Halal Money Matters Podcast

Episode 29 - De-dollarization and Emerging Markets with Levi Zurbrugg

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Narrator:
The thoughts and opinions expressed on Halal Money Matters do not necessarily reflect the views of Saturna Capital, Amana Mutual Funds, or their affiliates.

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Monem Salam: 
Welcome to Halal Money Matters, sponsored by Saturna Capital. I'm Monem Salam.

Scott St. Clair: 
I'm Scott St. Clair and Monem, today we have one of our own, Levi Zurbrugg, a senior investment analyst and portfolio manager here at Saturna Capital to speak with us about de-dollarization and emerging market investment.

Monem Salam: 
I do get a lot of people talking about, dollarized, de-dollarized and all the different currencies and that type of thing. So I wanted to take the opportunity to kind of do a little deeper dive into what this is all about. And is there something to be nervous about, is it something that's normal, you know, those type of things. I think hopefully we'll have a great show.

Scott St. Clair: 
Yeah, let's dive into it.

Monem Salam: 
Great Levi, thanks for joining.

Levi Zurbrugg: 
Yeah, thanks for having me. Excited to be here, guys.

Monem Salam: 
So let's just dig right into it and let's talk about what does it mean when I say de-dollarization or even dollarization? What does that context mean?

Levi Zurbrugg: 
Yeah, I mean, I think it's important to have some context here, really. People have been talking about de-dollarization ever since we got off the gold standard and started to dollarize things. What it means is the dollar is really seen as the world's reserve currency. And so it's a very important means of transacting across the world, not just within the US. So dating back again to the late sixties, early seventies, the dollar's taken place of gold in many instances to be the means of transacting in international transactions.

Monem Salam: 
Literally people didn't use  to trade dollars, though. I guess the dollar was more like a gold-backed, is that how you would put it?

Levi Zurbrugg: 
Yeah, you had gold backing different currencies. And then there was, you know, a decent amount of bullion trade too, which is just an inefficient matter. And then there's a complete lack of standardization and which creates a lot of headwinds for folks as you try to transact across the variety of countries that  we have today that are involved in the global economy.

Monem Salam: 
So then we got off the gold standard a nd then how did the dollar become the world's reserve currency?

Levi Zurbrugg: 
I think what it boils down to is the ultimate network effect. It's just much more efficient to have one unit of measure or one common currency to do these transactions. And really, you know, starting in World War Two or after World War Two, the US was seen as that safe haven. And as folks moved off the gold standard, the dollar continued to be a very stable unit of measure and so it was natural for various countries and private actors to move towards the dollar in terms of a stable means through which they could transact.

Monem Salam: 
Yeah, and I think part of it also has to do with the fact that, you know, US represented such a large economy in the world and it still does. Probably more so in, you know, maybe in the seventies before Japan and China and those type of things. So I think it became, you know, just a de facto, let's trade in dollars because that's where most likely I'm going to do most of my business.

Levi Zurbrugg: 
Yeah, absolutely. And, you know, you bring up two important actors, you can throw Europe in there, too. We've seen this kind of rise and fall or ebb and flow with the use of dollar around the world. Japan came and was an incredibly strong economy until the late eighties, early nineties and subsequently has really had a trouble generating growth. Europe had a very difficult time in the post GFC era. And so those currencies,  also considered reserve currencies, just never had that same stability that the US had.

Monem Salam: 
Now we just spoke about dollarizing and basically global economy. Most payments that happen happen in dollars and the important part about this is oil is actually or a lot of commodities are traded in US dollars which creates more of a reason why people would want to adopt that.

Levi Zurbrugg: 
So I think oil is a really important commodity to look at and the reason is it's globally used. Whether you're in Chile, in Denmark, or, you know, in China, there are all these economies are run on energy and require oil. And it would be a complete mess for instance, if you're in Saudi Arabia to try and take in and transact in all these different currencies, regardless of the need to hedge the currency exposure there. And so that's what the dollar provides, is one standardized unit that you can transact with a myriad global players through.

