hello, everybody. a very warm welcome to talking business weekly with me, aaron hazelhurst. let's go and take a look at what's on the show. the great dollar dilemma. the us currency is at a 20—year high, but why is it causing problems for the rest of the world? it might be good news for americans getting more bang for their buck, but is the strength of the world's most reliable currency making the rest of us poorer?

this currency expert from one of the world's biggest banks tells me how it's a story of both american strength and the weakness of other economies. so how much stronger could the dollar get? i'm going to ask this man right here, former us treasury secretary larry summers, if an international deal will be needed to curb its rise. also on the show, helping beat those queues at the airport. i'm going to be speaking to the big boss of air transport data giant sita about the tech solutions driving the future of seamless travel. wherever you'rejoining me from around the world, once again, a big hello and a warm welcome to the show. here's a quote. "the dollar is our currency, but it's your problem." that's what the then—us

treasury secretaryjohn connally famously told some of his european counterparts back in 1971. and 50 years on, it seems as true as ever. us policymakers, they're trying to clamp down on the cost of living crisis and the impact of that? it's being felt all over the world. politicians and central bankers everywhere are fretting about the soaring strength of the mighty us currency, which of course is at the heart of global trade and business. the dollar has grown in value by 14% this year against a basket of leading global currencies and is now at a 20—year high. as a result, even currencies that are normally attractive to investors, such as the british pound and the japanese yen, they've fallen in value and only a handful, such as the brazilian rial, —— real have risen against the dollar. one major reason is that returns on investment in the us dollar have grown

because the main us interest rate has gone up. it's gone up from rock bottom at the start of the year to a range of 3% to 3.75%. the point of that is to suck money out of the economy because higher energy and food costs have driven inflation to a ao—year high of more than 8% in the us. and that's the priority for the us central bank, which is expected to push interest rates up even further this year. my colleagues and i are strongly committed to bringing inflation back down to our 2% goal. we have both the tools we need and the resolve that it will take to restore price stability on behalf of american families and businesses. even though the us central bank is independent of government, if it's successful in tackling the cost of living, it will help president biden when it comes to november's midterm elections in the world's biggest and most influential economy. but for politicians in other parts of the world, that strong us dollar is causing a major headache. it's one of the reasons un agencies and other international economic institutions are downgrading their forecasts for economic growth.

the world is facing falling real wages, fiscal tightening, financial turbulence and insufficient coordination. in this context, excessive monetary tightening could bring a period of stagnation and economic instability for many developing countries and no doubt also for some developed ones. so just how does monetary tightening for the us dollar, which is when interest rates go up, make life more difficult for businesses in the rest of the world? here's what it means for a manufacturing business in lincolnshire, in the north—east of england. as most of the products we use are kind of global products, so plastics and aluminium, etc, they're all priced in the dollar. so any drop in the pound directly increases our cost proportionately. so over the last 20, 25 years that we've been running, our purchasing power for our main components has halved, making our products twice as expensive.

so the strength of the dollar is making life harderfor many outside of the united states. but how much of that is to do with the central bank there, the federal reserve, raising interest rates? and how much is it to do with the struggles of other economies dealing with the covid pandemic and now the war in ukraine? well, london, it's one of the world's major currency trading hubs. so i've been to the offices of the us investment banking giantjp morgan to catch up with its co—head of currency strategies. meera chandan, a real pleasure having you on my show. thanks so much forjoining me. and mera, i'vejust shown our viewers an explainer of why the dollar is so high. but what does it mean for the global economy, a very strong dollar? a strong dollar does lead to several pressure points. i mean, firstly, let's talk about what it means for the us. for the us, a stronger dollar means firstly slower growth and on the margin, higher inflation. now clearly, this is what the fed is going for as well. i mean, this is a function of, the dollar is a function in part of what the fed is doing. and the fed's main policy

