Steve Hanke, an influential economist and a professor of Applied Economics at Johns Hopkins University, has worked across continents and pioneered groundbreaking reforms in currency boards and dollarisation. Known for his sharp insights into both markets and geopolitics, Hanke commands nearly a million followers on X and contributes regularly to global publications such as Fortune, Forbes, National Review, and The Wall Street Journal.
In this wide-ranging conversation with Dr. Moeed Pirzada, Editor of Global Village Space, Hanke reflects on his support for Imran Khan, Trump’s tariff-driven trade war, examines the strained U.S.–India relationship under Narendra Modi, and shares a deep perspective into Pakistan’s economic dysfunction and route to its reforms. Read it here:
Date: 1st September 2025
Dr Moeed Pirzada: Professor Steve Hanke, thank you so much for finding time for me.
Professor Steve Hanke: Well, thank you for inviting me, Modi. It’s very good to be with you.
Dr. Pirzada: I have been watching you on X, where you are almost being followed by a million people. I was pleasantly surprised by your continuing support of Imran Khan in all these years. And why does he matter to you?
Prof Hanke: Khan matters because we struck up a personal friendship through a mutual friend, and also kind of a professional relationship in the sense that Khan is one of those leaders who’s fairly rare. He actually can step back and reflect on something. The reflection that was relevant for me is that he thought something was wrong with the economic policy in Pakistan. Why is Pakistan dragging along at a very slow rate of growth and going from one crisis to another? That included his own administration.
He was doing a self-evaluation and basically threw everybody else into the picture, and in the end, the establishment of Pakistan as an independent country. The evidence is pretty clear.
If you look, for example, at your neighbour and rival, India has done much better from an economic point of view than Pakistan. The question is, why is there such a gap? After a little introduction to Pakistan and Khan’s concerns about the poverty, slow growth of Pakistan’s economy, we then got into the currency reforms that I’d done and discussions about those. And always those start by fixing the currency.
One way to fix the currency is to install a currency board. A currency board is a very simple structure. The currency board issues a local currency. They issue the rupee. The rupee would be anchored or backed by an anchor currency. Let’s say, for example, the U.S. dollar. The rupee would trade at a fixed exchange rate with the U.S. dollar with no restrictions. And it would be credible because the rupee would be backed 100% with U.S. dollar reserves.
If people didn’t like their rupee, they could take it into the currency board and exchange it for U.S. dollars at the fixed exchange rate. And they would know that they would receive U.S. dollars because the rupee would be 100% backed.
Dr. Pirzada: Something like Dubai, something like the UAE?
Prof Hanke: Something actually like Hong Kong. Hong Kong has a currency board. The UAE, where I was on the financial advisory committee for six years in the UAE, has something a little bit like, but not really a currency board. The Dirham has a fixed exchange rate with the U.S. dollar, and it hasn’t changed for a long time. They have high reserves, but it doesn’t operate exactly like a currency board.
The central bank in the UAE does engage in discretionary monetary policy. They have a monetary policy and an exchange rate policy. The currency board only has an exchange rate policy, but not a monetary policy. The key thing that Khan picked up on right away is that the currency board can’t extend credit to the government. They can’t finance a fiscal deficit.
For example, what it does is put the politicians in a monetary and fiscal straitjacket. It would make the big problem in Pakistan has always been the rupee and confidence in the rupee.
Dr Pirzada: What do you think is the real strategic interest of the United States in a country like Pakistan? Is this a democracy? Is this containing China, or is this fighting terrorism?
Prof Hanke: The air bases are very close to Tehran. The next time that the U.S. attacks Iran, the bases in Pakistan will definitely be used.
Dr. Pirzada: Why are you so sure of it? We’ve been hearing the same in June as well, but nothing like that has happened.
Prof Hanke: It’s my judgment. When you’re dealing with something like this, you have to connect many dots. In other words, the Secretary of Defence of the United States didn’t tell me this. This is a matter of reading the tea leaves.
I read the tea leaves. Why do you think the field marshal, or as he’s appointed himself as field marshal, actually is a general, but the field marshal, you know who I’m talking about. Why do you think he’s been in the United States twice in the last month?
Dr. Pirzada: Are you then suspecting another clash or war between the United States and Iran, including Israel, after September or in September? Are you fearing that?
Prof Hanke: Yes. It’s not a certainty, but in my book, it would probably be over 80%, which is pretty high.
Dr. Pirzada: You have also been tweeting a lot. I’ve been seeing your comments on Iran’s currency. What kind of crisis is in Iran? How can Iran get out of this crisis?
Prof Hanke: One thing Iran could do, and by the way, I’m the only one who actually measures the inflation rate in Iran and does so literally every day. I have a technique by which I can use what they call purchasing power parity, and I have a model for looking, using purchasing power parity, that model, and I’m able to measure their inflation. And the inflation rate it’s a little over 60% per year now in Iran.
Dr. Pirzada: But coming back to Professor Hankey’s interesting assertion or assumption that Pakistan has a role to play, General Asim Munir has a role to play in the next confrontation with Iran. What kind of role will Pakistan have to play?