Monem Salam: 
So it's important to note here, and you can clarify this if you want. So let's supposing, you know, China and Russia are going to be trading in oil, right? So Russia produces it. China consumes it. So you have a one way transit and China is going to pay Russia for that. Are they going to do that in yuan or are they going to do that in dollars?

Levi Zurbrugg: 
So they certainly want to, and there's been a push to start doing that in yuan, but even still, it's dominated by dollars. And you can imagine part of the reason is once Russia takes that transaction, if it's in yuan, it's a lot harder to then go and spend that yuan on what Russia may need, say they need semiconductors or something else. Those products are more likely to be priced in dollars. And so you're stuck with a different currency that is very hard to do further transactions in.

Monem Salam: 
That's a good point. I guess it's all about international trade. It's not only about basically just trading in your own country and that's why you would need those dollars. So now we switch to the other part of it, which is now as you mentioned, over the decades, people have been talking about de-dollarization, which means moving away from the dollar standard that everybody uses. So before we get into, like, what does that mean? Do you know by any chance, like what the highest level of dollarization was in the world?

Levi Zurbrugg: 
Yeah, that's a good question. I don't know. There's so many different ways to measure that. You could look at it in terms of how much foreign exchange reserves countries are sitting on. Or you could look at it in terms of how much foreign exchange transactions are taking place. And I think that that's an important nuance to consider because what we've seen is countries lowering their foreign exchange reserves and I think is probably worth getting into to why that's the case. But they're still forced to transact in dollars.

Monem Salam: 
And that's why they would keep the reserves so that they can they could actually transact in dollars.

Levi Zurbrugg: 
Yeah. It starts to get very complicated because even with Russia, for instance, who ahead of their invasion of Ukraine was de-dollarizing. What's come to be apparent is, more than de-dollarizing, they were they're moving their where their dollars were held, so moving dollars out of being held at a global banks or being held abroad, turning it into dollar cash and then also creating synthetic dollars. So they could again, they could still lock in the stability of the dollar without being subject as directly to the sanctions. It might be worth just kind of nailing down really the three reasons for de-dollarization. There's more than three, but three, I think that stand out behind the current movement that we're seeing. One is dollar weaponization, which is the sanctions I've been talking about it in terms of the US has really ramped up their use of sanctions. And the way that those are applied is through basically locking out other players to dollars or locking their dollars up. The next is, which is different, what I'll call dollar colonization, which basically means the world is subject to US fiscal policy. And that can be very challenging. That's led to various debt crises throughout the decades. And then there's just the concerns over growing US debt paired with the political inaction here in Washington, which kind of undermines the dollar treasury safety. So those are three, I think, disparate reasons that are leading to the de-dollarization that are all coming together right now, which is probably why it's such a popular topic.

Monem Salam: 
Let's look kind of back up a bit, because I think one thing to understand is this is basically this is digits on a computer screen that are moving back and forth. There's no little physical dollars moving from one country to another. So that's one aspect of it. In large transactions, the other thing that I realized not too long ago was that everything flows through the US when you're trading in dollars on the digits on the screen. If, Levi, you and I were sitting in Malaysia and I gave you a dollar, you know, obviously that doesn't have to go through the US. But if I was to transact with you electronically, that transaction goes through the US. And so then you get into this, what you call the weaponization of the US dollar, which is basically, well, if I have a majority of my economy is, you know, import/exports going on in dollars has to come through the US at any given point, the US can say, well, I'm going to freeze your assets and you won't be able to use these things anymore. And is that what people are scared of?

Levi Zurbrugg: 
Yeah, exactly. And the US can leverage its allies so that even if the dollars don't necessarily pass through the US, if they pass through a country that's allied with the US or wants to stay in good standing with the US, are more or less subject to that weaponization as well, so. And we saw that with Switzerland, right? Switzerland has been a notoriously neutral country, but even in this last crisis, the US was able to lock up dollars that were held in Swiss bank accounts. And I think that just speaks to the power of it, which at the time people were really concerned about this weaponization, and this is exactly why, because once you weaponize the dollar in that regard, then it makes it a little bit less of a currency of stability. If I can't get my hands on my ability to transact and I can't get my hands on the units that I need to transact, then that cuts that stability right away.

