'm going to be able to do. I think that's what I'm going to be able to do. I think that's what I'm going to be able to do. I think that's what I'm going to be able to do. I think that's what I'm going to be able to do. I think that's what I'm going to be able to do. I think that's what I'm going to be able to because this is your classic economic comparison. One of the ways you and an argument that economists is you're confusing stocks and flows. I think that's exactly what's at issue here. People are focused on the invoicing, which is a flow, but the stock of debt is a multiple, both of reserves and of trade flows. Classic stock versus flow thing going on there. One of the things you do hear from China every once in a while is it might talk about invoicing more stuff in Renman B, but it also talks about special drawing rights, so SDRs, which I have never quite understood. We neither got one other episode. But this idea of I think it's basically a basket of currencies, like a super currency that would involve a lot of different currencies from different countries. How viable is that? Maybe instead of trying to create a multi-polar currency reserve system, maybe we should just move on to SDRs and use those. I think that's even less frankly. China's big tantrum over SDRs was in 2009. One of the reasons for that was the Fed did QE and you had a situation where the dollar had resumed weakening again after this huge dollar spike of post-Sleiman. What China was concerned about at the time was that it was holding all these dollars. The Fed was doing QE and commodity prices were rising again, partly because of Chinese, in good part because of Chinese stimulus, post-crisis stimulus, and also because of the huge. That conjunction in China was like, oh my god, the Americans are doing things that's making the real value of our reserves go down. It's very similar to the Arab reaction in the 1970s, for instance. I think that's one of the things that kicked off OPEC was not just the on-keyboard wall and all this other stuff. It's like we're holding all these dollars, and now they're worthless because the US is not floating. This is the old Dick Bovey argument that QE was actually a currency war in disguise almost. That's what it's reminding me of. Interestingly enough, I think to some extent, not so much currency war, but more just a way to reflate the US economy. I think the Fed was kind of coy about that. The Fed has been pretty coy about the dollar until 2014-2015 when it was finally like, okay, we'll just come out and say it. That's wonderful. The Fed's been much more open about the way the dollar figures into his sinking. The world needed reflation, and it got it from US monetary policy and Chinese fiscal policy. Together, that's what did a good deal to build the world out of. It's something 2008. It was this combination of US monetary policy, Fed QE, and Chinese fiscal policy using investment. The Fed. At public.com, you can earn a 5.1% yield with a treasury account. That's a higher yield than a high-yield savings account, all with government-backed fixed-rate treasury bills. It's one of the safest ways to put your cash to work, and it's one of the easiest, too. 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Get yours today at Remarkable.com. Remarkable.com. I want to go back to Chinese domestic trade-offs. And this idea, you know, I think we have some idea that the elites might lose out in China, where there to be some domestic reorientation towards more robust household consumption, or maybe just from the question of Japan in terms of they didn't want to make those trade-offs that would allow the yen to become more international. What are we actually talking about in terms of the potential costs either to the country as whole, or to a certain category, maybe the coastal elites within China? And what kind of hit laws or meaningful shift? Because it's hard to like, okay, there's going to be some domestic shift that happens everywhere. What are we really talking about in terms of how significant that would be? I'm honestly not sure to be frank, and this is probably a question for Tom or Michael Mike better. I'm not a deep grandchild, you know, Chinese expert to the same extent. I pretend to be an expert on Fx, or anything else like that. But one thing you do know about China is that it sets a fair amount of storage, the leadership sets a fair amount of storage in kind of output legitimacy, right? And that we're doing things that make people's lives better, which is a very significant difference from the Soviet Union, or where the big calling card was, we won the war. What do you want from us? We won World War II, and increasingly that kind of became, you know, this is all we have to show. The Chinese leadership is not like that. It's had real gains, I think it can point to, and presumably it makes sense for them to want that to continue. Now, the question is, can the leadership deliver on those things? And to what extent are the forces, are powers that be within China that are not the leadership, this kind of intermediate level, to what extent are they against that? The one thing I can actually think of, which seems to be a concrete issue, is changing hook-up registration requirements affects the relatively privileged status of people who have that, and the ability to live in cities. So this is allowing people from the country to move more freely into cities and vice versa, although no one ever really does the reverse of part. And then the other one, which is more obvious, is issuing some kind of tax on residential real estate, so that you kind of increase the cost of carry on housing, which is otherwise basically considered pure appreciation asset. I can see those two being concrete disincentives to people that I can distinctly identify, but as to why China doesn't have, you know, a larger healthcare better social provision of healthcare, for instance, they only spend, I