objective right now is to lower inflation in the us. and if it comes at a cost, that is, slower growth, well, they're willing to incur that cost and they've told us that. outside the us, i think that's where there is greater pain because there are countries, obviously, the flipside of a strong dollar is weaker currencies for the rest of the world. and there, the policymakers are struggling more because obviously everybody is trying to get inflation to be lower, and if their currencies are weakening, that actually puts an upward pressure on inflation. if countries are feeling the pain, suffering from a strong dollar, i was going to ask you, if anything they could do about it? they could either raise interest rates, so that attracts foreign capital flows but obviously, that comes at a cost and in an environment in which global growth is weakening, the other part of that policy could be

for them to actually come into the open market and say, we have all these foreign currencies that are sitting on our reserves, we are basically going to be selling and that includes the dollar so they are going to sell the dollar and buy their own currency off the back of it. that is obviously currency intervention. but we know it affects markets, very liquid markets, you know, with a lot of flow going through. so any individual currency is usually unable to reverse the tide on the direction of the way that their currencies are going. so usually, at best, what we have seen is that currency intervention can slow down some of these trends but they are not able to reverse them, particularly when these trends are being driven for fundamental reasons. how much of the dollar strength can be attributed to the policies and the economics within the us, versus i guess just weaker economies outside? you know, i think that's a great question. what the dollar is doing is a function of what's going on within the us and outside the us as well. we tend to look at it

through the lens of growth and when we run the numbers, what we find is that it's roughly a 50/50 split between us—specific factors and the rest of the world. but on the margin, i would say what's going on outside the us is probably even more important. so maybe it's more like a 40—60 split because... you mean weakness outside? weakness outside. because if you think about the growth shock that europe has had, for instance, in particular, and i really want to point to europe here, it's been because of an unprecedented energy crisis. it was the invasion, the ukraine invasion by russia. and that has basically pushed europe or is pushing europe into recession. and so the growth shock in overall size terms is just much larger for that region. so in that sense, on the margin, it tilts really more towards what's going on outside the us. and if we run the numbers, we basically find that the dollar strength so far is completely explained by these growth divergences. so it's not like the dollar is overvalued here relative to fundamentals.

it seems pretty much in line, even even though it's at a 50—year high. so i'm just thinking here, just briefly, from what you just said, so the dollar, in some terms, the value of the dollar is actually benefiting from the war in ukraine? absolutely, absolutely, it is, because... you know, there is a huge difference in the energy dependence stories between the us and europe. the us has spent more than a decade becoming energy independent and actually net, is now leaning towards becoming over time like a net energy exporter, whereas europe imports the bulk of its energy and its major partner on that front was russia. so it's absolutely benefit, you know, this is actually, dollar strength has been a function of this invasion, absolutely. when we've got global currencies that are important currencies — right here, the british pound,

the japanese yen, china's yuan — and they're all struggling against the dollar, does that suggest that we need to see a coordinated action in some ways to, i guess, bring down the value of the dollar? at some point, that could come into play, some sort of coordinated policy action. but i think it's premature right now to expect it, primarily because the strong dollar at the moment is a problem for other central banks, not for the fed. for the fed, it's a desired policy outcome. and if the fed were truly concerned about a stronger dollar, higher interest rates, tightening monetary conditions and financial conditions in the us, all they have to do is stop hiking. and if things get really dire and they're really concerned about a deep recession, potentially cut rates. well, on that cheery note, meera, it has been a real pleasure having you on the show. thanks very much for your input and i'll talk to you soon.

0k, thank you for having me. just how much concern should us politicians and central bankers have about the impact of the strong dollar on the rest of the world? well, i've been speaking to someone who has experience of both sides of that coin as both a former us treasury secretary and a former chief economist at the world bank. larry summers, a real pleasure having you on my show. thanks for your time. and larry, let's start with this, because the strength of the dollar, it's being driven by the us federal reserve, america's central bank's determination to crush inflation, which we know is at a ao—year high. those rising prices, they've got to be bad news politically for president biden. but is the federal reserve right, larry, to be so single—minded in its actions? i think the fed is right. i certainly share the view that unemployment is immensely costly. and certainly, i would rather see prices be a little

