Architecture of Power and the Dollar’s Future

- Today Putin and she meet more frequently than any other two world leaders. And when they meet they always reaffirm their partnership or friendship without limits. I don't know what we could do to change that. So will the first questioner please ask a question?

- Okay, thank you Professor Ferguson. I'm wondering, so since you mentioned that both Trump or maybe Trump and Nixon are, seem to be just planning on capitalizing on the SSO split and well the modern Sino Soviet split, do you think it do, do, do you think, and as I'm sure a lot of people in DC would be thinking, so do you think this is a good idea? Because as far as we know, if we look back into the history, you know, we teamed up with the Soviets who fought the Nazis and then we lost not just Poland, which we originally sci-fi in for, but like literally the, that entire side of Europe. So like, do you think this is a reasonable strategy or you do, do you think like this is a kind of catastrophic,

- I think it has the potential to be catastrophic. The, the first big problem with the reverse Nixon idea is that Richard Nixon did not have to bring about the Sino Soviet split. It had already happened. They were at war in 1969 and all he and Kissinger had to do was take advantage of the fact that the biggest animosity on the planet in 19 69 70 was between the Soviet Union and the People's Republic of China. It's, it's really amazing. Sergey Chenko has just published an excellent book on the paradox that the greatest rivalry of the Cold War was not between the United States and the Soviet Union, as you assume it was between the Soviet Union and the People's Republic of China. Today, Putin and Xi meet more frequently than any other two world leaders and when they meet, they always reaffirm their partnership or friendship without limits. I don't know what we could do to change that. I think it won't last forever because there are profound strategic differences between China and Russia today. But between these two leaders, there is not much daylight. So the problem with the grand strategy, if this is what it is, is just that I don't think that either Putin or she will oblige us by defecting from the partnership that they have forged. And that's a big difference between Trump and Nixon. For Nixon it was easy. The Chinese were the ones who wanted Nixon to come to Beijing. They were the ones who wanted to do the deal and they mainly wanted to do it because they were terrified that the Soviets were gonna attack them, which indeed was not an unrealistic fear. We're in a very different world today in the sense that not only is China the dominant partner, but the relationship between Putin and Xi just seems Unbreakably strong. It'll take a new generation of leaders for that to change. I think, I don't know who's next with the mic. I've just, I've punted on this. I'm not choosing one. Yes,

- Good afternoon. I'd like to register a little bit of, of outrage over something you said at the beginning of your talk.

- I always enjoy outrage.

- That's that we are not a group that reads books. So I, I know a lot of us, a lot of us read

- Your generation doesn't, they've entirely stopped reading books. They, they don't even think or or write anymore. You may all be the exceptions to this rule, but the evidence is clear that today's undergraduates essentially have delegated their entire educational experience to chat GPT. It's quite remarkable. If you are the exceptions, it's great to have you here.

- I suppose I'll concede that point.

- Can I ask a question just on this?

- Yes. - Put you put your hand up the Red War in peace. Fantastic. You are the exceptions. In any Stanford classroom there would be no hands go on.

- So my question is on President Trump's foreign policy. He has a wide coalition within the conservative movement and because of that he has a lot of different voices that have very strong opinions on foreign policy that are, are, are across the spectrum. People like Bridge Kolby who are Prioritizers, there are strainers, the prim assist. Who do you think has the loudest voice right now and how do you expect those power dynamics to continue to play out? Thank you.

