The Almighty Dollar: Come along on an amazing journey with me as we follow the incredible journey of a single dollar. I'll show you how the global economy really works! As the title suggests, this book is a fascinating journey through the global economy and the role played by the US dollar. It tracks the flow of one dollar around the world, and it's a great read!

When I opened the book, I was delighted to find there was so much content! The book dives right in, chatting about the trade relationship between China and the United States. Why? Well, the United States pays for Chinese goods in US dollars! Once the US dollars arrive, Chinese exporters have to exchange them for Chinese yuan. This involves choosing an exchange rate system, which can be tricky! And since China exports more than it imports, it has foreign exchange reserves, which is great! Next, China may choose to invest abroad, for example, building railways in Africa. It has to pay in US dollars, which is a great way to support the US economy! And there's more! China's investment in Africa also has to do with China's foreign strategy and international influence. And it's all directly related to China!

Once the dollar arrives in Africa, the African country uses it to buy food, which then flows to India. India is a major agricultural country, but its infrastructure is still a work in progress. So, to build paved roads, it needs to import crude oil, and the dollar goes to Iraq. Iraq is a country with a lot of oil, but unfortunately, the situation in the region is pretty unstable. This means that Iraq needs to import weapons, and the dollar is spent in Russia. Once the Russian arms dealer gets the money, he wants to make sure it's safe and keeps its value, so he decides to invest in real estate. This brings the dollar back to Germany.

This book is a great way to learn about things like tariffs, exchange rates, and globalization. It shows us how these things work by following the journey of one dollar as it travels around the world. It also shows us some of the economic challenges that countries around the world are facing, like the trade war with China, the wealth gap in India, and the aging population in Europe. This book is a great way for us to understand economic globalization. It's also a mirror that reflects the economic achievements and risks of China.

The lovely Dharshini David is the author of this book. She's an economic journalist for the BBC. She's also worked as an economist for the British government and at HSBC Investment Bank. She's always been passionate about making economics accessible to everyone and understanding how it affects our world. So she made the big decision to leave her job at the financial institution and move from the trading floor to the news studio. That was her original intention in writing this book.

The book is absolutely packed with lots of interesting information, but for today's reading, we'll focus on the theme of "The Truth About the US Dollar" and relate it to China's development. I'm going to break down the book into three parts, and we'll go through them together.

First, let's explore why the US dollar has become the world's currency and formed what we call the "US dollar hegemony." Secondly, I'd love to explore how the Chinese economy has grown in the context of international trade that's dominated by the US dollar. And finally, after the rise of the Chinese economy, could the renminbi possibly challenge the position of the US dollar? After listening, you'll understand why the Chinese economy has been able to rise despite the US dollar's dominance and what China needs to do to move past this.

Part 1

Let's dive in and explore why the US dollar has become the world's currency and how it has managed to maintain this impressive advantage.

When it comes to this question, there's a story that really shows just how special the US dollar is. After the Iraq War broke out in 2003, the US military made their way into Baghdad. Saddam Hussein, the then President of Iraq, had already fled elsewhere. During their search, the US military made an amazing discovery. They found a huge stash of US banknotes in Saddam's palace! It was worth hundreds of millions of dollars. Oh, this is so interesting! It's also interesting to know that after the Gulf War in the 1990s, Saddam was secretly competing with the United States. It wasn't until the United States was determined to overthrow Saddam that people discovered something pretty interesting. It turns out that this long-time enemy of the United States liked to collect the most on wealth in US dollars!

This story is not at all unusual. And that's because, in so many ways, the US dollar is the world's most popular currency. It doesn't matter if you're a bank manager in Japan, a tourist guide in Panama, or even a drug trafficker in Mexico—the US dollar is used in transactions. When financial crises happen in many countries, the local currency loses a lot of its value. This makes it really important for wealthy people to protect their savings. The best way to do this is to convert them into US dollars. In places where things can get a little unstable in the world of politics, kindhearted relief workers have found that pulling out a stack of US dollars to buy all kinds of equipment is an effective way to quickly solve humanitarian crises.

And of course, the place where the US dollar is used the most is in international trade and investment. As we chatted about earlier, the US dollar is used in all kinds of international transactions. It's involved in Chinese investment in Africa, Nigeria buying food from India, and Iraq buying Russian weapons. The US dollar is currently the global standard for pricing, which makes it the most convenient, reliable, and efficient way to settle accounts. I think it's fair to say that the US dollar is a veritable world currency!