Monem Salam: 
But we've had conflicts, throughout the world for a long time. In the fifties, sixties and seventies, there were major conflicts going on in the world, let alone World War Two. But why is this coming up now, more than before?

Levi Zurbrugg: 
That's a really interesting question. The superficial answer is the US is using it more now than ever. You can see that in 2022, more than 12,000 entities were under sanctions and that's a 12X increase since 2000. Now, that begs the question, why are we using dollar weaponization? Why is the US using it? One, I think it's been fairly effective. And then the other one is much more tenuous. And that may just be, you know, other forms of geopolitical negotiations may have broken down or we may have lost our power in other manners and so we're now relying on the dollar to assert kind of the will. And that, I guess, you know, leads into the dollar colonization and those two are probably more tied together than other factors than de-dollarization.

Monem Salam: 
Okay. So let's talk about colonization. Then define that a bit more.

Levi Zurbrugg: 
Yeah, so you can't talk about the dollar without talking about Treasuries and the US Federal Reserve System and how it enacts monetary policy. And so Treasuries are a very common form of investment abroad as well as within the US. And they're kind of seen as the riskless asset, not just in the US, but globally. And so that means if the Fed is, for instance, as it is right now, raising interest rates, you're going to see interest rates rise across the globe. And this has come to bear in some really nasty instances for countries. For instance, the Latin American debt crisis of the 1980s is expected to have been partially at least caused by the Fed's aggressive rate hikes at that point in time. And I think we're seeing that again now. You know, we haven't seen a crisis yet. And hopefully we don't see one, but with the  Treasury being the cheapest form of lending or borrowing, everything else has to be more expensive than that. And so it raises the cost of capital across the globe, even for countries that may not be as directly tied to the US economy.

Monem Salam: 
Let's supposing right now that the ten year Treasury is trading at, let's round it up, to 5%. Right. So basically what that means is that becomes the floor that everybody uses to price whatever bonds they want to price. And so the debt crisis comes into being is that as you're trying to roll over the debt that you already have, you're basically having to roll it over at a higher cost than you would maybe two years ago.

Levi Zurbrugg: 
Yeah, exactly. And, you know, I think it's interesting to note and this is part of why I don't see the dollar going away. There's roughly $30 trillion worth of debt held within the US in US dollars. And then there's an equal amount or roughly equal amount of dollar denominated debt outside of the US. And so you can see how that sort of interest rate rise that you just highlighted can move across markets. So, for instance, you're a Japanese lender. You want to invest in an Indonesian manufacturing facility. There's not a great rupee to yen currency swap translation there. So you instead both come to an agreement to make a dollar denominated loan. That loan obviously is going to be more expensive than a Treasury, regardless of the fact that it's outside the US.

Monem Salam: 
There is some level of you're giving up your independence or your sovereignty by having to or being forced to be able to trade in dollars. And that leads to the debt part of it. Now we're talking about it from a from a US debt perspective before we're talking about it from a foreign country. But in the US debt perspective, you said that was one of the reasons as well.

Levi Zurbrugg: 
Yeah, exactly. Yeah. That's the kind of third reason that I was highlighting and that's come to the fore recently. I think there's two parts to that. It's one not just how large the US debt has grown and the cost of servicing that debt is certainly increasing. But what's more concerning to investors and what undermines that riskless asset notion is the political inaction. So it's become somewhat of a volleyball for each side to, you know, each political party doesn't necessarily always want to pass a budget when the other political party is in control because it makes, you know, the controlling political party look weak, or what have you. And either way, this political inaction has basically undermined the security of the US to pay its debt. And in 2011 that resulted in Standard and Poor's downgrading the US country's credit within the US. And then more recently, Fitch also did the same. And it really comes as two parts that, one, there's a lot of debt right now and then, two, there's this inability for political parties to reach across the aisle and come to a decision.

Monem Salam: 
So is there a real fear that the US would never pay its debt?

Levi Zurbrugg: 
You know, it's interesting. I think it's a tail risk and it depends on who you ask in the market. But the tail risk is there more than I think it's been in a long time. Everyone looks and thinks full faith and credit of the US., there's no way they'll default. The US has defaulted in the past, and it certainly seems like the nuclear option nowadays. But even just that inkling that that there's a possibility, whereas before that wasn't really seen as a possibility, I think just serves as a kind of another paper cut among a thousand that undermines the dollar there.