Prof Hanke: Just allowing the U.S. aircraft to take off from Pakistan. It’s a short flight into Iran.
Dr Pirzada: Okay.
Prof Hanke: There might be other elements that they’re talking about, but I’m talking about the big one.
Dr. Pirzada: The U.S. Air Force can also operate from Israel. It can also operate from Qatar.
Prof Hanke: There are other alternatives, but Pakistan is obviously on the A-list.
Dr. Pirzada: Let me come to a more difficult question. I have interacted a lot with the U.S. officials. Many in the Department of State, former CIA officials, and CENTCOM believe this thing, that the military, the Pakistani military, is the only ultimate power broker or an institution that can deliver for their interests. They think that democracy is not workable in Muslim societies, and they have no option but to use the military for the strategic interest of Iran, as you mentioned, from Afghanistan up to India. Do you think this model, this thinking, can be changed at some point?
Prof Hanke: It’s been a model that’s been around for a long time. Let’s put it this way that the United States is a big imperial power. As far as Pakistan is concerned, the Pakistan military, a country like Pakistan, is more or less a vassal state. What’s the interest that the U.S., the empire, has in Pakistan? Well, one is what I just gave you. If, in fact, there is another attack on Iran, it would be convenient to take planes off from airfields in Pakistan. That’s one thing.
The other thing, of course, you’ve got Afghanistan- that’s a military thing. It doesn’t have anything to do with democracy or anything like that. It’s a military thing. I’ve indicated two pressure points where the U.S. has an interest. As viewed by the leadership in the United States, certainly the Defense Department would have that interest if it were contemplating another potential attack on Tehran.
What about Afghanistan and the Taliban? We don’t know what’s behind everything, but I’m just giving you things that are, to my eye, pretty obvious. Speaking of the sharp pivot that the U.S. has apparently taken away from Delhi to Islamabad. I think that’s part of the story.
Dr. Pirzada: You mean Pakistan is being used to pressurise India into submission?
Prof Hanke: No, it’s something that the U.S. Defence Department sees as a strategic asset, shall we say.
Dr. Pirzada: I’ll come back to it. There’s another thought I want to share with you, and I want to tap your brain on it. The Pakistani American community, for the past three years, has been working very sincerely with Congress, with the Senate, to create the argument that democracy can also work in Pakistan.
Given your experience of 50-plus years of Beltway politics as an academic, you have been advising the governments, and you understand Washington’s internal temperament. What can the Pakistani American community do to impress upon Washington’s deep state that democracy can also work in Pakistan?
Prof Hanke: I think step one is to free Imran Khan. That would be a very concrete thing. And then let a free election occur that’s monitored and so forth, and let the cards fall where they may. My guess is Khan would win in a huge landslide. But that’s just my take on it.
Dr. Pirzada: What other things are needed to convince CENTCOM and, Department of State?
Prof Hanke: That would be one step in the right direction. Let’s assume Khan was released. Let’s assume there was a fair election. Let’s assume he would win. And then the question is, would he be in a position to install a currency board, for example? I think he would. And I think the U.S. would back it, by the way.
If that were the case, you would cut down on a huge amount of corruption. Because back to the capital flight, the money coming into Pakistan through this increasing mountain of debt that they’re getting into, who takes the money out the back door? It’s a political elite in the military. Where does it go? We know where it goes, by the way.
I’m talking about the last calculation I told you I made, which was almost 40%. For years, it’s been between 40% and 50% capital flight. And it’s in Dubai. They say about Dubai, it’s a sunny place where a lot of shady folks reside.
Dr. Pirzada: But from your comments on the currency board and your conversation with Imran Khan, I assume that Imran Khan was disheartened that despite his appeals to the Pakistani diasporas in North America and Europe, the money and the investment didn’t flow into Pakistan. So he was wondering why, even though diasporas love him, they didn’t invest in Pakistan.
And the currency board is the answer because their investments are not secure. Because I have come across Pakistani physicians who invested there three or four million dollars in Pakistan, which is not even worth a million dollars now, forget about making any money on it.
It’s worth like half a million dollars now, or even less than half a million dollars now. Do you think the currency board is a solution to this kind of problem?
Prof Hanke: It’s a first step. And what it means is that with regard to the currency, the currency is always the key in all these countries. And with the currency board, let’s say the U.S. dollar was the anchor currency. If that were the case, with the currency board, the rupee would just be a clone of the U.S. dollar. It would be as good as the U.S. dollar.
There are a lot of successful Pakistani expats, which is interesting because what do they do? They leave Pakistan. They’re very successful entrepreneurs, business people, and so forth. They make a lot of money, but they’re not putting the money back into Pakistan. And the main reason is the currency. But there is also another factor, and that gets into the governance aspect of things. The governance is bad.
The military runs the show, and they’re afraid. What if you make an investment in Pakistan and somehow you get paths with the military, and the military doesn’t put the thumbs down on you? You’re basically going to be out of business.
Dr. Pirzada: True. And there are no courts.
Prof Hanke: There’d be no administration of justice of any kind. You basically would be out in the cold. There are other things that go along with this, but the currency is important in the sense that stability might not be everything, but everything is nothing without stability. If you don’t have currency stability, you can’t go on and reform other things and fix other things and clean out the stable.
