The Disciplined Investor Sep 20, 2026 1h 40m saved
With Barry Eichengreen, Professor of Economics and Political Science at the University of California, Berkeley, and author of Money Beyond Borders
Ten years ago foreign investors held the majority of US Treasury securities. They now hold a minority, and Barry Eichengreen's view is that the reason is domestic.
The usual version of the de-dollarization story has China or the BRICS building a rival. Eichengreen, who has spent a career on the history of international currencies, says a reserve currency is normally lost from the inside, and names Washington rather than Beijing as the risk to this one.
"We've moved from a situation 10 years ago where foreign investors held the majority of US Treasury securities. Now they hold a minority. We can't count on them to the same extent to hold our assets and finance our deficits."
Barry Eichengreen, Professor of Economics and Political Science at the University of California, Berkeley, on The Disciplined Investor, holds the Pardee Chair there and has just published Money Beyond Borders: Global Currencies from Croesus to Crypto, which traces 2,500 years of the same question.
The full episode is covered here so you can skip it. 60 minutes of audio, 20 minutes of reading.
Here are the 15 arguments that matter.
Key Takeaways
Foreign investors have gone from holding a majority of US Treasury securities to a minority in about ten years, and Eichengreen says the US can no longer count on them to finance its deficits
His book's conclusion is that the threat to the dollar comes from Washington, not Beijing — debt markets judge unsustainable, pressure on Federal Reserve independence, and questions about rule of law
The Treasury sold euros to prop up the yen so the Bank of Japan would not have to sell US Treasuries, and reserve managers read that as a limit on how liquid their dollar reserves really are
Government debt reached 94% of world GDP in 2025, and the IMF expects 100% by 2029 — a level seen only once before, after the Second World War
US net interest is already above $1T a year, up 12% in twelve months
Growing out of the debt is not supported by the record: US debt fell from 106% of GDP in 1946 to 23% by 1974, but research says without surpluses, surprise inflation and repressed rates it would only have reached 74%
99% of stablecoins are linked to the dollar, which is why the US expects the digital shift to entrench its currency and Europe and China expect the opposite
Spanish pieces of eight were legal tender in the United States until 1857 and the leading money in China for 300 years — the first true global currency
Fragmentation into currency blocs is not new and is not automatically unstable: the pre-1913 version worked, the 1920s version collapsed in the Depression
1. A Hike Before The Midterms
The episode opens with the host's own read on the Federal Reserve, which raised by 25 basis points to a range of 3.75% to 4% while saying it is not sure what is happening and that inflation is too high. Markets went in several directions on it.
What he found notable is the timing: a rise ahead of a midterm election, with a president who has been loud about wanting rates lower. Fed funds futures had put the probability of a rise at 90% to 92%, and he still thought a hold was possible.
His experience of first rate rises is that they are not the signal people take them for. It takes time for tightening to reach the economy, earnings hold up in the meantime, and the negativity that accompanies the first move often makes for a good period to be invested. The work, he said, is identifying when that window closes and earnings start rolling over if the tightening continues.
2. $40T, And 94% Of World GDP
The host then spent the bulk of the opening on government debt, starting with the headline US number of $40 trillion, against $3 trillion when he started in the business.
This is not only an American problem, he said. Government debt worldwide reached 94% of world GDP in 2025, and the IMF expects 100% by 2029 — a ratio reached only once before, in the aftermath of the Second World War, when the borrowing paid for rebuilding.
The US sits at the center of it because Treasury bills, notes and bonds price mortgages, corporate borrowing and currencies elsewhere. The numbers he gave: government deficits running around 7% to 8% of GDP with the economy at full capacity; a Congressional Budget Office estimate of roughly $2 trillion of federal deficit in the first eleven months of fiscal 2026, $700 billion of it added since July; and net interest already above $1 trillion, up 12% on the same period a year earlier. The 10-year yield, he noted, had touched 5% on the Tuesday of that week.
3. Growth Is Not An Eraser
The argument he set out to demolish is that the US will grow its way out.
Growth helps, he said, and he was explicit about that: if the economy grows faster than the debt, the debt-to-GDP ratio falls, and growth generates tax revenue. But growth is, in his phrase, "not a magic eraser".
The historical case usually cited is the post-war period, when US debt fell from about 106% of GDP in 1946 to 23% by 1974. He said that is not what actually happened. Recent research attributes much of the decline to primary budget surpluses, surprise inflation and policies that held rates below what an undistorted market would have demanded. Strip those out, and the researchers put the endpoint at about 74% of GDP rather than 23%.