- So another excellent question. Any, any US administration doesn't actually have a foreign policy. This is something that Kissinger observed even before he went into government. He said what the rest of the world and commentators call us foreign policy or US strategy is the accidental byproduct of interagency rivalries in Washington. And this is as true of the Trump administration as of any previous administration. There are at least three foreign policies competing right now with one another. You alluded to a couple of them. I think there's a Cold War strategy at certainly at parts of the State Department which favors containing China, Russia, Iran, North Korea, wherever they make a move. And that that is I think where Secretary Rubio is most comfortable and there are important and influential Republicans in the Senate who feel the same way. Then there are the bridge Kolby types who think we can't do all of this, which I think is not an unreasonable position 'cause that's a lot. We need to focus on China and therefore we need to really prioritize Taiwan over Ukraine or Israel. And then you go to Steve Miller perhaps at times Vice President Vance and they seem to be saying, who cares about any of these places? Let's just focus on the Americas and have a kind of Monroe doctrine hemispheric strategy. So these are the three competing foreign policies. It's not been a great run of months for the Colbian who, who were clearly defeated over both Ukraine and Israel. I think, I don't wholly agree with Professor Kin that there is no administration. I think there may not be a National Security Council, but there is some process going on. I think the State Department unusually is, is the dominant force in many ways and it's been a while since there's been a hawkish State Department pursuing a set of policies as it is doing under Secretary Rubio. That's especially obvious in the Middle East. So I would say that's the kind of trend and the President Trump relative to where he was on January 20th has moved in that direction on both Middle Eastern issues and especially on Ukraine. I mean he certainly sounded a good deal, more critical of Russia and supportive of Ukraine and of NATO than anyone dared hope back in January 20th. So Secretary Ruby has done a good job and so has Michael Anton and a bunch of other people at State and we shouldn't disparage what they're achieving. We'll see what happens tomorrow. It's anybody's guess. But if you were to talk to Ukrainians or indeed Israelis, they would say this is going a lot better than it might have. Certainly then it would have if Bridge Kolby had won those arguments. Who's next? You've got the microphone but the lady with the microphone has the power. Yes please.

- Thank you Professor Ferguson. I was wondering regarding Europe and how in fact it has Solu power it seems and it's also losing its soft power. Now what do you think ought to be the move for the European nation states, both the EU and now the UK with its Brexit? Thank you. That sounds like an Irish accent.

- I bet

- Irish and Spanish.

- So you are a true European, this is not an easy time for the European Union because its bluff has been called for years. European leaders would give speeches saying that strategic autonomy was a highly desirable thing. I remember Mr. Macon giving that speech and Italians giving that speech and they would always get an applause line. We too can be a superpower. We have strategic autonomy and they would get the applause. But now their bluff has been cold because President Trump has said, go ahead, make my day spend 5% of GDP on defense, not two and then let's talk. And so they have to, but it's hard. It's easy to say you'll do it, but it's very hard to deliver politically if your economy is not growing. If like the French, your deficit, deficit is already way above target. The key is Germany as so often in European history, any Germans here, it's the key more or less than Ireland, more than Spain. Because if Germany's new government, newish government under Friedrich Mertz successfully does re armament and this is a big change where they're gonna really radically increase expenditure not only in defense but also in defense related infrastructure. If that works and the German economy starts to grow again after a period of real stagnation, then there's some room for for optimism. If it fails, then it's pretty hard to be optimistic because if Mertz fails, the alternative for Doland becomes harder and harder to keep outta power. And this is a movie that we've seen before in German history when the marginalized party of the far right is told you can't be in government, you can't be in government and it only continues to gather support. The populists don't have particularly coherent objectives since they largely think in terms of of nationhood and nationality. But these countries either hang together or hang separately. So a critical moment's arriving and will really be obvious by the end of next year. If Germany succeeds in turning it around under Mertz, then the conventional vision of Europe advancing towards something more like a federal state retains credibility. And if they do begin to meaningfully re-arm, not only in Germany but across Europe, it's no longer the geopolitical pygmy that it's become. But these are big ifs because as I said, the domestic constraints on nearly all governments make rapid, ment difficult. And in particular the domestic politics of populism poses a, I think a, an existential threat to the European project. And we see it even in Ireland. We see the populous backlash against immigration and therefore against Europe even there, which is unusual 'cause you, you Irish have been so good at hating one another. You've set historic standards for that. But now finally we, we see the Irish doing what most people prefer to do, which is to hate outsiders. So this is the problem for Europe and I I would say as somebody who argued for German armament last year, I flew to Berlin. This is a strange thing for a British born historian to do so. I was asked by Mertz and his people to come to Berlin, to the Bundestag to give a speech in German in favor of German Armand. I remember thinking I never expected when I set out to become a historian that this would be my fate to tell the Germans to re-arm. And my grandfather was looking down at what is he doing? But that's the key. Have I got time for a few more questions? Yes, please. Thank you. A friend from Georgia.

- Yeah. And my question will be also regarding the US foreign policy. So over the last three decades, Azerbaijan in Armenia conflict has been mediated and manipulated by Russian diplomats like patrolled by Russia peacekeepers and actually shaped by Russian interests. Somehow we saw recently suddenly that the US and Washington is writings there endings that chapter in history like peace without Putin. Right? So how do you foresee these developments and the US presence in the south Coxes in particular political signal to Russia and Iran? Thank you.