And let’s face it, Pakistan is enormously corrupt. That’s another factor that gets into the picture and is always associated with very slow growth.
Dr. Pirzada: First of all, I must admit that the point about the currency boards and currency stability is brilliant. That’s a pivotal point because we keep talking of the rule of law, the courts, the military, and everything. But the real thing is that the investor’s investment is not secure.
I mean, he invests $100, and he doesn’t get back $100. Instead of getting $150, he’s actually getting $50 back. I think you have a very strong point. But Pakistani elites keep on saying that corruption is everywhere. They say China and India has corruption. When you say there’s a lot of corruption in Pakistan, why is the corruption not hurting India or China?
Prof Hanke: It is. But remember, there are levels. As you increase corruption, you crush the economy more and more and more. The thing with Pakistan is that you have not only the military. The military is de facto running the country. And the military is very engaged in business. Now, that isn’t so true in some of these other countries.
Dr. Pirzada: Agreed. It’s not in India.
Prof Hanke: India is not a country of clean hands. There’s plenty of corruption in India. I’m just saying that this is another aspect of our conversations with Khan. And that is, okay, we put in a currency board. You put a straitjacket around the politicians. You stop the leakage of the capital.
Dr Pirzada: Let me understand. You said the military has a lot of investments in the business. The military thinks they’re invested in real estate, defence housing authorities, cereals, and steel. They think they are contributing to the economy, for instance, through the Frontier Works organisation. They believe their construction concerns are more efficient than the private construction companies. So why is the military’s involvement with the economy necessarily bad?
Prof Hanke: Number one, all the studies that have been done on this intervention of the military into the economy show the same thing. It slows down economic growth.
Another country, a big example that’s very similar to Pakistan, is Egypt. Egypt, the military is involved in making bread and all kinds of things, gasoline stations, and so forth and so on. What happens is that the military gets involved, and they essentially form monopolistic operations.
Competition is taken out of the system. You don’t have two or three or four or five, six private entities competing with each other to provide what consumers want at the lowest cost. That’s not the way it works.
The military gets a monopoly, and they just run whatever the industry is into the ground because they don’t really have a competitive environment that they’re operating in. They’re setting the rules of the game. They are the monopolists.
We know from economics, you said, OK, Hanke, you’re a professor of economics. Any economics textbook or empirical studies in the real world show that monopolies are very inefficient. Nationalised industries are very inefficient. If you have a nationalised steel mill, it will be much less efficient and productive than a privately owned steel mill.
Dr. Pirzada: Professor Hanke, you’ve been into economics for the past 50 years. What about China? It’s all state enterprises competing against each other.
Prof Hanke: You have to look now. You have to be a little bit careful with China to characterise it that way. What is probably the greatest free market move in practical terms in the history of man has been Deng Xiaoping.
In his December 1979 speech, he opened to privatization. China has been the biggest free market set of reforms in the history of the world. Yes, they have the government meddling with their fingers and all kinds of eyes. But they have a great deal of new private enterprise that operates on a competitive basis. That’s why in many of these areas where you have critical materials, for example, China is way ahead of everybody else. Those are, in large part, because you’ve got private enterprise.
Dr. Pirzada: Why do we keep on saying that China is an authoritarian regime? Everything is being controlled by the Chinese Communist Party. We say that because that’s part of the Western propaganda. There is an element of it. The Communist Party runs a show in broad terms. But to say they are running every little enterprise and every little shop and every little factory is a wild exaggeration. It’s not the way it works.
And what I call the three M’s- mining, metallurgy, and material science. China is way ahead of everybody. And the reason for that is that the government has put a lot of resources and a lot of money into research and development in the three M’s- mining, metallurgy, and material science. If you look at those areas at universities, and I’m speaking as somebody who watches this for a long time, because my first faculty position was a professor at the Colorado School of Mines, which is the number one mining school in the world. I’ve been watching this for over 60 years.
Dr. Pirzada: There’s a provocative question. Someone in the Pakistani military was saying to me, a very senior officer, that, look, if we are running a military dictatorship and authoritarianism in Pakistan, so is China running an authoritarianism.
We can also make progress in Pakistan. What is the essential difference between Egyptian military-run authoritarianism, Pakistani authoritarianism, Middle Eastern authoritarianism like Iraq or Saddam Hussein, or Syria, versus China? Are they different from each other?
Prof Hanke: Yes. They’re different in the sense that China has a great deal more economic freedom. I did a classic study that was published, actually, in the Cato Journal many years ago. I co-authored that with Stephen Walters. And we looked at these indices of economic freedom.
The Cato Institute has one. The Heritage Foundation has one. There are many of these things around. And you’d find a very tight relationship. As economic freedom increases and liberalisation increases, economic growth increases and per capita income increases, and health increases.
Dr. Pirzada: So next to China is India. You recently tweeted on 50 percent tariffs on India. You wrote that Trump is a master class on how to create foreign enemies. There was a Modi photo in the tweet as well. But don’t you think that Trump is actually only playing momentarily to extract concessions in the agriculture market? He wants to have access to India’s agriculture market, auto market, and dairy market. And all of this is actually going to fizzle away in the next several days to weeks.