The broader record points the same way. An OECD study of 34 major debt-reduction episodes found strong growth mattered in all of them, but that in roughly four out of five the primary budget balance improved too. Successful reductions, on his reading, have always combined several of growth, fiscal restraint, higher revenue, inflation, unusually low rates, or in distressed countries outright restructuring.
He named the spending on both sides of the aisle: the Inflation Reduction Act under Biden and the One Big Beautiful Bill Act under Trump. And he put the circularity plainly — if current growth is being supported by more borrowing, then borrowing your way into the growth that rescues you from the borrowing is not an argument.
4. What The Tax-Cut Data Says
The second claim he examined is the one usually labeled trickle-down, which he said is not a fair name for the serious version: that lower taxes on high incomes or corporate profits improve incentives, raise investment, lift productivity and eventually wages.
Part of that is real. Research on the 2017 US tax changes found that tangible corporate investment did increase. The same research found corporate tax revenue fell sharply.
A larger study covering major tax cuts for high-income households across 18 advanced economies found those cuts increased the income share of the top 1% and produced no statistically significant improvement in either economic growth or the unemployment rate.
His conclusion was narrow and specific: a carefully designed tax cut can change behavior and produce investment, but the claim that large cuts at the top generate enough broad prosperity and enough revenue to repair government finances is not supported.
5. The Yield Loop, And Jobs
The mechanism that worries him is a loop. More government bonds are coming to market worldwide while central banks, no longer running quantitative easing, are buying less of them. That leaves more paper for private investors, including leveraged ones who may demand higher yields. Higher yields raise the government's interest bill, a larger bill widens the deficit, a wider deficit requires more borrowing, and more borrowing pushes yields further.
He was careful about what that does not mean. There is no universally valid debt-to-GDP cliff, he said — Japan has shown that very high debt can persist for a long time under the right institutional conditions, with the government and the Bank of Japan as buyers of last resort. Nobody can say where the tipping point is.
And he insisted on separating the government's balance sheet from the economy. August payrolls rose 162,000, unemployment held at 4.1%, and average hourly earnings were 3.1% higher than a year earlier. The International Labour Organization projects world unemployment at 4.9% in 2026. Those are not recession numbers, let alone depression numbers.
That is the tension he wanted listeners to hold: strong employment does not cancel the financial risk, and high government debt does not mean the private economy has already collapsed. The real question, he said, is not whether the US can keep borrowing tomorrow, which it almost certainly can, but what borrowing on this scale does gradually to interest rates, to investment and to the dollar.
6. Bessent's Yen Operation
Eichengreen came on and was asked what still gets him going. His answer was the previous month.
The Treasury spent euros to support the yen
Treasury Secretary Bessent has entertained us in the last month by using some of the euros in the account of the exchange equalization fund to help prop up the Japanese yen and take some pressure off the US Treasury market.
Barry Eichengreen
The Treasury also increased its purchases of longer-term bonds to bring interest rates down.
Neither move was on his list
I would not have anticipated either of those actions. They get the blood flowing.
Barry Eichengreen
Asked how abnormal the yen intervention was, he gave the motive rather than a verdict.
The point was not sympathy for Japan, it was the Treasury market
Well, I think Bessent was sympathetic to the Japanese cause. The Japanese were worried about the sharp depreciation of their currency which reflected weaknesses in Japanese economic growth and Japanese finances. But fundamentally he didn't want more pressure on the US Treasury market. He didn't want large sales by the Bank of Japan of its reserves of US Treasury bonds.
Barry Eichengreen
The first of the two moves
Number one, he supported the yen directly. Taking pressure off the BOJ by selling euros in the accounts of the US Treasury.
Barry Eichengreen
The second was what he called open-mouth operations: encouraging the Federal Reserve to expand its repo line with the Bank of Japan, so the BOJ could raise dollars against its other dollar assets rather than selling them into the market.
7. What Reserve Managers Heard
The consequence he drew is about the signal rather than the operation. The message to foreign central banks, he said, was that "your Treasury holdings, your dollar reserves are not as liquid as you thought they were", because the US Treasury would not be happy if they actually sold them the way central banks normally do when defending a currency.
Once that is fully processed, he expects it to add momentum to the reserve diversification already under way.