higher than see extra people be unemployed. but that, unfortunately, is not the question. the lesson of history is that when you fail to address inflation, it ends up becoming more entrenched. it ends up being more difficult to address and the total of unemployment over time ends up being higher. failing to act is like failing to stop an addiction. it avoids pain in the short run, but it raises the total level of pain over time. that is why i think it is very important that the fed be prepared to act. the imf and the world bank have just been meeting. a big concern is the debt levels of poorer countries who are seeing their interest payments shoot up because of the stronger dollar. larry, how big of a problem

is that for the global economy? i think it's a critical problem for the african continent. it's a critical problem for a number of other countries. and it's a problem that could at any moment start to cascade, as it did during the 1980s. and that's why i hope there are going to be elements of strong cooperation that are going to come out of these meetings. but i think the right focus for the cooperation is on the avoidance of financial distress, on the provision of medium—term finance, so that the convergence of developing countries can continue. and not so much on any issue of trying to manipulate currencies which i think is likely to be unsuccessful. and, larry, if we look at these headline inflation numbers

in the us, the eurozone and the uk, and many other places, of course, energy costs which are linked to the war in ukraine are really the number one contributor. to what degree, i'm wondering, larry, is the us immune because it is the world's biggest gas and oil producer? i think that it's less because the us is its own oil producer than it is because our situation with respect to natural gas is very different, given our capacities for domestic production, and given that in the case of oil, the price more or less gets to the same place all over the world. that's very far from true for natural gas, and it's very far from true for electricity. and europe is paying a very large price for having allowed itself to be completely dependent on the nord stream pipeline.

was europe wrong in putting all its eggs in one basket? i think with the benefit of hindsight, it certainly was wrong and i think at the time, there were many observers who felt that the policies that europe was pursuing were shortsighted. i think that is why president biden has done the right thing in his approach to us policy, to emphasise resilience. we are going to need to be paying attention particularly i think in these years to resilience with respect to semiconductors. as we know, larry, you've been

us treasury secretary and whilst the central bank, the federal reserve, is independent of government, i'm wondering, when interest rates are going up, how much concern is given by policymakers in washington on the impact that has on the rest of the world? look, responsible officials are always trying to forecast what's going to happen in the global economy. they're always trying to provide for the smoothest possible path of economic growth. but certainly during my time in government, it wasn't our practice to lean on the central bank, and i would be very disappointed if that were to change at the current moment. i think one of the things that probably contributed to our current difficulties was the rather savage attacks that president trump launched on the federal reserve. larry, doesn't a strong dollar mean possibly less foreign investment into america? because simply, i mean, it'sjust more expensive to do business there. i think that it's better to think about it actually the other way. precisely because the us is such an attractive investment location, because so many people want to move their money into the united states, because the united states is a kind of safe haven in troubled times, large amounts of money move in, and that's why the dollar is so strong.

to what degree, larry, would you say that the inflation that we are seeing and the interest rate rises that go with it are the result of a failure to tackle the causes rather than the symptoms of the global financial crisis of 2008? i don't think that is... i don't think that actually is the essence of it. i think the essence of it is the very, very large and probably excessive levels of stimulus that were provided for too long after covid in the united states, which i think set off very substantial excessive demand and led to excessive inflation. and larry, let me end on this. is there a danger that if the us keeps the dollar too strong and tips other parts of the world into recession, that that's going to come back to bite? sure, that's got

to be a concern. but i actually think it's a lesser concern than if the united states fails to contain inflation and we find ourselves in a situation like the 19705 of stagflation, facing no real alternative but a very, very serious recession. well, on that note, larry summers, a real pleasure having you on my show. thanks for your time and i'll check in with you soon. thank you. you know, the aviation industry, it's big business for the global economy. but as we all know, it was brought to its knees during the pandemic. but now it's been bouncing back and looking to use new technology to make for a smoother, safer travelling experience. the world's leading specialist in air transport communications and it is called sita. it's a multi—billion dollar company owned by carriers with customers across the globe. in fact, this company covers around 90% of the world's airline business. and i've been catching