Prof Hanke: Let’s talk about it. For one thing, in India, people have to understand that 44 percent of the labour force in India is engaged in agriculture. And the tariffs average 39 percent in India. They’re very high. And the non-tariff barriers, especially in dairy, are very high, too. Because if he starts stepping on the toes of the agricultural sector in India, he’s gonna have political problems because it’s not like the United States. In the United States, the most productive agricultural sector in the world is the United States. You know how much of the workforce?
Dr. Pirzada: Four percent?
Prof Hanke: Two percent. You have a huge difference. And by the way, that two percent happens to be very powerful in the United States because every state in the union has two U.S. senators. And so, the state I come from, my home state, is Iowa. That’s the state where the tall corn grows. It’s right in the middle of the breadbasket of the United States. We have two U.S. senators from there. Ohio has two. Indiana has two. Illinois has two. South Dakota-
Dr. Pirzada: You have a point. You have a point. It’s a powerful agricultural lobby. He has a political problem, but which is a bigger political problem? Is the tension and the fight with Trump a bigger problem, or the agricultural lobby inside India a bigger problem for Modi?
Prof Hanke: Agriculture.
Dr. Pirzada: So, are you then suggesting that Modi is not going to surrender to Donald Trump’s demands?
Prof Hanke: I haven’t talked to Modi or his foreign minister, so I don’t know.
Dr. Pirzada: You like his foreign minister. I saw that you appreciate J.S. Chai Shankar. You think he’s one of the three best foreign ministers in the world.
Prof Hanke: So, yeah, he is, by the way. Let’s talk about Trump and the tariffs. The 25% tariff that was put on India, in addition to the original 25, so the thing that moved it up to 50, were secondary sanctions, the 25%, additional add-on of 25%.
Those were secondary sanctions, penalising India because they were buying too much oil from, or they were buying oil at period discounts from, Russia. Now the European Union has just imposed secondary sanctions. Now, the European Union still buys 20% of its energy, actually 18% from Russia. The European Union is scolding India for, and the US is scolding India for buying crude oil from Russia, when in fact, the European Union is getting 18% of its energy, its gas, from Russia. So this is just hypocrisy on steroids.
Dr. Pirzada: So, okay, this is hypocrisy and steroids, but what is the strategic goal here? The goal is the submission of India to the US demand. The goal is to punish Russia. What are the goals here?
Prof Hanke: The alleged goal is to punish Russia. But as Ronald Reagan’s former economic advisor and a free market economist, I’m against all sanctions. I’m against all tariffs, all quotas, all non-tariff barriers, all interference with trade. The reason for that let’s say that you’re selling something to Hanke. And that means what? We have a transaction.
And let’s just assume you’re, for the time being, let’s drop you into Pakistan. So you’re producing something in Pakistan, you’re selling it to me. You benefit from that, or you wouldn’t have sold it to me at the price and on the terms we’ve agreed to. I, the buyer, am benefiting, or I would have bought it from you. And now what does the tariff do? Tariff interferes with those gains of trade and extract some of them and put them into the US treasury if it’s a US tariff. That’s not good.
And eventually it will slow trade because there’ll be some people exchanging with each other, in which the gains from trade aren’t as great as a tariff. So that trade stops.
Dr. Pirzada: I saw your comments on it. And I’ve seen most of them, apart from Peter Navarro, who you know very well, the economist, apart from people like Peter Navarro, almost everyone is condemning Trump. But the Trump team has a logic. They think that by putting tariffs and duties, they can jumpstart the stagnant American manufacturing base. As an economist, don’t you agree with that?
Prof Hanke: No.
Dr. Pirzada: Why?
Prof Hanke: I don’t agree with it because all the studies have shown that this doesn’t work. In addition to being a free market economist, I’m a realist, and I like to look at the data and let the data talk. And the data show that this just doesn’t work. And to the extent that you’re saving any manufacturing jobs, the cost of saving them is enormous.
It would be cheaper to let an enterprise go bankrupt and pay off all the workers forever with huge pensions than it is to set up barriers to trade and tariffs and so forth that actually would keep that inefficient enterprise in business. You’re protecting it, supposedly.
In a way, you’re protecting those jobs, but to do so, the cost is tremendous. It’s way greater than the wages received by those protected people. One reason the agricultural sector is so inefficient in India, and one reason that 44% of the labour force in India is employed in agriculture, is that it’s protected.
In India, you have to understand the history of the thing. If you go back to independence, who was in charge? Well, you had a bunch of Brahmins. The Brahmins were in charge. The Brahmins were all educated in London. They were all socialist.
They injected a lot of socialist language into the Indian constitution. Now, since about the mid-1990s, some of those policies have been kind of reversed, and things have been liberalised. Why is India now the fastest-growing economy in the world? It’s because of more liberalisation. It’s a little bit like what Deng did in 1979 in China. Why did China boom? Because the chains were taken off of private enterprise.
