US Treasury Secretary Janet Yellen, during a House Financial Services Committee hearing, stated that while the US should expect a gradual decline in the dollar’s share of global reserves, there are no viable alternatives that can completely replace the greenback.
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Yellen highlighted the fundamental reasons behind the dollar’s prominent role in the global financial system, such as deep and liquid financial markets, a strong rule of law, and the absence of capital controls. She acknowledged that the use of US sanctions has prompted some countries to seek currency alternatives but stressed the difficulty of finding a viable alternative to the dollar.
Yellen discusses diversification and challenges faced by the Dollar
Yellen also addressed concerns about the dollar’s international status, noting the natural desire of countries to diversify their reserve holdings as the global economy grows. While she expects other assets to gain a larger, Yellen emphasized that the dollar remains the dominant reserve asset. Despite the erosion of the dollar’s reserve status over the past two decades, its strength in international trade remains unrivaled.
However, Yellen expressed concerns about the impact of the US debt ceiling crisis on the dollar’s reputation. She reiterated her longstanding worries about the crisis, stating that it undermines global faith in the US’s ability to meet its debt obligations. These concerns could affect the dollar’s standing as a reserve currency.
The statements by Secretary Yellen come amid international de-dollarization efforts by several countries, including the BRICS economic bloc. While the decline of the dollar’s reserve currency status may be gradual, Yellen’s remarks acknowledge the changing landscape and the need for continued vigilance to protect the dollar’s position in the global economy.