Scott St. Clair: 
What would some of the consequences of a more widespread de-dollarization be for the global economy?

Levi Zurbrugg: 
You know, this is one that it's kind of hard to provide the counterfactual if you really have no idea what the consequences are. There's a couple of things that I think are really interesting and they can move in different ways. For one, the dollar, why it's so widely used is, again, goes back to this network effect where the more widely used, it kind of self-reinforces and the more people need to use it. So unwinding that would be very painful and not just for the US. As I mentioned, there's as much debt held outside the US in US dollars and so deleveraging that US debt and putting it in a different currency could cause really severe headwinds and undermine efficiency. You're moving from a very efficient form of transactions to one that they could be less efficient and generally that undermines productivity. Now, that said, the counterargument could be that it's a really attractive or at least stands to benefit emerging market countries that have been subject to the US fiscal policy and also stuck with having their debts be paid in a foreign currency, which is just very challenging. You know, for instance, if you're a Brazilian company and you have to take out US debt because it's the only thing investors will provide you, but most of your earnings are in real, it creates a very nasty headwind they have to deal with. So in that regard, it could be a positive for emerging market companies. But I do think sometimes it's underappreciated how the dollar has allowed for economies to become and maintain greater efficiency.

Monem Salam: 
So far we've been talking about, you know, dollarization and de-dollarization from an international or a global perspective with countries and people who maybe want to travel abroad, that type of thing. But if I'm in the US, I'm living here, I'm making my payments in US dollars and don't have any plans to travel abroad. So why would I care whether the US is the global currency or not?

Levi Zurbrugg: 
You know, it really depends on if you're more exposed to the US export economy or more exposed to the US import economy. So people that are exposed to the import economy have generally benefited by lower costs. Their dollar is used widely abroad. And so we can see that by the fact that  we have greater access to capital and we also have the ability to import things, which has shifted manufacturing abroad in many ways, at a much lower cost than what it historically was within the US. Now, in de-dollarized world, if we're in the manufacturing sector, and you've seen your jobs sent abroad, you may actually be a beneficiary of de-dollarization in that it makes US exports look more attractive.

Monem Salam: 
Okay. So in that sense, then, you know, as President Joe Biden is moving towards, you know, bringing more manufacturing back home, back home being in the US, is that contributing to a de-dollarized world?

Levi Zurbrugg: 
You know what? I don't think that that many folks have raised that point. But in many ways it does. Because it not only does, you know, does it deal with the import and export, but also the financing of those imports and exports. And whereas it would be important if something was manufactured in China and they're going to receive dollars in payment, now those dollars are staying at home. It does probably add to that de-dollarization narrative.

Monem Salam: 
So if we did de-dollarize, do we have a standard currency or can we just let the free market just figure out, let everybody trade whatever they want and let's just see where it lands?

Levi Zurbrugg: 
I think in theory that's probably what would happen and it would probably move back towards a standardized currency because of the efficiencies you gain from that standardized currency. That would be a pretty tumultuous transition and selecting which currency to use. But again, just the nature of the interconnected global economy supports that network effect where you want really one currency that can be used regardless of what you're buying or selling and to or from whom that transaction is being placed.

Monem Salam: 
Now let's span the globe and figure out what could be another alternative to the dollar.

Levi Zurbrugg: 
Yeah. So a lot of countries have been trying to get out of the dollar hegemony, as it's called. One group of countries that's been a big proponent is the BRICS, which is Brazil, Russia, India, China and South Africa, often called BRICS Plus now because you have other large growing emerging market economies like Iran and Saudi Arabia there. But the challenges here are while they may individually want to get out of the dollar hegemony, it's unlikely that they're going to support one another's quest to become that standard unit of transaction. China and India are by no means the friendliest countries. They've kind of been at each other's doorstep. And while they support each other in trade, it's hard to imagine one supporting the other's currency in terms of world domination.

Monem Salam: 
That's true. But there's also you have maybe euro could be an alternative as well.