think, six percent of GDP on healthcare at one third of the United States, and France is kind of the sweet spot of 12, according to me. But I don't really see where the actual, maybe I don't have enough granular understanding of the social structures as to why people might be opposed to that. Well, I mean, I guess in the US, we have the same argument all the time about, well, why don't we just reform the healthcare industry? It's so easy. And like, clearly, there are major issues with doing that. But Karthik, just to go back to the original premise of this conversation, I don't expect you necessarily to come up with a 10 step Genghis Khan style plan on the fly, but like, what would be the steps or the prerequisites that you would look out for in order for the Renman B to achieve some degree of internationalization? I think the most logical place to look for a given capital controls and so on is slow, incremental renminbization of bridge and road lending. That's the most logical place to look for it, because you have all these other issues, I think, at capital controls, just in the structure and nature of Chinese financial markets that makes it much harder to achieve more on that front. But bridge and road lending in particular seems to be a place where you have a very large stock of debt owed to China. Almost all of it is in dollars, not in Renman B, which is interesting in love itself. And in the question is, why is that? It's because they're just long a ton of dollars. Some of it is because of shadow intervention by other entities that then pass those dollars along. Now, what you're doing in many of these instances, opening up exactly those kinds of real financial cycle mismatches, stock flow mismatches that I talked about more broadly. So could there be a way to change that stock of dollar-denominated debt in BRI that's basically owed to Chinese development banks, is that it would change that a way to change that gradually into Renman B? I mean, that seems like the most immediate likely prospect, right? And one interesting thing here is this idea that Argentina is going to denominate all its trade, which China and Renman B. And obviously, that trade is small. There's all your tinnest problems that has, I think, $200 billion of debt, $120 billion of which are owed in dollars. But this very interesting thing from Brad Sester and Daniel McDowell this morning, talking about how this is really about how Argentina really wants to hang on to its dollars. So what they're doing is changing the invoicing of their trade with China into Renman B. But over a very, very long time, what this allows is a replacement of a stock of dollar debt owed to the rest of the world with owing renminbi to China because of the swap line. They're running deficit with China. So you're gradually changing liabilities, structure, but an incredibly slow pace. My joke is, this is like the Ron Paul, it's happening gift on the plate at the slowest possible speed you can fly. It's imagining that like a very slow, it is to what's happening. Yeah, how do you replace a stock with flows very, very slowly, right? And it may happen. You know, they'll probably end up having a restructuring before then. I mean, the other places people have talked about with this are Laos and Cambodia, which gives me an opportunity to say, you know, Cambodia might find a new nominal anchor, but. Anchor of what? Oh, sorry. Oh, that's not a cure. Sorry. Can I just ask what one quick? Sorry. Can I ask one quick follow-up question, which is why didn't China denominate Belt and Road loans in renminbi? That's a complete mystery to me. And someone who knows immeasurably more about this, Brad, I've asked him and he's like, he's not really sure about it either. I think it's just because they had a ton of dollars. And one of the things that we're seeing around the world, this reminds me of conversation with Paul on this economist story, is that as reserve accumulation goes up, then countries find, you know, if you're above precautionary reserves, you can find other things to do with those excess reserves for a set of, you know, political geopolitical gains or influence, right? So it's not, and that's not just China doing that by BRI. It's what the GCC is doing with Turkey and Egypt, for instance. And so in your view, like in a world in which Brazil, maybe we're doing renminbi, denominated debt or Cambodia or someone else, some of these countries that have a lot of dollars, and we talked about this with Paul, that maybe have some political tension with the US, and Saudi Arabia comes to mind as a country that accumulates tons of dollars and, you know, depending on the administration at a given point, the political tension ebbs and flows may want to acquire Brazilian issued RMB, denominated debt as a way to diversify its big, you know, its money, its portfolio. It's certainly possible. And I would argue that, I mean, for me, the argument to do that is that if what you know about the way the global financial cycle works is that countries with dollar-denominated debt that are commodity exporter, get into a lot of trouble, and this happens to them repeatedly, that it might make sense for you to look at buying their debt in a currency that more closely corresponds to real cycles. Just, you know, it's like asking, from a financial stability point of view, would you rather buy Polish debt in Saudi, in euros or in dollar? And I would put it precisely in that order. I buy in Saudi first, that in euros, that in dollars. Because everyone should, while you hear those stories about like in some European country and people have mortgages, it's just a drink or something like that, and then it's cheaper until one day, then they can't print them domestically, and there's a huge shock. And so it's like a macro version of that story that you hear about from time to time. Yeah, I think dollar centrality, I'm kind of mixed on that for the US. I do want to mention