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This BBC podcast is supported by ads outside the UK. How many great bosses have you had? Try counting them on your fingers. Your hand may well remain balled into a fist. It doesn't have to be this way. From The Economist, I'm Andrew Palmer, and I'm back with a second season of Boss Class. We've gathered management tips from the world's best performing companies, from Levi's to Lego to Google.
To hear all of Boss Class, you'll need to be a subscriber. Search Economist Podcasts Plus for our best offer. Hello, I'm Ijeoma Ndukwe. Welcome to Business Daily from the BBC World Service. Coming up... And we will keep the US dollar as the world's reserve currency and it is currently under major siege. Many countries are leaving the dollar.
You're not going to leave the dollar with me. I'll say you leave the dollar. You're not doing business with the United States because we're going to put 100% tariff on your goods. That's US President Donald Trump last year on the campaign trail. He's talking about what he perceives as the erosion of the dollar's global status.
The greenback has been the world's main reserve currency since the end of the Second World War. But is this changing? One of the major things that upholds the reserve currency status of the dollar is the sense that US institutions, and in particular the rule of law, are absolutely rock solid. If that starts to come unstuck, then the reserve currency status of the dollar is dangerously in flux.
Meanwhile, there are growing calls from countries to use their local money. Why do they want to shed the most widely used currency for international trade? If you're purchasing in Naira, you don't need to worry about hedging. You're not worried about foreign exchange losses. Is the reign of the US dollar nearing its end? That's all on Business Daily on the BBC.
The humming of machines at the Q-Tix factory, where electrical cables are made. It hires nearly 300 employees across three sites in Inawi, a small industrial town in the southeast of Nigeria. Any fluctuation in the value of naira as benchmarked to the dollars always affects our pricing of goods because we... This is Ijeoma Isaso, the director of Q-Tix.
The business she runs faces challenges bringing in raw materials like copper and machinery for the factory from suppliers in China. That's because imports are paid for in US dollars. In Nigeria, even the word forex or foreign exchange is shorthand for the dollar. Every day we have to check for the prices of the dollars.
It's not something that you check in the morning, you rest and by evening you're still at the same rate. No. This is changes that occur sometimes two times within an hour. So much time is spent chasing around sourcing forex. So much time is spent.
trying to redraw your plans because as you're planning to source for your raw materials or as you are having conversation with your suppliers maybe for a raw material that will cost around $200,000, you've a maximum amount of Naira that you hope that you'll use in buying, acquiring the $200,000.
So what would you say would be the ideal scenario for Nigerian businesses like the business that you run? The best option for me, the best definitely will be
my vendors accepting Naira. The other alternatives will be other currencies, a basket full of currencies including the Chinese
MNB and any other currency that I want to buy from. Nobody wants to be an economist. Nobody wants to be a magician. Nobody wants to be a soothsayer. Because if you're purchasing in Naira, you don't need to worry about hedging. You're not worried about foreign exchange losses.
Businesses and countries around the world share Ijeoma's sentiments. On the other side of the Atlantic, Brazil's President Luiz Inácio Lula da Silva has repeatedly and publicly urged for de-dollarization. During a visit to France in 2023, he said, why should we use the US dollar instead of our own currencies in the transactions between Brazil and Argentina?
Why should we use the US dollar instead of our own currencies when Brazil trades with China? Discussions on dollar supremacy were at the top of their agenda at the BRICS summit hosted in Russia last year.
BRICS stands for Brazil, Russia, India, China and South Africa. And now five new member states have joined this informal grouping of emerging economies. The alliance hopes to increase their influence in the global order.
How did the US dollar cement its position as the currency of global commerce? The Bretton Woods Conference was a significant moment in the history of the global monetary system. Delegates from 44 allied and associate countries... It was held in July 1944 and was attended by 730 delegates. ...be discussed our plans for the stabilisation of world currencies...
They agreed to countries paying for international balances in dollars and the buck was made convertible to gold at a fixed exchange rate of $35 an ounce. They also decided to set up the International Monetary Fund and to establish what is now known as the World Bank.
Many historians say the US dollar emerged as the currency of trade well before the Bretton Woods conference. I asked Mark Flandreau, professor of economic history at the University of Pennsylvania, how the US dollar came to be the global reserve currency. In stages, you could say.
First, in the 19th century, on the back of the expansion of US trade, which became a very significant trading nation, the dollar started becoming a useful currency to operate settlement.