So, you might be wondering, why has the US dollar become the world currency? It all started with the Bretton Woods system in 1944, which was a pretty big deal! Back then, more than 40 countries got together near Bretton Woods in the United States and made a deal. They decided to use the US dollar as the standard for settling international trade. All countries agreed to link their currencies to the US dollar, and the exchange rate stayed pretty much the same. At the same time, the United States made a promise that would help everyone. They said that anyone could exchange gold for the United States at a price of 35 US dollars per ounce. This was done to help create a stable international trade environment. And so the US dollar became the world's currency, the international trade settlement standard linked to gold. This was the start of the Bretton Woods system.

The lovely thing about the Bretton Woods system is that it was built on the economic strength of the United States. It's also worth noting that by the end of World War II, the US was already a major player on the global stage. We accounted for 40% of the world's industrial output, over half of the world's GDP, and three-quarters of the world's gold reserves! Back then, if there was a currency that was going to be the star of the show when it came to international trade, there was no doubt in anyone's mind that it would be the US dollar.

However, the Bretton Woods system, which brought economic growth to the signatory countries for more than 20 years, eventually broke down. During this time, the US printed more and more money while its gold reserves got smaller and smaller. Sadly, the US was unable to keep its promise of 35 US dollars for one ounce of gold. In 1971, the US dollar was no longer tied to gold, and exchange rates for different countries could change freely. After that, at least in theory, the US dollar was no longer the "world currency."

But in reality, for more than half a century, the US dollar has continued to play the role of world currency, which is pretty impressive! As this book reveals, even though the US makes up less than a quarter of the world's economy, the US dollar is used in 87% of global transactions involving other currencies. I'd love to know why this is!

I think this is down to the very nature of money. In the past, most people thought money was a special kind of commodity that could be used to buy anything. It had to have some intrinsic value, just as money was minted from gold and silver. But now, more and more scholars have come to believe that money is actually a form of credit. People are happy to accept a certain currency because they believe that other people will accept it, too. The more people accept a currency, the more reliable it is! On the other hand, no matter how a currency is created, if people no longer trust it, it will become worthless.

So, what makes people trust a currency? In the past, people used to determine the value of money based on the physical properties of precious metals like gold and silver. But in today's world, money is a legal way to pay for things that governments issue. People's trust in a currency is now based on how they see the government and the wider society.

In other words, if you think a country is politically stable, economically prosperous, and that its government will honor its debts and that individuals will not be arbitrarily deprived of their property, and if it is also technologically and educationally advanced, you will naturally be willing to hold that country's currency in order to share in its resources and development achievements. But if a country is politically unstable, economically backward, and lacks security and freedom, and if you can't see any future or hope, you might not want to hold that country's currency. This difference in trust between countries is the main reason why currencies have different statuses.

It's no surprise, then, that the US dollar has kept its place as the world's currency. Even though the US economy has been shrinking since the end of World War II, the collapse of the Bretton Woods system, the dissolution of the Soviet Union, and the 2008 financial crisis, it is still the world's only superpower! And it excels in soft power in areas such as technology, education, and culture. And we can't forget the US government's role in all of this!

For instance, as we've discussed, after the Bretton Woods system fell apart, the United States made a deal with Saudi Arabia in 1973. This was to make sure that Saudi oil products would be priced and traded in US dollars. This helped keep the US dollar strong around the world. This has really helped the US dollar stay strong and keep its status as the most important way to settle international trade. In return, the United States promised to keep Saudi Arabia safe and help keep the region stable.

There are so many more examples like this! In a nutshell, the US dollar became the world's currency thanks to a whole bunch of factors, including political, economic, and military "hard power" as well as technological, educational, and cultural "soft power." Put simply, it's the result of "strength + charm."

Some folks call this super status of the US dollar "dollar hegemony" and associate it with the US's foreign wars, calling it "currency war." I'm not here to say whether this view is right or wrong. I just wanted to take a moment to remind you that China has done really well in the international trading system that's been dominated by the US dollar for the past 40 years. If "dollar hegemony" means using the status of the US dollar to suppress the development of other countries, then it has failed in the case of China.

Part 2: Let's dive into how the Chinese economy has grown in the international trading system led by the US dollar.