Levi Zurbrugg: 
Yeah. And for a while it looks like the euro may be able to become that standard unit of measure, but they just haven't provided the same stability that the US has. And you've seen such significant fluctuations. I mean, again, you know, we're recording here in October and the US economy seems to continue to defy gravity and chug along. But Europe's is really under pressure. And not just that, but you have a lot of different member states that don't always agree. Which, as tough as politics can be within the US, secession's not quite as readily apparent as Brexit is. So I think again, that kind of undercuts the euro.

Monem Salam: 
The euro actually speaks to the efficiencies that you have with one currency. You know, not too long ago when I when I was traveling in Europe, I would have to go, you know, if I went to France, I would have francs and then I would go to England, I would change it out for pounds, and then I'd go to, you know, Spain. I'd have to I can't remember the currency in Spain was. But you know, you have to change it out. And so, you know, now that I travel, it's one currency and that's just for me. Imagine if I was dealing in billions, which I'm not a billionaire yet, but if I was dealing in billions and it would be much more cumbersome to do that, I guess.

Levi Zurbrugg: 
One hundred percent. I do think those personal narratives helped bring this all into focus and give it context because it can all seem quite nebulous. But, you know, to your point, it's much more efficient to move across countries and have one standard unit of measure. You know, I was recently in Indonesia and I was a little bit bummed to find some art that were planning to buy was priced in dollars. And I thought God they're smart because the rupiah had depreciated so significantly against the dollar. But you know, I wasn't there to benefit from that. But although the art school that we purchased that from was, so kudos to them for, for being astute global citizens and realizing the value in the power of the dollar.

Monem Salam: 
When I'm talking to various people, they talk about these alternative currency that would be the renminbi or the yuan, the ruble, the Russian ruble, the European euro, all of these different ones. But I mean, I kind of break it down into four different areas of why the hegemony of the US dollar will always be the case, at least for the foreseeable future. I mean, you can see, you know, global tides changing and then that could always happen. Number one is liquidity. There's no comparison to the number of dollars that are trading around the world to any other currency. That's one. The other one is it's a free currency, meaning that we've never had a case where the US basically just froze out the entire economy and said nobody's allowed to trade in dollars anymore, whereas you do have pegged currencies like the yuan. You know, in the past you've had it in the ruble as well and the those type of things. And then the third one is this programing. I mean, all of the computer systems that are built around the world for  import export, are built on the US dollar. To have to reprogram all of these systems, you'd have to, you know, basically kick out everything and restart everything over again. It would be very, very costly to be able to do. The last one is stability. Stability is, I think, a huge part of it, which like you said, you know, nobody talks about Texas seceding from the union, whereas, you know, Brexit, literally they did leave the common currency. So those are the final kind of four factors that I look at when I'm thinking about this thing. This is not something that can happen tomorrow or maybe even in this decade. It's much, much more longer than that.

Levi Zurbrugg: 
Yeah, I think those are great points. And, you know, I didn't talk much about the infrastructure built around the dollar, but as you just mentioned, the programing, it's almost unthinkable to unwind that and very unlikely that it happens in any sort of rapid manner. So you know, while you may start to see some oil price in renminbi, I don't expect it to replace the dollar as the global reserve currency.

Monem Salam: 
Talking about the colonization part of it, if I'm trading in dollars, you know, as long as I'm not doing anything nefarious, there's no fear of me having to have my money stuck in US dollar and I never trade it out. Whereas if I was trading in other currencies like the yuan, there's a very big possibility. And they have a right now where there's only a certain amount of money Chinese citizens can take out of the country. And so there's always that restriction that's placed on various currencies to be able to do that, which becomes problematic.

Levi Zurbrugg: 
I have to be somewhat reserved in trying to assume what Xi or the Chinese Communist Party's goal is with having more things priced in renminbi. But part of me thinks it's probably not the same as why we like things in dollars, you know, whereas we enjoy this free transactions and an open global economy, in many ways, the signals they've been sending is less command and control of the global economy and more of a command and control of at home. And so I think the motives there are a little bit different as well.