But it was not the currency. Back then it was the pound sterling. But you had also, aside of the pound sterling, a number of currencies that were playing sort of international but secondary role. So there you had the francocats.
the French franc, the Dutch guilder, which was still an important currency that went back to the 17th and 18th century, when in fact the Dutch currency was the principal currency. And then you had a number of currencies that were sort of forging ahead. And I usually, when I teach that,
I usually emphasize that there were three emerging powers and the currency that went along with that. And that was the Reichsmark of Germany. There was the Japanese yen and there was the U.S. dollar. Chapter two is usually associated with so-called dollar diplomacy. So the countries that were emerging as possible challenger to the sterling supremacy were countries
creating arrangements and settlement system that would expand their reach. In the US dollar, there were a number of specific hurdles that had to be circumvented in order to expand the reach of the dollar. And one was limitations over foreign branching. And so this is what explains the dollar diplomacy, because as a result of that, the dollar started taking a sort of foothold in sort of, you know, American dominion. So that
That became, you know, Panama, Philippines, later Haiti, places where there was a direct influence of the State Department. And then chapter three is the creation of the Fed. The idea developed that actually it would be very important for stability reasons to put together a central bank, which the U.S. was missing so far. And so eventually this led to the creation of the Fed in 1912.
which started operating in 1913. And then this was the beginning of a more fully integrated dollar policy. So have there been points in history where the dollar status has been threatened? I think the most interesting period to look at is the 1970s.
Not so much because the dollar position was threatened as such, because I'm not sure there was really an alternative back then. But I would say that what is happening during the 1970s is that we moved from the dollar, which ultimately is tied to gold, to the dollar.
I have directed Secretary Connolly to suspend temporarily the convertibility of the dollar into gold or other reserves. A flashback to 1971, a televised speech by President Richard Nixon, where he announced that the government was severing the link between the U.S. dollar and gold. The effect of this action, in other words, will be to stabilize the dollar.
This action will not win us any friends among the international money traders. The greatest challenge that we saw to the supremacy of the dollar was in the 1970s because the dollar started slipping into recurrent inflation. And I think this was a very important concern for
in the international community. That makes the Fed commitment in the early 1980s such an important signal that was sent to markets. And I think that that part is kind of very much a preview of the replay we're having now. That was Marc Flandreau, Professor of Economic History at the University of Pennsylvania. You're listening to Business Daily on the BBC World Service.
How many great bosses have you had? Try counting them on your fingers. Your hand may well remain balled into a fist. It doesn't have to be this way. From The Economist, I'm Andrew Palmer, and I'm back with a second season of Boss Class. We've gathered management tips from the world's best performing companies, from Levi's to Lego to Google. To hear all of Boss Class, you'll need to be a subscriber. Search Economist Podcasts Plus for our best offer.
I'm Ijeoma Ndukwe, and today I'm asking whether the dominance of the dollar is nearing its end. We saw a huge flight out of the U.S. dollar into other safe havens, one of those being the Swissie. Dollar Swiss saw one of its biggest... The value of the dollar has fallen in recent months. Currencies rise and fall all the time, but since President Trump announced a raft of tariffs in early April, the recent drop has been dramatic.
The dollar index, which measures its strength against a set of currencies, reveals the greenback has fallen to its lowest level in three years.
There are different views being expressed across the administration about both the level of the dollar, in other words, whether the US is better off with a strong dollar or a weak dollar, and there are diverging views within the administration about the reserve currency status of the dollar. This is David Lubin from the Policy Institute Chatham House. He's a senior research fellow in the Global Economy and Finance Programme. The very confusion that exists...
about both the level of the dollar and the status of the dollar are helping to kind of undermine US credibility. And that, in turn, has helped to weaken the dollar. Meanwhile, I think there is a sense in which the rather chaotic nature of policymaking in the Trump administration since the 20th of January, and the sense in which the strength of US institutions is being tested by
in particular, the idea that the strength of US rule of law is being tested because of Trump's challenges to the judiciary. That may be undermining this sense that the institutional robustness of the United States is absolutely rock solid. And that's an important point in the context of any discussion of the dollar, because one of the things, one of the major things that upholds
the reserve currency status of the dollar, is the sense that US institutions, and in particular the rule of law, are absolutely rock solid. If that starts to come unstuck, then the reserve currency status of the dollar is dangerously in flux. So is the dollar's reign coming to an end? Are you already seeing indications that its role as the most used currency in international commerce is changing? Not really, no. Dollar's
Dollar dominance is still a very kind of sticky phenomenon, and it will take a long time for the dollar to be knocked off its perch as the top global currency. And that's for a myriad of reasons. In a way, the most important reason is that historically, it tends to be true that the world's top currency tends to get printed by the top military power. And so as long as the US remains the top military power, dollar dominance has, you know, kind of important underpinnings.