It was legal to have a private enterprise. Private property was legal in China. To some extent, you have the same kind of scenario and picture working its way out in India. India has become much, much more liberal and shall we say free market.
Dr. Pirzada: With this perspective, will you then advise Narendra Modi to come down and let the agricultural sector suffer and accept Trump’s terms and conditions?
Prof Hanke: I’ve suggested that Modi ignore the tariffs because I think the tariffs will eventually go the way of the dodo bird. They don’t work, and it will be shown through time that they’re not working. I think we will eventually get back on the course that we’ve been on for decades. And that’s lowering things, lowering tariffs. The effective tariff rate in the United States was only about 2%.
Now the average effective tariff with these Trump tariffs is up a little over 18%, which is very close to the level that the infamous smooth holly tariffs in the 1930s that drove a stake in the heart of the US economy in the Great Depression, that was one of the big factors in the Great Depression was the tariffs, the smooth holly tariffs, which were up over 19%.
Dr. Pirzada: I was just thinking, have you ever spoken with the Indian decision makers and stakeholders as to what they think about all this?
Prof Hanke: I haven’t spoken to any about it. When you say all of this, I assume you mean the Trump tariffs and what’s contemporarily going on right now, and the answer to that.
Dr Pirzada: The interaction between Russia, China, and the United States.
Prof Hanke: I haven’t spoken to anyone recently about that. However, in the past, Mukesh Ambani and I were colleagues because we were both board members of the Kuwait National Bank together and served together on that. I do know him, and Reliant,his company is the main purchaser of Russian oil.
Dr. Pirzada: 100%.
Prof Hanke: And my conclusion about that is that Mukesh obviously has a good head on his shoulders. He’s fast on his feet, and he will land squirrelly on his feet.
Dr. Pirzada: And what does that mean?
Prof Hanke: So I’m not worried about the big refinery being somehow cut off from Russian crude.
Dr. Pirzada: Do you think the Ambanis will not come under Trump’s pressure? They’re going to continue what they’re doing?
Prof Hanke: As I say, he is fast on his feet, and he will land on his feet. Exactly how many somersaults he has to turn before he lands on his feet, I don’t know. But he has really been a first-rate individual and certainly was a first-rate colleague when we were on the board at the National Bank of Kuwait together.
Dr. Pirzada: Professor Hanke, I was traveling coast to coast in a car for 20 days from Washington to LA. I stopped everywhere, and I passed through the Republican mega heartland. I spoke to several people. They think that the world has cheated the United States.
The common Trump supporter thinks the world has been cheating the United States and has been benefiting China, India, Vietnam, and Cambodia. Everybody has been benefiting at the expense of the Americans. And once the tariffs are there, then American industry will come back. Chinese and Indian things will become expensive. Many things will be manufactured in the U.S. You don’t think this is going to happen, like television screens and iPads?
Prof Hanke: No, I agree with your observation. And that is why a lot of people think that foreigners, as Trump likes to say, screwed Americans. You know, they threw all kinds of nefarious activities, manipulating exchange rates, quotas, tariffs, non-tariff barriers, all these things. And that the enemy is the foreigner.
No, the creator of the trade deficit. And that’s why Trump identifies the foreigner as being the enemy because of the trade deficit. And he thinks the trade deficit is created by these foreigners, and the trade deficit is bad.
No, that’s not correct. The trade deficit is created by Americans because Americans spend more than they produce. The only way that gap can be filled is by importing more than we export, running a trade deficit. And we’ve done that every year since 1974. And we’ve been able to finance it very easily.
Dr. Pirzada: By printing dollars. These imports have been financed by printing dollars.
Prof Hanke: No, it’s not by printing dollars. That’s not how it’s financed. It’s financed by importing capital. And everyone wants to invest in the United States and US dollar-denominated assets. They don’t wanna invest in Pakistan with rupee-denominated assets. They wanna invest in the good old USA.
So the capital comes in, and we either sell bonds or we sell equities to foreigners. And they give us money, and we give them a piece of paper, a bond certificate. We don’t even give them a piece of paper anymore. Everything is digitised. So they get an interest in American assets.
Dr. Pirzada: If I play devil’s advocate, the Chinese argument is that they produce solid, manufactured, real goods. Americans are only paying them in dollars or in bonds. They are actually producing substantive things like iPads, laptops, iPhones, tyres, chemicals, everything. And Americans are printing dollars because of the geo-strategic control.
Prof Hanke: Well, they’re not really printing dollars. Dollars are exchanged, but they’re not running the printing press to import this capital. The capital wants to come in and buy dollars. Everyone wants to buy dollars. If you go to Pakistan, I’m sure you’d have no problem finding dollars all over the place.
Dr. Pirzada: Despite all restrictions, true. Everyone has dollars.
Prof Hanke: Everyone’s got greenbacks. About 70% of all the greenbacks that are actually printed, you say printing greenbacks, printing dollars, about 70% of those are actually held by foreigners offshore in Pakistan, Argentina.
Dr. Pirzada: Okay, so this actually brings us to Putin’s attempts since 2022 to challenge the dollar through the BRICS. In recent weeks, there have been rumours of, even pictures, I’ve seen pictures and samples of the BRICS currency. Do you think the dollar is under threat because of China, Russia, and India?