As we all know, since the reform and opening up in 1978, the Chinese economy has undergone some truly incredible changes. The World Bank has some pretty amazing stats about China's economic growth. From 1978 to 2020, China's per capita GDP increased from 190 US dollars to more than 10,000 US dollars! And its GDP increased from about 150 billion US dollars to nearly 15 trillion US dollars. China has done so much! It has built the world's largest mobile broadband network, the world's longest high-speed railway, and it's number one in the world for making important industrial products like automobiles and steel. China has come so far! It's gone from being a poor country to becoming an economic powerhouse. It's now on par with the United States and is making waves in the political and economic landscapes of the world.

So, you might be wondering, how did all this happen? This book offers a really vivid perspective.

I'd like to tell you the story of an American, let's call him Alan. Over the past few decades, he's found himself increasingly unable to live without the wonderful goods made in China. Take Walmart supermarkets, for example. They're full of clothes, shoes, hats, toys, and electronic equipment from China. And they're so cheap! It's great for him, and it's great for us, too. The reason Chinese goods are so affordable is mainly because of China's low labor costs. For example, in the United States, Walmart pays its cashiers $13 per hour, which is pretty good! In Chinese Walmart branches, the cashiers' salary is only $2 per hour, which is much less. There are so many differences like this in all areas of life!

So as early as 2002, Wal-Mart saw the great opportunity to take advantage of China's low-cost advantages and moved its global procurement headquarters to Shenzhen. In just two short years, the value of goods ordered from China soared by a whopping 40%! In the decade after 2004, Wal-Mart's spending on Chinese goods almost tripled to 50 billion US dollars a year. It has brought us so many wonderful Chinese products, filling the shelves of American stores and making us so happy to shop! It's so inspiring to see how American consumers' purchases not only improve their own lives, but also influence the operations of multinational companies and the direction of international trade!

Of course, we can't forget that China's reform and opening up were the foundation for all of this! Before 1978, China had a planned economy. This meant that, no matter how much labor there was, there was no participation in the international division of labor. It wasn't until the 1980s that China made the big switch to a market economy and gradually opened up to the outside world, which really gave the economy a boost. One of the most important steps that everyone can agree on was China's accession to the World Trade Organization in 2001.

You might be wondering why this was so important. China made some big changes when it joined the WTO. It had to clean up its laws and regulations that didn't match up with international practices, break the monopoly on import and export trade, reduce tariffs, reduce barriers to foreign investment, and so on. China has made some big changes over the past two decades to align with international practices and rules. They've cleaned up more than 190,000 policies and regulations, reduced the average import tariff from 15.3% to 7.4%, and opened up nearly 120 sectors in the service industry to the outside world. These changes have had a huge impact on China and the wider world, for better or worse!

The most amazing thing is how quickly China's foreign trade has grown and how much foreign money and resources have poured in! It's been ten wonderful years since China joined the WTO. In that time, we've welcomed over 700 billion US dollars in foreign investment and hundreds of thousands of foreign-funded enterprises. It's so great to see that almost all of the world's most well-known manufacturers have set up production facilities in China! As a result, you'll find all kinds of products marked "Made in China" on sale all over the world. China has become a veritable world factory!

Of course, in this process, many of the high-value-added links of goods, that is, research and development, design, and brand marketing, are controlled by others. This means that China only gets the relatively low labor wages, which is a shame. Take, for instance, the iPhone. Some folks have crunched the numbers and found that Apple pockets about 60% of the profits from an iPhone assembled in China. After deducting the cost of raw materials and parts, China only gets 1.8% of the production profits. That's money that's been hard-earned by folks in China!

But even so, it's also so important that multinational companies invest in China's development. As we mentioned in our take on the book The Great Convergence, when developed countries invest in factories in developing countries, they do more than just provide cutting-edge equipment. They also train their management and technical teams, which is really great to see! So, it's not just about creating jobs. It's also about sharing knowledge and technology with developing countries. This is exactly what developing countries need to catch up with developed countries!

In other words, when folks like Alan from the US use US dollars to buy affordable and high-quality Chinese products, they're not only influencing China's industrial landscape through international trade, but they're also providing a significant boost to China's economic growth.

It's so lovely to see how the Chinese economy has grown hand-in-hand with foreign trade. It's been amazing to watch China's growth over the past two decades! From 2001 to 2020, China's import and export of goods grew from 500 billion US dollars to 4.6 trillion US dollars. That's a huge increase! And China's foreign direct investment rose from 26th in the world to 1st. It's been a top destination for foreign investment for many years in a row. And guess what? China's GDP has grown from 1.3 trillion US dollars to 15 trillion US dollars, and its world ranking has jumped from 6th to 2nd! It's so inspiring to see how opening up to the outside world and international trade has helped the Chinese economy achieve such incredible success!