The host's own label for the episode was Bessent's big bond blunder, and he noted the sequence: the week before, a notepad left visible to photographers with a figure of $10 billion of yen on it, after which the yen moved, followed a week later by what amounted to an Operation Twist.
8. De-Dollarization, Both Ways
Asked whether the dollar's status is genuinely at risk or whether the de-dollarization story is overdone, Eichengreen refused the either-or. Both can be true at once: the story can be overstated and the dollar can still be at risk.
Reserve managers, central bankers and officials are actively building alternatives, he said, holding reserves in other currencies and developing other ways to make cross-border payments. European and Asian officials will say so if asked.
The alternatives are real and they are slow
But at the same time it can be the case that developing these alternatives takes time and until they are more fully developed the dollar will continue to be the central currency in the global monetary and financial system.
Barry Eichengreen
On the BRICS specifically, the host recalled years of expectation that a rival bloc currency was coming. Eichengreen's answer comes in section 15.
The euro remains the most obvious rival, he said, and the obstacle is European rather than American. Entrenched incumbents, meaning banks, investment funds and others in various European countries, do not want the deeply integrated, liquid euro securities market the euro area would need to compete.
9. New Rails, Retail First
Asked where the practical alternatives actually are, he split the answer in two.
At the retail level it is instant payment systems, Pix in Brazil and UPI in India, which are now being linked across borders so local currencies can be exchanged directly without buying dollars first. Singapore and Thailand have linked their systems, as have Singapore and Malaysia; India and Brazil are working on theirs.
At the wholesale level, for large transactions between banks, blockchain initiatives from the banks themselves and from Visa, Mastercard and Swift aim to tokenize bank deposits and other assets so they can be exchanged on a distributed ledger without going through the US correspondent banking system.
Retail is moving faster, and both are moving
So, the retail part is going faster than the wholesale part, but I think they're both underway.
Barry Eichengreen
The host's read was that retail is pushing because wholesale has no reason to — there is still a lot of money in the existing arrangement for the incumbents. Eichengreen agreed that rings exactly true.
10. The Threat Is From Within
Put to him that dominant currencies are usually damaged from within rather than displaced by a rival, Eichengreen said that is exactly the conclusion of his book: if the dollar's global role is threatened, the threat comes from Washington.
The components he listed were large issuance of public debt that markets come to see as unsustainable, threats to the independence of the Federal Reserve which he called deeply demoralizing to international investors, and the political noise around Washington.
The holders have already changed
We've moved from a situation 10 years ago where foreign investors held the majority of US Treasury securities. Now they hold a minority. We can't count on them to the same extent to hold our assets and finance our deficits.
Barry Eichengreen
And the governance questions are part of it
I think questions about rule of law, separation of powers, control of corruption, all of which make foreign holders and users of dollars think twice.
Barry Eichengreen
The host added that the old fear was China or Japan selling, and that both have in fact been diversifying for a while.
Later in the conversation, on whether the administration's framing is the problem, the economist's objection was about the model rather than the politics.
Trade and finance are not zero-sum
I believe that it's a positive sum game and that everyone can benefit from trade as well as from the US providing the global public good of a stable and liquid dollar.
Barry Eichengreen
11. Deficits And Data Centers
Asked whether higher US rates will keep pulling money in, Eichengreen started with the textbook answer and then complicated it.
Higher rates should support the dollar, other things equal
Well, you know, higher interest rates, other things equal make holding dollars more attractive for foreign central banks and corporate Treasuries.
Barry Eichengreen
Which is why near-zero rates drove diversification in the 2010s
I think one of the reasons we saw gradual but continuing reserve diversification in the decade that ended with COVID was that US interest rates were near zero for a long time. So the fact that they're now back up to historically normal levels ought to be dollar supportive.
Barry Eichengreen
The question, he said, is whether those higher rates get matched by higher inflation and dollar depreciation, which would cancel the effect, or whether the Federal Reserve is serious about hitting its inflation target.
The deficits are global and the unknown is the data centers
I think you know budget deficits are part of the high interest rates. Not only budget deficits here in the US but in Europe and Japan and elsewhere. They will probably continue indefinitely into the future. The big unknown I think is whether the trillions of dollars of data center and related borrowing and investment continue to push up interest rates.
Barry Eichengreen
12. Rome, Nero, Debasement
The book covers 2,500 years, and the host asked what the world looked like before any single reserve currency. Eichengreen's answer was that there has almost always been something.