Monem Salam: 
And then the one last thing with currency, we didn't talk about the same basket of currencies, what are called SDRs or Special Drawing Rights. Right. Can you talk a little bit about that and what that represents?

Levi Zurbrugg: 
You know, special drawing rights are IMF or International Monetary Fund. And it's a basket of currencies that are used. And these have actually been around since 1969. And kind of their interest in discussion kind of ebbs and flows with de-dollarization. What I will say is really they're an alternative to the US dollar when countries can't get their hands on enough dollars and the IMF can use them so countries don't default. In some ways I think kind of speaks to the value again of the dollar and the demand for dollar. It's kind of a secondary measure that's used to help countries stay afloat when they just can't find enough dollars.

Scott St. Clair: 
Levi, are there any sectors or investments that are particularly susceptible even to small amounts of de-dollarization? It sounds like large scale, it seems unlikely in the short term.

Levi Zurbrugg: 
Yeah. And I do think it's important to think about what happens at the fringe, you know, economies are made at the marginal buyer and marginal seller. You know, it would really depend again on import versus export sectors and companies. Not all sectors are homogenous. Sectors that are large importers of goods. Let's say textiles as an easy example, that could be more challenged. You could see with de-dollarization increasing and the value of the dollar decreasing, US buyers of sneakers and t-shirts may get marginally fewer sneakers and t-shirts for their same dollar. On the other hand, exporters would be a potential beneficiary. You could think of that as you know, the US certainly has been more challenged in recent years in terms of exporting cars. But you could see that, you know, potentially turning around or potentially on-shoring some of those things that have been offshored, which is part of the movement that Monem talked about with this kind of reshoring movement. Again, I think it points to EM countries as globally being the potential beneficiaries as long as it happens on the margins and doesn't completely upset global trade just in so much as a de-dollarization will likely raise the cost of capital in the US, which makes other places look more attractive. And when you have capital moving out of the US, emerging market or other economies, especially those that have been susceptible to the dollar, are likely to see benefits.

Monem Salam: 
So tangentially to that. I mean, I think, you know, with the with this idea of dollarization and deregulation and there's also the free flow of currencies and people do trade in just currencies themselves to create supply and demand. And you can talk about like, you know, one currency weakening against another currency and those type of things. And traditionally, you know, de-dollarization speaks to the US dollar weakening relative to other currencies. The opposite has happened, if you think about it, every time there's been a reason to think that the dollar would weaken over a sustainable period of time, something else happens what causes it to go stronger.

Levi Zurbrugg: 
Yeah. I mean, that's so true, and I think speaks to the strength of it. The kind of risk off sentiment seems to drive the dollar higher, so it's almost a self-fulfilling strength that the dollar has.

Monem Salam: 
Let's just go back within 20 years, right? So you have the GFC, the great financial crisis. Where it was basically the US's fault for whatever happened and people are like, well, we're going to get away from the US dollar, the US dollar strengthens. And then you have basically a zero interest rate policy for the next 12 years and you think, well, there's much more attractive opportunities in other currencies, which is giving me a better yield. But guess what? Nothing happened to the US dollar. COVID, the same thing. And now even with higher inflation, you're basically seeing not necessarily overall strengthening of the US dollar, but I think definitely it's been fairly stable and has not gone down. Is that pretty characteristic or has it gone down?

Levi Zurbrugg: 
There was obviously a significant rush to dollar safety post, you know, Russia's invasion of Ukraine. And that kind of ebbed a little bit and we saw the dollar weaken slightly, still well above any level since really the dot com era. And recently the dollar has been taking back up again as people start to get worried about the global macro economy. The dollar the dollar gets a bid or people start to want dollars and it just speaks to the safety that it's seen for.  

Monem Salam: 
So now as an investor, if the dollar is strengthening, I would probably want to be out of emerging markets or anything that's non-dollar denominated. But if the dollar is weakening, I would want to be in another currency which is actually stronger. How do we how do we play that? How do we take advantage of the situation?