The reserve currency status of the dollar, in my view, is of enormous strategic importance to the US. I mean, on the one hand, the reserve currency status of the dollar is a result of US power, but it's also a kind of vector for US power. It's also a way in which US power gets transmitted to the rest of the world. Are there any other currencies that could potentially play a more prominent role as a reserve currency, as currencies of trade?
In the last 10 years or so, the dollar has lost ground in terms of its role as a currency in which global foreign exchange reserves are invested in. 10 years ago, something like 65% of global foreign exchange reserves were invested in dollars. These days, it's close to 58%.
Now, a lot of that decline in the dollar's use as a reserve currency has been kind of taken up by smaller currencies like the Australian dollar, the Canadian dollar, the Japanese yen, the New Zealand dollar. And one of the reasons why these smaller currencies have become more valuable in reserve managers' portfolios is
is because the electronification of trading has made it much more easy to transact in these smaller currencies. And so in a way, it's just financial technology that has kind of opened the door to smaller convertible currencies like the New Zealand dollar and the Australian dollar to become a part of global reserve managers' portfolios.
Research by American think tank the Atlantic Council, which covers international affairs, shows that the US dollar dominates three major areas. It represents around 58% of foreign exchange reserves, 54% of export invoicing and 88% of foreign exchange, according to its data.
Alicia Chengani is from the Atlantic Council's Geoeconomic Centre and has been researching dollar dominance. We look at the euro, the pound, the yen and more traditional sort of competitors of the dollar, but also the renminbi, the rupee and the ruble.
And we created this database trying to understand what it takes to be a reserve currency. And actually, the U.S. Treasury Department originally identified six criteria in 2009 that makes a reserve currency possible. And this includes a sizable domestic economy, importance of the economy in international trade, size, depth, and openness in financial markets.
convertibility of the currency, use of the currency as a currency peg or anchor, and the stable domestic macroeconomic conditions and policies. And what we did here at the Center is kind of cross-compare the currencies that I mentioned earlier. And what you can really see is that the dollar dominates in almost all of these criteria that I mentioned. The second in line is the euro.
Other currencies, including the renminbi, aren't really able to challenge dollar dominance at the point right now. And that's why we like to say that the dollar as a reserve currency is secure in the short and the medium term.
I asked Alicia whether the current economic and financial turmoil we're seeing could affect dollar dominance. In the longer term, I could see the sort of impacts of this have a negative, you know, slow erosion of the dollar. But I would say that there are other sort of things that are happening in the global economy that are also impacting dollar dominance outside of the tariffs conversation. Different countries have different
motivations of why they want to quote-unquote de-dollarize. Something that we focus here at the Geoeconomic Center is really looking at the BRICS countries, and now they're creating the alternative financial infrastructure to de-dollarize.
It's different for each of the countries. Of course, Russia has a totally different story when we talk about this, and this is because the financial sanctions on Russia, both from the U.S. and EU, basically Russia has no access to U.S. dollars and doesn't have access to SWIFT as a messaging system to conduct cross-border payments. China, for a very long time,
has said that it aims to internationalize the renminbi and that's to increase its own global influence and mitigate the impact and potential risks associated with the U.S. and Western sanctions. And this is how they've said that before. And they've also seen, you know, sort of the negative impacts of the dollar's more restrictive economic measures.
But with China, it's a bit different. Their goal is not to replace the dollar with the renminbi, but they want to lessen the dollar's influence and try to create a more multipolar currency system within the global economy.
The key point that I want to emphasize is that de-dollarization isn't a new concept. Countries have talked about moving away from the dollar and creating a sort of multipolar currency system for a really long time. What's different now is President Trump's tariffs and economic uncertainty coming out of the United States, but also the advent of financial technology. Financial technology has made
the concept of de-dollarization more easily understandable and accessible for countries. And this is why we see China introducing financial technology with central bank digital currencies, for example, as an opportunity to find faster, cheaper ways to transact their currency without using the dollar. And that is part of that building in the financial infrastructure that you can use
fintech as an option. That's Alicia Chengani in Washington, D.C., ending this edition of Business Daily. From me, Ijeoma Ndukwe, thanks for listening. How many great bosses have you had? Try counting them on your fingers. Your hand may well remain balled into a fist. It doesn't have to be this way.
From The Economist, I'm Andrew Palmer, and I'm back with a second season of Boss Class. We've gathered management tips from the world's best performing companies, from Levi's to Lego to Google. To hear all of Boss Class, you'll need to be a subscriber. Search Economist Podcasts Plus for our best offer.