Roman coins turned up from Scotland to India
So in the period of the Roman Republic, Roman gold and silver coins circulated everywhere from Scotland in the northwest of Europe into the Middle East into Asia into what today we would call Persia, Afghanistan, India
Barry Eichengreen
And the mint traveled with the army
Julius Caesar when he crossed the Rubicon with his troops carried a mobile mint with him
Barry Eichengreen
The legions were paid in silver coins that entered local circulation wherever they went. The underlying reason, though, was commercial rather than military.
Trading power produces monetary power
Being able to defend your trade routes and your ships against pirates is part of being a commercial power. And from being a commercial power flows the status as a financial and monetary power. So that those factors go together historically.
Barry Eichengreen
The decline followed the checks and balances. When Rome moved from republic to empire and Nero began spending on himself, on a 300-room mansion and more foreign military adventures, the deficits gave way to currency debasement and the denarius stopped being a global currency.
He had seen this before
So I think we've seen this life cycle before.
Barry Eichengreen
The host drew the parallel to spending $900 million rebuilding the White House, and Eichengreen did not dodge it.
The example was not chosen at random
Yeah. I didn't give you the example of Nero and his palace randomly.
Barry Eichengreen
A tangent followed about what a mobile mint physically was: men with hammers, a template, lumps of silver, and an emperor's profile pounded into them, rather than a building.
13. The First Global Currency
Asked what surprised him most in the research, Eichengreen named something he had not expected to matter.
Spanish silver was the first true global currency
So, when you know, Spain colonized much of the Western Hemisphere and they discovered big silver deposits in present day Peru and present day Mexico. They established mints which turned out these Spanish silver pesos or dollars or pieces of eight. You know, a silver coin that was cut up into eight slices resembling the slice of a pizza to make small change. That was the first true global currency.
Barry Eichengreen
It was legal money in the United States for decades
Spanish pieces of eight were legal tender in the United States until 1857.
Barry Eichengreen
That lasted until enough gold was found in California and silver in Nevada to get Alexander Hamilton's mint fully running. The same coin was the leading money in China for 300 years, carried by the Manila galleons from Acapulco to Manila and trans-shipped, and it was the main circulating money in Europe and the Middle East.
The direct ancestor of the dollar
So it was Spanish silver which was the first true global currency I think the most direct predecessor to the dollar.
Barry Eichengreen
14. Stablecoins Or CBDCs
His reason for going deep into digital money is the pattern across the 2,500 years: the states that capitalize on a new monetary technology are the states whose currencies take a leading global role.
The rails are new, and the question is what runs on them
So now we have blockchain, we have distributed ledger technology that's a new fundamentally different financial monetary technology. It's a set of payment rails that can be used to complete all kinds of international transactions. So the question is what will the unit be that runs on those new rails? What will the train that runs on the rails be?
Barry Eichengreen
The candidates are stablecoins pegged to a fiat currency, tokenized commercial bank deposits, or tokenized central bank reserves — a central bank digital currency. The US has bet on stablecoins, following passage of the GENIUS Act, which he attributed, choosing his words carefully, to the political sway of the crypto lobby. Europe and now China are betting on a combination of tokenized central bank money and tokenized commercial bank money.
The host's objection was that this just recreates the same fight in tokenized form. Eichengreen agreed these are updates of familiar transactions, and said the question is which gains share at the expense of the others.
Why Washington expects to win it
The view in the United States is that the future lies in stablecoins and because we are the first mover, 99% of stablecoins out there at the moment are linked to the US dollar.
Barry Eichengreen
And why Brussels and Beijing expect the reverse
And Europe and China view the prospects in exactly the opposite way.
Barry Eichengreen
15. Blocs, 1913, And After
Asked whether today's fragmented monetary system gets resolved into something more unified, and whether that would even be desirable, he was blunt about the timeline.
Not in his lifetime
I don't think it's going to be resolved in my lifetime. I think we have different countries and different economic and political blocks with different interests. They don't want to delegate control of their monetary and financial affairs to someone else or pool their prospects and control with other countries. We have not seen progress toward a bricks currency because the bricks are a very heterogeneous diverse grouping of countries with different structures and different interests.
Barry Eichengreen
China is making progress with its own central bank digital currency and with Project mBridge, a platform that lets it exchange its CBDC with those of participating countries.
But the participants pick a side
But the countries that are participating and will participate are politically aligned or economically aligned with China. The United States is not going to participate in a China project.