Levi Zurbrugg: 
You know, to me it all goes back to portfolio diversification. You know, you're not going to win 100% of the time. But if you have a well-diversified portfolio, you should be able to, you know, minimize your losses and risk offsettings and take advantage of gains when markets are moving up again. I guess as part of your look at diversification, it's important to compare one's portfolio to the greater universe or the total market portfolio that's out there. And so if you look at, for instance the MSCI All Country World Index, 11% of that is in emerging markets. So it's important for investors, I think, to understand where they're making their bets and where their portfolios align. If you have a weighting in emerging markets above 11% then in a way you know you're going to lose versus the global market as the dollar strengthens. If you have anything below that 11% then you'll lose if the dollar weakens. And so having that kind of goalpost and understanding how your portfolio compares to a global portfolio, I think is really important so that you at least are conscious of whether your expectations in your portfolio are aligned.

Monem Salam: 
I mean, one of the risks that you have, direct risks, and I think even investing in the US companies, there's the currency risk because they're, they're the ones importing, exporting those type of things. But I mean I, I can think of stories, for example, if you go to Turkey and you would have made an investment, you know, let's say three years ago in a certain company. And even if the company did doubled in your return, because the currency cut in half, you would end up with a basically flat portfolio.

Levi Zurbrugg: 
Yeah, that's a really important risk to consider, is relating all the returns back into if you're a US dollar investor into those dollars because what matters is your ability to purchase goods or services at home.

Monem Salam: 
So why would I want to be in the emerging markets then?

Levi Zurbrugg: 
Well we just lined up a handful of reasons why the dollar's really strong but also a handful of reasons why people are trying to de-dollarize. So one is a bit of a hedge to make sure that you could benefit if there is de-dollarization and I think as Scott pointed out, even if it's on the margins, that's marginally I think beneficial to emerging markets. Besides those more monetary-related topics, these emerging markets are also just have really attractive demographics. And regardless of what happens to a dollar, if the dollar stays strong as emerging markets integrate within the global economy, more and more, you should see a positive outperformance there or stronger growth there as well. And kind of getting back to those demographics, I think it's important to break it down and it certainly varies by country. You know, we've seen in China it's an aging population. There's been a substantial shift to the middle class. Certainly there's probably more of a shift to the middle class that could happen there. Juxtapose that to India, that's a much younger country. And it has a lot more growth into the middle class or a lot more potential for the middle class to grow. I think that that's also really important to not just look at emerging markets as one homogenous area, but as a collection of very unique economies.

Monem Salam: 
And also the other thing that is happening with emerging market countries is usually the GDPs are much faster growing than the developed world. So we might, you know, like you mentioned, we get a tape of 4.9% GDP growth rate. And that's pretty standard for an emerging market. They usually will get excited on a 7% growth rate, not a 4.9. And in fact, if China did 4.9, they'd be stressing.

Levi Zurbrugg: 
GDPs are growing much faster in those regions and I think that's also driving US companies to expand their market presence abroad. It's not necessarily a new thing. You know, Procter and Gamble, for instance, has been a global player for many, many years. But any more you see that those countries are really driving the higher regions of growth for many of these companies.

Monem Salam: 
If you had to look out in the future, let's say we're now we're sitting in the 2032 or 33, how do you see the world?

Levi Zurbrugg: 
Let me shake my crystal ball and get it out.

Monem Salam: 
Take your time.

Levi Zurbrugg: 
We'll probably have a couple more of these de-dollarization discussions along the way. And maybe countries have diversified more and have lower dollar reserves, but I don't think it will be materially lower dollar reserves. And it will still likely be the most important unit to transact in. So again, diversification makes sense for those countries. But it's not going to be the end of the dollar by any means. And, you know, for emerging markets, they've grown in fits and spurts. But given those GDP dynamics that we talked about, are much more rapid than much of the developed world. And really the way that assets are priced there, which is at a pretty sharp discount to the rest of the world, I think it's an attractive area to be certainly, at least, you know, having an equal weight position there and knowing that you're have exposure to those markets, I think is a valuable asset to have.

Monem Salam: 
Great. Thank you so much Levi for joining us today. I learned a lot. And, you know, I think there's a lot of bright future ahead of us, I think.

Levi Zurbrugg: 
Thanks, guys. Really fun talking with everyone.

Monem Salam: 
Alright, take care.

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