up with its big boss. david lavorel, a real pleasure having you on my show. thanks forjoining me and david, we'll get into the details shortly. but let's start with this, just for the uninitiated, just explain in a nutshell, what does sita do? so sita, we are an it company and we are in essence the invisible hand, technology hands, that support the air transport. so when you check in, when you board an aircraft, when you go through border control, we are here and powering the technology behind the industry. all those areas, from border, passenger, operations? all those areas, present in 1,000 airports in the world, operating in 200 countries and territories. wow, 0k. so we got that out of the way, we know what you do. but let's just break this down. let's talk about this, i mean, we know what happened very

sadly to the airline aviation industry during the pandemic, but a real big bounceback, i mean, infact, so much so this year that we know many airlines and airports just couldn't cope with the huge demand. but this recovery, i'm just wondering, how much is technology playing a part in the recovery? the big objective for us is to ensure that technology remains invisible and not the bottleneck for the recovery. we see a big rebound of the industry. we believe it is sustained. the technology has needed to be there like it was for the management of covid in other industry, and we need to continue to ensure it delivers the benefits and the smoothness and the seamless travel experience that we all want to enjoy. give me an example of how technology is supporting the recovery. one of the technology that we are bringing is ensuring that your face becomes your boarding pass. so biometrics enabling you to travel through the airport in a seamless manner

and ensuring that the infrastructure recognises you is a big way in which industry... the technology can help. david, do you think paper id isjust going to be a thing of the past? i am convinced that there will not be one single way of dealing with id. so we are convinced that by 2025, 50% of the passengers will probably enjoy a form of digital identity. but we also know that there are not going to be one scheme of digital identity. it is going to be multi—one, multiple ones based on different countries and some countries continuing let's turn to sustainability, because you work for, you're working within an industry that is very often targeted when it comes to environmental issues. but i'm fascinated by this.

you're using ai, artificial intelligence, and that technology to help airlines, is this correct, to burn less fuel when those birds are flying? how does that work? making an impact today on sustainability is essential for the industry. a very important area that we can target today is reducing the consumption of fuel. today, we have applications, i have data scientists in the organisation who are mining the data generated by aircraft to make recommendations to pilots on how to optimise their flight routes. in practice, that can deliver $1 million of fuel savings every 20 tails, every 20 aircraft, and save 5,000 tonnes of c02.

just briefly, we're in this midst of a cost of living crisis, at a time when, as we've said, the airline industry is really bouncing back. do you think the inflation picture, the cost of living crisis is going to dent demand? we are not seeing that yet. what we are seeing, conversely, is we see very different geographical trends. so as we sit here today in london, for sure, that's a question that we ask ourselves. but if you sit tomorrow in dubai, injeddah, in istanbul, you have a different perspective. as well as if you are in asia—pac, asia—pac has not yet recovered from the travel impact and sees quite a rebound potential in front of us. and david, let me end on this, because sita systems, your systems were hacked early last year, and we're talking about customer data, including credit card information, ticket information that was stolen. how did that happen and what have you been

doing to make sure that doesn't happen again? the air transport, aviation is increasingly seen as a critical national infrastructure that is heavily targeted by cyberattacks. we as a community are working together at defending ourselves against what is in front of us, highly sophisticated attack. we ended up being the victim last year of that sort of very sophisticated government—grade type of action. we continue to invest a lot. we've doubled our budgets to invest into cybersecurity, and we collaborate a lot with our partners. the good news on our side is that we continue monitoring the data, as well as a number of law enforcement departments with which we work, and none of our data have been leaked into the dark web or public areas. well, on that note,

david lavorel, a real pleasure. thank you so much for coming on the show. thank you. i'll talk to you soon. well, that's all for this week's show. i hope you enjoyed it. don't forget, you can keep up with all the latest on the global economy on the bbc news website and the smartphone app. you can also follow me on twitter. tweet me, i'll tweet you back. you can get me @bbcaaron. thanks for watching. i'll see you soon. bye— bye.

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