Barry Eichengreen
So his expectation is several schemes centered on different currencies, with other countries attaching themselves to one or another. Whether that works depends on precedent, and the precedent cuts both ways.
One version worked, the other collapsed
We had that kind of system before 1913.
Barry Eichengreen
We had another such system in the 1920s a dollar block and a pound sterling block and that system collapsed in the great depression.
Barry Eichengreen
Before 1913 the pound sterling, the French franc and the German mark all played significant international roles and the arrangement ran smoothly.
The condition, not the structure, is what decides it
So I think the lesson is if your policies and financial markets are stable as they were before 1913, this fragmented system you described can work smoothly
Barry Eichengreen
Bonus Insights
The chapter he would append twenty years from now
Asked to write the final chapter of his book from a vantage point two decades out, Eichengreen gave both endings. The first is that the middle of the third decade of the 21st century was when the fate of the international monetary system was decided, and Washington took the steps that dethroned the dollar — with the successor unknown, whether the euro area and China or Brazil and India. The second is the other way round.
Or that 2026 and the surrounding years were when the United States and Washington got their act together and stabilized confidence in sentiment toward the dollar and the prevailing system lived on to see a couple of more decades.
Barry Eichengreen
Efficient markets are elegant, and psychology is the harder model
The conversation opened on whether the old correlations still hold, and specifically the 60/40 portfolio, which was built on stocks and bonds moving in opposite directions and no longer does. The reply was that the historical correlations have changed but the underlying economics has not gone away.
You know, the idea that financial markets efficiently process all the available information that's an elegant model. It has aesthetic appeal to economists and finance types.
Barry Eichengreen
Thinking about the psychology of the human mind, and the fact that processing information is psychologically expensive so market participants use rules of thumb, produces a messier model — and in his view a more important one. Bob Shiller won a Nobel Prize for the reminder, and behavioral finance grew out of it. The host's observation was that technical analysis had been built on fear and greed for decades before anyone codified it.
Every week brings something he did not expect
Eichengreen's stated reason for still enjoying the work is that the month before the interview produced two Treasury actions he would not have forecast, which is the answer that opened the interview and set up everything after it.
Eichengreen's bottom line is that the dollar does not get displaced, it gets given away: the alternatives are real but slow, the technology is up for grabs, and the decisive variable is whether Washington keeps issuing debt the market doubts, pressuring the Federal Reserve and giving foreign holders reasons to look elsewhere.
Products, Companies & Tools Mentioned
The US Treasury (Sold euros from the exchange equalization fund to support the yen, and increased purchases of longer-dated bonds — two moves Eichengreen says he would not have anticipated)
The Bank of Japan (The party the intervention was designed to keep out of the market, so it would not have to sell its US Treasury reserves)
The Federal Reserve (Raised by 25bp to a 3.75%–4% range; pressure on its independence is one of the three things Eichengreen says makes foreign investors think twice)
The International Monetary Fund (Source of the figure that government debt reached 94% of world GDP in 2025 and is on track for 100% by 2029)
The Congressional Budget Office (Estimated roughly $2T of federal deficit in the first eleven months of fiscal 2026)
The OECD (Its study of 34 major debt-reduction episodes found that in about four out of five, the primary budget balance improved alongside growth)
Pix and UPI (Brazil's and India's instant payment systems, now being linked across borders so local currencies can be swapped without first buying dollars)
Visa, Mastercard and Swift (Pursuing tokenized bank deposits on distributed ledgers, which would route large transactions around the US correspondent banking system)
Project mBridge (China's platform for exchanging its central bank digital currency with those of other countries, whose participants Eichengreen says are politically or economically aligned with China)
The International Labour Organization (Projects world unemployment at 4.9% in 2026, one of the figures the host used to separate the government's balance sheet from the economy)
Books & Resources Mentioned
Money Beyond Borders: Global Currencies from Croesus to Crypto – Barry Eichengreen (The new book, tracing 2,500 years of cross-border money and concluding that the threat to the dollar comes from Washington)
The GENIUS Act (The stablecoin legislation Eichengreen says represents the US bet on stablecoins over a central bank digital currency, passed with what he calls the political sway of the crypto lobby)
Research on the 1946–1974 US debt reduction (Cited by the host: strip out primary surpluses, surprise inflation and repressed interest rates and the ratio falls only to about 74% of GDP, not 23%)
The 18-country study of high-income tax cuts (Cited by the host: the cuts raised the top 1% income share with no statistically significant effect on growth or unemployment)
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