Prof Hanke: I wouldn’t want to put it in the threat. Number one, let’s talk about BRICS and get rid of that in a hurry. It’s a talk shop. They talk a lot of talk, but they have no plan for currency that we know about anyway. They talk about it.
Dr. Pirzada: They printed the samples. The samples were shown to Putin.
Prof Hanke: Oh, yeah, that’s easy to do. You can go down to a print shop and have somebody print up a dollar, and give it to your friends for their birthdays. So that’s for show. That’s like the talk shop thing. They talk, they show, but concretely, they haven’t done anything, and they haven’t even produced a plan to do anything.
Dr. Pirzada: Why is it difficult? They don’t want to do it?
Prof Hanke: The big problem with BRICS, it is so far really a talk shop. For example, they talk about, they want to establishing a commodity market, BRICS, but they can’t even agree on the city in which it would be located or the country it would be located in.
There’s no concrete plan. If you ask, well, what’s the modus operandi for governance? What are the rules going to be? Well, they don’t have any, but they talk about it. They threaten to have it.
Dr.Pirzada: Why can’t they come together?
Prof Hanke: Well, that’s a good question. I don’t know the answer to that. If they could do it, I suppose they would do it. They keep saying they want to do it, but so far they haven’t been able to deliver. However, I do think that the Trump-Tariff War will solidify the South and the BRICS.
The sanctions that the U.S. has put on countries in which they’ve weaponized the U.S. dollar and the U.S. dollar financial system, like SWIFT, make the dollar more vulnerable, and people talk about it. They try to figure out ways to find a substitute, find a challenger to the U.S. dollar. The big problem is- it’s hard to challenge the king, and there’s always been a king. For 2,500 years, there’s always been a currency that’s dominated. And there’ve only been 14.
Dr. Pirzada: Seriously?
Prof Hanke: 2,500 years, there’s always been one dominant currency in the world.
Dr Pirzada: Are you starting from Roman Dinar?
Prof Hanke: Yes. You go back, we’re going before the birth of Christ.
Dr Pirzada: Roman Dinar?
Prof Hanke: Yes, I have the list of all 14.
Dr. Pirzada: So what replaced Roman Dinar? The British pound, or was there something in between? Oh, off the top of my head, I can’t remember. The average life of these currencies is 14, which is about 300 years.
Dr. Pirzada: The dollar was created around 1773, right?
Prof Hanke: The dollar became king by replacing the British pound sterling, and that was starting around the First World War, but it really was in the interwar years, the US dollar became dominant, and the pound sterling went by the wayside, and that was really completed after World War II. It started at big time in World War I, in the interwar period, and by the Second World War, Britain was essentially bankrupt, and the colonies, of course, were dismantled.
Dr Pirzada: But Professor Hankey, I mean, are you starting the dollar’s journey from 1773, when it was first published, created, or from the Second World War, First World War?
Prof Hanke: I’m talking about the dollar as a dominant international currency that occurred during the interwar period, between the First World War and the Second.
Dr. Pirzada: Let’s say about 1930, after the great depression?
Prof Hanke: Yes. It’s dominated. So it’s not even a reserve currency. It’s a currency used in all commodities are priced in dollars.
Dr. Pirzada: From your calculation, the dollar has at least 100 another 100 years to go?
Prof Hanke: No. I didn’t say that. I just said that the average is, you know, 300 years around 300 years. The point is that it takes a lot for a challenger to knock the king off the throne. That’s my point. All this talk about the dollar disappearing any day soon is just not true. The Chinese yuan could be a potential challenger, for example, but it’s very weak because China has capital controls. There’s no way a currency can really challenge the US dollar if the currency has capital controls.
Dr. Pirzada: I saw your comment that India is not interested in challenging or undermining the dollar. Do you think the Chinese are interested in undermining it?
Prof Hanke: They might be. I wouldn’t say “undermining”—the better word is “replacing.” The Chinese yuan has made headlines—for example, bilateral trade agreements with Brazil or others, using the yuan as a settlement currency for settlement. But that’s peanuts. Those are small footnotes in the picture. The dollar dominates everything.
Dr. Pirzada: Do you think—from a macroeconomic point of view—the Chinese economy is stalling and slowing down, or is China just going ahead?
Prof Hanke: China is definitely slowing down. They had one big crisis: the real estate bubble, which popped. Now they’re in deflation. The inflation rate in China is essentially zero. Why? Because the money supply is growing at a slower rate than Hanky’s “golden growth rate” of about 10% per year. It’s a little over 8%. It’s been growing very slowly.
Why is it growing slowly? Because most of the money supply is produced by commercial banks, and those banks aren’t making many loans in China. The reason is weak demand. After the real estate bubble, enterprises are pulling back, trying to deleverage and reduce the amount of debt they have. They got overextended. Now China is witnessing what we call a “balance sheet recession.” Enterprises are shrinking their debt, which means weak demand for credit. With weak demand, banks don’t supply much credit, so the money supply isn’t growing very fast. And the money supply is really the fuel for the economy everywhere. All of this is internal to the Chinese economy.