I'd love to know what role the US dollar played in China's economic rise! Some folks think it played a part in cutting down on transaction costs and keeping things running smoothly and safely. For instance, economist Chen Zhiwu shared some insightful thoughts in his book, The Logic of Finance. The US dollar is a trusted currency around the globe, which makes it easy for businesses to trade across borders. If there weren't a trusted global currency, and if everyone only accepted gold or silver as a means of payment, China's foreign trade volume would be much smaller, and our exports wouldn't be as successful. So, the use of the US dollar as a means of payment has led to the export of Chinese goods all over the world, and has also contributed to China's rapid growth over the past 30 years, which is pretty amazing! This is what Chen Zhiwu thinks.

I think it's important to recognize the positive role the US dollar has played, while also acknowledging China's advantages and efforts. It's not just China! Lots of other countries have lots of people willing to work for low wages. But they haven't developed as much as China has. It's clear that China's development model is pretty special! So, I'd love to know if China's development model can still play a role in the future internationalization of the renminbi? As China's economic volume continues to grow, it's becoming increasingly difficult to avoid this question.

Part 3

I'm so excited to tell you what we're going to talk about next! After the rise of the Chinese economy, can the renminbi become an international currency? Or, to put it another way, what challenges does the renminbi need to overcome to become as well-known as the US dollar around the world?

We're going to chat about this because lots of economists think that China's GDP will be bigger than the US's in the next ten years or so. We all know that GDP isn't the same as total wealth, and it's not the same as GDP per capita. But it's still a pretty big deal because it makes it more likely that the renminbi will challenge the US dollar.

What are the perks of the renminbi becoming a world currency? Let's take the US dollar as an example. The US dollar is a currency that's accepted all over the world. That means that as long as the US government turns on the money printing machine, it can use the US dollar to exchange for goods from all over the world. So, even if inflation happens, it'll be a shared experience for all countries holding US dollars. This is something that affects us all around the globe.

Of course, even if we don't want to collect seigniorage, it's still a great idea to promote the internationalization of the renminbi. It's a smart move for China's economy to face the future! China is already making great strides in this area!

China has been working hard to make friends with other countries, and one way it has done this is by signing currency swap agreements with many countries, including the UK, Japan, Russia, and so on. That is, both sides agree to set aside a certain amount of their own funds and pay in their own currencies when importing each other's goods. This is a great way to reduce their dependence on the US dollar! China's involvement in the New Development Bank of the BRICS countries and the Asian Infrastructure Investment Bank is also a great way to avoid the influence of the US dollar.

But there's still a way to go before the renminbi can be considered an international currency. For instance, in 2020, the International Monetary Fund and other institutions revealed that China's GDP accounted for 18% of the global total, while its import and export trade accounted for 15% of the global total. China is the world's largest goods trading country, which is pretty impressive! But, it's a shame that the renminbi's share in international settlements and global foreign exchange reserves is only about 2%. The US is a different story. Its total economic output is less than a quarter of the world's total, but the US dollar accounts for nearly 60% of global foreign exchange reserves and more than 80% of international settlements. The US dollar is still the go-to currency for international trade settlements. It's a reliable choice, especially in times of global uncertainty.

I'd love to know why this is! As we chatted about earlier, to become a world currency, it needs to have the dual support of "strength + charm." If the RMB wants to become a world currency, it still has a few hurdles to overcome. Let's take a look at these two aspects to see what they are.

First, let's look at charm. As we can see from the last comparison, the RMB is still quite new on the international scene, even though China is a major economic player. So, the first thing we need to do is make it more attractive to traders and investors around the world. Some scholars and the views in this book suggest that the RMB has at least two obstacles to overcome.

The first thing to mention is that the RMB isn't freely convertible. For example, for Chinese residents, they can only convert 50,000 US dollars per year, and any amount exceeding this limit requires special approval. Similarly, when foreign residents or businesses convert foreign currency into RMB, there are a few limits on the types of goods or assets that can be purchased. Fortunately, this problem doesn't exist for international currencies like the US dollar, euro, and Japanese yen, which can be freely converted between each other without any restrictions. So, if the RMB is going to become an international currency in the future, it's got to become freely convertible. The reason is that we all want to use an international currency that's convenient for us! If it can't be exchanged freely, it'll cause a lot of inconvenience and it'll be impossible to internationalize.