about dollar centrality as an advantage to you. Yes, I have no faith in these kind of beliefs that the loss of dollar centrality will lead to a crash to the US economy, no-holes, whole treasure. I mean, that's crap, right? Because I mean, the UK, Australia, and New Zealand, you have all these countries that kind of print their own currency, currencies go up and down, investors hold them. And the more concrete benefit to the US is the US has much lower inflation passed through. When the currency weakens, basically what ends up happening is that the combination of invoice currency effects is inertia there. And the sheer size of the US economy means that when the dollar weakens, prices are slow to change, and wanting access to the US market, which is the biggest market in the world, means that exporters to the US will mostly just eat it in their margins. And that's something that Gita Gopinath, who was the ex chief economist, not first deputy MD of the IMF, she's written a lot about. So that's kind of a very concrete benefit, which kind of brings us to another point, which is China is the world's largest manufacturing exporter. They're paying their workers in reminby. There's got to be someone somewhere who wants these reminby. It can't be even taking into account the peculiarities of its financial system. But I think this is where something, the people who are buying the most from China are the US, right? Because that's the largest bilateral trade deficit. And there's no way that the US is going to re-denominate its praise of China in the reminby, which kind of means that this idea that being the world's largest exporter means someone is going to want your currency, I think that runs into a problem. Karthik, Senkurun, this is such a great conversation. I feel like in that, in that span of time, so many of these long standing things were tied up and several light bulbs went off. So really appreciate you coming on Oddlots. For the first time, it's been too long, but definitely won't be the last time. That's great. I really love being there. Thanks very much. Thanks so much Karthik. That was a lot of fun. That was great. The anchor lot, it was a beautiful moment of like, too great, too great a work play aficionados, magic happen live on air. Tracy, I love talking to Karthik. And the thing that when I said, you know, at the end, the light bulb moments for me was not even actually the questions about the future of the reminby, but in this idea that it would solve some of these problems that we talked about with Yun Song Shin all these times, that there's the economic cycle and the dollar cycle, and we know that that's a big problem all around the world. And so maybe the story is in a more multipolar currency world, you just have fewer of those mismatches. Right. And you have less pro-siclicality in the system. I mean, I thought his point about like, is this actually possible? It feels like we're converging, I guess, getting to a consensus where, you know, we've switched from never going to happen to, it might happen, but it'll take some time. But I think Karthik laid out the reasons for that really clearly, which is the whole stock versus flow argument, like it takes time to actually replace all those liabilities with something other than dollars. Right. So you can have these announcements, like you talked about the recent announcement with Argentina, like you can have these announcements where you just improve the flow a little bit, or you could have like a big change in stock. But if we're just going to do it through like these sort of bilateral announcements, we're going to denominate this in Renminbi, it'll happen just really slowly. It'll just take a really long time. As opposed to something sort of big, which is like, okay, like trying to decide, we're going to start making all these loans in Renminbi, which is really interesting. Kind of makes me feel good that like even Brad Setzer doesn't know the answer to that one. Yeah. Well, that was like the big question for me, because it would make sense in a lot of different ways. But the other thing about that episode is I think it's another one that's just going to lead to further episodes, because now we got to get Brad Setzer on to ask. Gita Gopunal. Yes. And I know we've had Michael Pettis on before, but I feel like we should maybe dive in a little bit more to the China social safety net question. Yes, absolutely. He and Matt Klein have written about in various ways. So we need to do that. Many follow-ups to come. All right. Shall we leave it there for now? Let's leave it there. This has been another episode of the Odd Lots podcast. I'm Tracey Alloway. You can follow me on Twitter at Tracey Alloway. And I'm Jill Wiesenthal. You can follow me on Twitter at the Stalwart. Follow our guest, Karthik Sankaran. All many, many puns a day even beyond his wisdom. Just an absolute must follow in my view. His handle is at Raja Korman. Follow our producers, Carmen Rodriguez at Carmen Arman and Dashal Bennett at Dashbot. And check out all of our podcasts under the handle at podcasts. And for more Odd Lots content, go to bloomberg.com slash Odd Lots where we have transcripts, a blog and a newsletter. And check out the discord, discord.gg slash Odd Lots. Talk about all of these topics 24-7 with fellow listeners and stream Bloomberg originals on Apple TV, Roku or Samsung TV, tune in at Bloomberg TV at 10PM Eastern. You work hard to save money, but what does your money give you in return? Fractions of a percent on interest in a traditional savings account? Make your money work as hard as you do with a treasury account on public.com. It could be earning 5.1%, a higher yield than a high yield savings account. Only at public.com. When you get all your notes organized and have them easily accessible, you'll know why there are more than 100 reasons to buy and remarkable. Here's reason number 56. 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