Dr. Pirzada: Do you think Trump’s policies of confronting China are going to affect China? Will Trump succeed in restraining it?
Prof Hanke: No, I don’t think so. Trump’s trade war with China started in his first administration. Then Biden accelerated it—Biden became much more aggressive than Trump. In this second term, Trump began aggressively again, but now he’s backing off. The reason he’s backing off is what I mentioned earlier: China controls critical materials. As Deng Xiaoping once said, “The Middle East has oil, we have rare earths.” China has rare earths. People don’t realize how powerful this is. These critical materials give China a big advantage. They could wreck the US economy in six to nine months,
Dr. Pirzada: Simply through rare earth metals.
Prof Hanke: Rare earth magnets are used in all kinds of high-tech products that depend on those inputs, and not just rare earths—there are other critical materials too.
Dr. Pirzada: But did you hear that the Pakistani military is offering Trump rare earth metals, and Trump is eager to get rare earth metals them Pakistan?
Prof Hanke: Yes, that’s a bit of a joke, but seriously—they’ve talked about this in Ukraine too. But even if rare earths exist in Pakistan, they haven’t been developed. It’s not like you can flip a switch and suddenly rare earths are flowing. First, you’d have to find them, then develop the mines. And even if you did that, where would you get them processed? There’s only one place: China.
Dr. Pirzada: Why can’t the United States and India, or the US and Japan, create a processing facility?
Prof Hanke: Because they don’t have the know-how. China does. I call it the “three M’s”—mining, metallurgy, and material science. Chinese universities rank very highly in these three fields. In other fields, they rank low, but in the three M’s, they are strong.
Dr. Pirzada: So are you suggesting that the United States simply doesn’t have the technical know-how for processing and developing them?
Prof Hanke: Yes, that’s correct.
Dr. Pirzada: So, have Americans been sleeping for the past 20 years?
Prof Hanke: Yes. The Bureau of Mines disappeared—it doesn’t exist anymore. So, there is a knowledge gap, and that knowledge is primarily in China.
Dr. Pirzada: Very interesting. Let me tell you something. I raised a discussion with two American neuropsychiatrists, asking them: Can China be as creative and innovative as the United States? They said creativity requires freedom of thought, and since China is an authoritarian system without freedom of thought, in the end, China cannot match the US. But at the same time, China is making innovations everywhere. How do we reconcile this contradiction?
Prof Hanke: Look at the percentage of young people in China who get engineering degrees compared to the US. They produce a lot of engineers—people who can “do things.” Engineers can build and create. Narratives are never as simple as we put them. You can look at China, and you say, well, how can they do this, or an authoritarian system
Yes, China is authoritarian, but there are lots of pockets with quite a bit of freedom. Remember Deng Xiaoping. Chairman Xi has turned the clock back somewhat, but Deng opened China up. It’s a huge place with a lot of smart people. Once it opened up, instead of having bad ideas in their heads, they had good ideas. And the Chinese are individually very competitive.
Dr. Pirzada: Coming back to India, which is of great interest. Do you think there will be a truce in the next days or weeks between Trump and Modi, or will both sides keep standing where they are?
Prof Hanke: If you say the next few days—the answer is no truce.
Dr. Pirzada: Next few weeks?
Prof Hanke: No truce.
Dr. Pirzada: Next few months?
Prof Hanke: In the next few months, we’ll see how it plays out. It depends. Remember, Trump wages war on Modi, shakes his hand in the US, and then stabs him in the back with tariffs. It doesn’t depend only on Trump; it takes two to tango. It also depends on what Modi does. Where is Modi going to be this weekend? In Beijing. Who else will be there?
Dr. Pirzada: Putin.
Prof Hanke: Also, the leader of North Korea. So, if Russia, China, and India—all being attacked by the United States—come together, the question is how do they defend themselves? Do they form some kind of counterattack? It’s a game-theoretic problem.
Dr. Pirzada: But let me understand. Trump’s people, like Peter Navarro, think India has not been honest. They say there’s been no quid pro quo. The US gave India legitimacy in the global order, H1B visas, and access to everything, but India hasn’t given anything back. If I ask you provocatively, what is India giving the US in return?
Prof Hanke: If you listen to Navarro, they’re giving the US a big headache. There’s history here. For example, Senator Daniel Patrick Moynihan was the ambassador to India. If you read his letters and memoirs, he’s scathing about dealing with Indians. He couldn’t stand to be in the same room with Indira Gandhi. Why? Well, the Brahmans are above the US ambassador. Do you have the picture? US ambassador, a brilliant man by the way and a friend, somebody someone I’ I’ve had lunch in the Senate dining room with before over half a bottle of wine. Moynihan had problems dealing with that kind of ‘We are superior. You’re just a person from the United States,’ attitude. And this was a Harvard professor, a US senator, a heavyweight.
Dr. Pirzada: Henry Kissinger wrote similarly in his memoirs about dealing with Indira Gandhi. Many Indians have a superiority complex. But Modi is not like that—he’s very humble.