The second reason is that the exchange rate of the RMB can't float freely, which is a real shame. This book says that when China exports more goods to the US than the US exports to China, which is to say when China has a trade surplus, people will want to buy more RMBs. This will make the exchange rate of the RMB go up, which will help balance trade. However, in reality, the exchange rate of the RMB has basically remained stable, which is different from what the West expected. This has also affected the internationalization of the RMB, which is a shame.

And there's another thing. For the renminbi to become a truly global currency, China's economy has to keep growing. As we chatted about earlier, the US dollar is the world currency because of the United States' strong and soft power. It's so important to have a strong economy because it shows that a country is a force to be reckoned with, both politically and militarily. It'll be really exciting to see what happens next! I think it'll be a great moment when China's economy surpasses that of the United States. That'll be when the renminbi will be able to challenge the status of the US dollar. So, how can China keep its economy growing fast and become the world's biggest economy? I think the answer is really quite simple: reform and opening up!

In this book, the author shows a comparison between the development of the Soviet Union and the United States, and the fate of the ruble and the US dollar. It's a fascinating read! It's important to remember that from the end of World War II to the dissolution of the Soviet Union, the Soviet Union's overall strength was on par with the United States. However, the international status of the ruble was not as strong as the US dollar. I'd love to know why this is so!

The author mentioned that the Soviet Union had a centrally planned economy, which meant that instructions from Moscow determined national production and consumption. So, the Soviet economy wasn't really focused on making products that people needed. Instead, it was more about making weapons for the arms race. On top of that, the Cold War kept the Soviet economy isolated from the world market, which made it pretty much impossible for them to produce export goods. This meant that lots of basic necessities were in short supply, and people often had to queue up to buy goods. This led to some pretty tough times for the Soviet Union. Not only was the rouble worth less than a US dollar, but the country was struggling to keep going. It was on the road to decline and sadly, it didn't make it.

From this, we can learn two important lessons. First, we should remember that you can't go against the market. Second, we should remember that you can't isolate yourself from the world. I'm really hopeful that China's economy will keep growing and even overtake the United States! It's got such great advantages of scale.

But even if China's GDP one day overtakes the United States', there's still a long way to go before the renminbi is truly international. It might take a little longer for China's per capita GDP, which truly represents a country's wealth, to catch up to that of the United States. And there's more! China also needs to develop its soft power in areas such as technology, culture, and education. So, realistically speaking, it's not going to happen overnight. The renminbi won't be challenging the international status of the US dollar any time soon. It's not so much a plan as a direction and goal that guides social development. In other words, it would be great if China's development could not only make the country stronger, but also add to its charm! I truly believe that only in this way can the renminbi be supported as it goes global.

I hope you enjoyed reading this book! I just wanted to share with you the main points I found most interesting. I'd love to share with you why the US dollar has become the world currency and its relationship with China's economic development. Let's go over this together and add some more!

First, the US dollar became the world currency and the standard for international trade settlement because it is trusted by so many people. This trust is based on the hard and soft power of the United States, which is pretty impressive! Even though the US economy has slowed down a bit over the past 50 years or so, it's still way stronger than most other countries. That means it has a pretty important role in the global financial system. All you need to remember is that the world currency is the result of "strength + charm." This helps us understand the nature of the "dollar hegemony."

Secondly, China has experienced incredible economic growth over the past 40 years, which has led to a remarkable transformation in the country's social development. It's also thanks to international trade that China has received lots of investment and technology from developed countries, and has been able to upgrade its industry by exporting so many goods. The US dollar, as the world currency, has been a huge help in this process. It has reduced transaction costs, improved investment efficiency, and given China a real boost.

And we can't forget that the Chinese economy has also done amazingly well! It's thanks to its own strengths and efforts. Given how quickly the Chinese economy has grown in similar international environments, it's clear there's something special about it! This book touches on some of the differences between China and India in a really interesting way. It's sad to say that India is at a bit of a disadvantage in the competition with China. It's clear that there are some areas that could use a little TLC. Things like poor infrastructure, an inefficient government, and a complex business environment are a few of the most obvious gaps. These are exactly the strengths China needs to build on!

And finally, there's the exciting possibility of the internationalization of the renminbi! It's so great to see the Chinese economy growing and the renminbi gaining international status! However, it's not quite there yet. It's not quite comparable to the US dollar, and it's not quite commensurate with China's position in the world economy. This is because the renminbi still has a way to go to meet the requirements for internationalization in terms of providing freedom and convenience. If China wants to enhance the international status of the renminbi and make it possible for the renminbi to become a world currency, it just needs to keep up the great work on economic growth and improving its soft power.