- Well, professor Kin was skeptical, wasn't he yesterday, about whether there really was a meaningful change in the relationship between Armenia and Azerbaijan. And it's true as as he argued that a lot of what comes outta the White House is essentially press releases. This is also true of trade negotiations where deals are announced, they take the form of truth social posts and then you say, can we get the detail? And there is none and therefore we just have no alternative but to wait and see if this is a meaningful change. And I, I don't know, I really don't. I think it's a tiny reason for optimism that the leaders of Amina and Azerbaijan were willing to let that press release happen because if nothing else it it, it's a signal that they don't mind giving the impression to Putin that Donald Trump is more important to them than Putin is sometimes in the realm of great power politics, such symbolism matters more than the small print of any agreement. Russia's big problem is that it is weak that the project to rebuild the Russian empire that we heard about also from Director Rice yesterday isn't Doden venture you, you can know more rebuild the Russian empire, that you could rebuild the British empire. I mean if we announced that actually the historic unity of the British and Irish people has such that we're gonna, we're gonna invade Ireland, how would that go? That's really what Putin's about. It's a delusional project. And then you look at the realities of Russian demographics and the reality of Russia's economy and the reality of the capabilities. The whole thing is kept going by the Chinese at this point. And what are the Chinese in it for? Not the greater good of the Russian people? I would guess so I think Putin's in truth, delusional in imagining he can be Peter the Great and that ultimately Russia's influence in the caucuses and in Central Asia is waning rapidly. And other players are clearly, clearly offering more. The Chinese do and the US can. But let's wait and see before we come to the conclusion that this is a great diplomatic triumph. It remains to be seen. I think we have time for one more question, whoever has the mic. Yes,

- Thank you so much for the opportunity in being here today. I think some argue that one of the most consequential events of the last c Bretton Woods, and I think it's fascinating you bring up the Trump Nixon dynamic. You know a lot of people will talk about the Nixon shock of August, 1971. So I'd love to pick your brain and hear your insight on what do you think Trump will do in terms of US dollar dominance looking to the future.

- Thank you. Well this is I think one of the most interesting questions of our time. Not many people back in 71 1 can see this in the debates at the time thought that the dollar would become more powerful as a fiat currency than it had been as one link to gold. George Schultz, who for many years was one of the dominant figures at this institution until the very end of his long life, he was a president here. George Schultz was the one guy who understood that you could in fact have dollar dominance with a fiat currency. And so we are in a way nearing the end of the Schultz era when the United States was able to prioritize its own domestic economic interests in its monetary policy, but at the same time provide the world with the number one currency, not only for central bank reserves, but more importantly for transactions. Trade is mostly done in dollars and it has been to a vast extent really since the time of Schultz and the Nixon administration. Are there real challenges today? That is the key question. Now I wish I had a Bitcoin. For every article I've read predicting the end of dollar dominance, I would be very wealthy indeed and I could retire and stop giving talks like this. But in truth, the predictions that the dollar will be challenged come and they go and the dollar's still there. Larry Summers said this old joke that you can't replace something with nothing. You may know this joke, it's an old one, but it bears repeating. What are you gonna do when Japan is an elderly care facility? Europe's a museum, China's a jail and bitcoin's an experiment. That's still pretty true. I think that we'll see an increasing number of transactions in RMB in the coming 10 years, partly because those economies that have been sanctioned by the United States don't have an alternative but to turn to the Chinese version of Swift, partly because China does a lot of trade and therefore it can afford to encourage trading partners to accept RMB. But until the capital controls are re re removed, China cannot compete with the dollar globally. So it's gonna make some incursions, but it's gonna still remain significantly smaller. I don't think crypto blows up the dollar. If anything, it strengthens the dollar. I think that's part of the point of the genius act. Stable coins become another way in which dollar dominance is is exported. I think the real issue is not does the dollar lose its dominance, it's not gonna lose its dominance. The issue is does the dollar weaken significantly or does it actually turn out that the Mar Lago accord was a kind of fantasy of financial journalists. The kind of depreciation we've seen so far is not sufficiently great to have the kind of consequences that the 85 Plaza core devaluation had. And so at the moment I'm beginning to think this might be a nothing burger that's 5% cheaper than a something burger, but not that big a deal. When Dr. Atlas stands there like that, you know the curtain is about to come down. So it only remains for me to thank you all very much. Great questions. I will see you later after this talk. I'm around at the reception, I'll be around. It's been great fun and I'm so delighted that you read books. Don't Stop. It really, really matters. Thanks a lot.