When it comes to the US dollar, most Americans generally only care about how many they have in their wallet or perhaps the exchange rate before taking an international trip. But the US dollar serves a huge role in the global economy. Oil, for example, is priced in US dollars.
In her new book Paper Soldiers, Bloomberg News reporter Saleha Mohsin examines the ripple effects of the United States' "strong dollar" policy, discussing everything from the policy's impact on the US manufacturing sector to how the dollar has been wielded as a weapon.
In an interview with Yahoo Finance, Mohsin explains how Americans "get a layer of safety because we own the world's reserve asset. It gives a bit of a cushioning from external economic risks and headwinds. It also means we can use it as a weapon to protect the country."
Watch the video above to hear more from Mohsin, including three threats she says could pose a risk to the US dollar.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Stephanie Mikulich.
Video Transcript
[AUDIO LOGO]
JULIE HYMAN: The dollar superpower status may be losing its shine from Washington's heavy-handed sanctions to economic policy impacts. Our next guest says faith in the dollar is on shaky ground. In her new book, Paper Soldiers, Saleha Mohsin details the growing risks to America's dominance in the global financial system. And she's joining us now to discuss. Saleha, thank you so much for being here. Appreciate it.
SALEHA MOHSIN: Lovely to be here.
JULIE HYMAN: So the dollar's demise has been long predicted. And we've seen it hold up pretty well. But you outlined some of the more sort of fundamental structural risks in your book. So give us say lay out top three for us in that fashion.
SALEHA MOHSIN: I would say the top three risks the US are our own internal partisanship, the divisions across the electorate. The fact that we play chicken with our public finances, I'm talking about the debt ceiling, the shutdown threat that is always looming. And the third one comes from overseas.
The two main ones are internal. After that, it's overseas, that we have weaponized the dollar so much that there are, for the first time, people talking about de-dollarization. And there is more momentum behind it.
But also the difference is that, like you said, every generation, every decade, there's a new kid in town with an idea that, oh, the euro is new. Maybe that'll take over the dollar status.
The yen could someone else. But the difference right now is that the world economy, the structure around G20 nations and everything is becoming more fragmented just as US leadership is looking uncertain.
JOSH LIPTON: You know it's interesting, Saleha. I mean, a lot of viewers probably watching this may not spend a lot of time thinking about relative strength or weakness of the greenback. Maybe if they're like planning a trip to Paris. It comes in. But I mean bring it home to why is this important for viewers? Why is this a topic they should be focused on?
SALEHA MOHSIN: Well, there's two kinds of strength of the dollar. There is the exchange rate where how many Sterling pounds it can buy you whether you travel to Japan and it's cheaper for you because of the strength of the exchange rate component. The other one is how everyone in the world needs the dollar.
The world runs on dollars. So you could be a business tycoon, an oligarch, a multinational company, or someone, let's say, in Ghana who is picking cocoa beans and needs to export that to any other country. You will be touching the global financial system.
But what this means for the everyday person, someone who's watching the show right now, it means that we get a layer of safety because we own the world's reserve asset. It gives a bit of a cushioning from external economic risks and headwinds.
It also means that we can use it as a weapon to protect the country. Let's take 9/11. After 9/11, the first act in the war on terror was not a machine gun or a military tank rolling.
The first act that very same month after the terrorist attacks was George W. Bush signing an executive order, giving the Treasury Department more powers to track the money flows that gave funding for these terrorist attacks.
JULIE HYMAN: Now, the reasons you outlined at the top for why the dollar might lose steam makes sense. But when you look at that last factor, the sort of fragmentation around the globe, it's still difficult to see if it's not the dollar what it would be, right?
So when you were writing, how did you sort of examine those other contenders? Because that's been sort of one weakness to the argument that the dollar was going to fall.
SALEHA MOHSIN: You're absolutely right. There's a couple of incumbent advantages that the US has right now. One, we are just so big. We are the largest economy in the world.
You would have to take numbers 2, 3, and 4 put together to start outstripping the size of our economy. That means that anyone coming in with an alternate, whether it is the Chinese Yuan, everyone talks about that, whether it's Bitcoin, or just oil, a commodity, or a couple of currencies bound together, the US currency is so deeply entrenched in the global financial system.
The world runs on dollars. If you want to make a transaction, you need dollars to remove that and supplant it with something else. There's a lot of technology that needs to come into play.
Most oil trades are settled in dollars. So you would have to start unwinding a lot of that before you can add in someone else.
JULIE HYMAN: So it's not happening tomorrow.
SALEHA MOHSIN: No. It's not happening.
JOSH LIPTON: But Saleha, thanks so much. A big important topic. We don't talk enough about. Thank you so much. Appreciate it.