Prof Hanke: Yes, you’re correct. Yes. But if you walk into a room and all of a sudden you’re dealing with a lot of people and they make you feel like you’re inferior, that doesn’t leave a good taste in your mouth. And I think there’s probably some of this involved. And I think what Navaro is saying there, probably is an element of that, otherwise he wouldn’t have said.
Dr. Pirzada: Navarro also argues: look at Pakistan. It fought America’s wars in Afghanistan. India has never been willing to fight for the US. India won’t fight China, won’t distance itself from Russia. So what is India really going to do for the US? But Navaro argues that India is not ready to fight China. India is not ready to distance itself from Russia. What is India going to do for the United States?
Prof Hanke: Well, what are you asking the Indians to do is to decouple from Russia. But that’s hard to do because India, as you know, has had a long relationship with Russia. You have to set the table before you start talking before dinner. You have to set the table properly. And and and and so India, what are we talking about? We’re talking about decoupling from Russia. This is not going to happen, among other things. Just from a military point of view, a lot of the military equipment in India comes from where? Russia. So how did they get ammunition and spare parts and so forth? They get them from Russia. So the United States is asking them to basically cut all that off.
Dr. Pirzada: But India has another characteristic historically. It’s not going to go radical in any direction. So Narendra Modi is not attending the military parade, but the Pakistani prime minister is attending the military parade after the SEO summit. Right? So whereas China and Russia may like to undermine the dollar or replace the dollar but India is not going to come up fighting against the US dollar. So India is very balanced in that respect. Do you expect that Trump’s shenanigans are going to push India more firmly with China and Russia? I mean, historically, India hasn’t done any such thing.
Prof Hanke: I think India’s position will not fundamentally change from where it’s been. You it’s it’s like a big ship. It’s a little bit hard to turn a big ship around in a hurry. And I don’t think that the ship will turn around very quickly. But I do think interestingly enough that the big three, who by the way have the three best foreign ministers I think on the planet, Russia, China, and India, so they not only have strong leaders but they also have the best foreign ministers by far. And it happens, where did the foreign minister of India cut his teeth when he was a young diplomat? In Moscow.
Dr. Pirzada: Agreed.
Prof Hanke: The grouping of those three will become tighter to the fact that these tariffs are a weapon of war, and certainly, secondary sanctions are definitely a weapon of war, a commercial weapon of war.
Dr. Pirzada: Professor Hanke, do you think Donald Trump and his team are so naive that they’re pushing India, Russia, and China into one corner? Don’t they see the implications that I and you can see?
Prof Hanke: Apparently not. That’s the one great thing about free trade. If you allow everybody to be free to make voluntary exchanges with each other and you don’t get in the way, I think everybody’s a lot happier.
Dr. Pirzada: Coming to the domestic thing this week, Trump has been on a firing spree. He’s meddling with the Federal Reserve, which has never happened. He fired one of his own nominees in the center for disease control in Atlanta on a vaccination issue or something. All this and then calling the National Guard in DC, thinking of sending them to Chicago. All this tinkering with the institutional landscape in the United States. What will be the implications of that?
Prof Hanke: Well, we don’t exactly know. This gets back to your prior question, and that is, you never know what the unintended consequences of an act are going to be. You can predict that there will be unintended consequences of sanctions, for example. I know because there’s a huge scholarly literature on sanctions that sanctions never work, by the way. They always backfire and create lots of unintended consequences. They don’t achieve their objective because once you go after something or somebody or a regime with sanctions, there’s a rally around the flag effect. So Modi has become more popular because of Trump’s war. You see, Xi becomes more popular. Putin is actually more popular.
The most sanctioned country in the world is Russia by far. Russia has many more sanctions than Iran. Many more. Iran isn’t even close. There’s no one close to Russia in terms of the sanctions that have been imposed on it at present. But they never work. They rarely work.
There are few cases where they’ve been effective. Why do you think we have communist Cuba right next door to us, next door to Florida? It’s been a long time. Cuba’s been sanctioned ever since Castro’s revolution. Sanctioned. And there’s a huge rally around the flag effect in Cuba that is still communist. Why do you think Maduro in Venezuela has ruined the economy, created two hyperinflations in 11 years, and he’s still in power because of the rally around the fight? He has a base, and it rallies around him because of the sanctions that the US and others have put on Venezuela. So they’re counterproductive.
They’re basically for losers. sanctions and tariffs. We know the same way. You can hardly find an economist who would advocate tariffs in any place in the world. Whether they’re right, left, or centered doesn’t make any difference. And why do they say that? Because they know there are gains from trade. And the tariffs or quotas, or non-tariff barriers, take those gains from trade away. They pull them out of the system. They’re bad for economies.
Dr. Pirzada: So if I ask you to sum it up by giving one message to all those people who feel they’re at the receiving end of the American empire, whether they’re in India or in China or in Pakistan. What would be your message to them?
Prof Hanke: My message is something from Napoleon. Never, never interfere with an enemy in the process of destroying himself.
Dr. Pirzada: Thank you, Professor Steve Hanke. Thank you.
Prof Hanke: Well, thank you. It’s been great to be with you. Enjoyed our conversation.
Dr. Pirzada: Thank you so much!