According To A Former IMF Official, The US Needs To Handle Its Rising Debt Issues In Order To Maintain The Dollar Dominance

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According To A Former IMF Official, The US Needs To Handle Its Rising Debt Issues In Order To Maintain The Dollar Dominance

  • According to economist Barry Eichengreen, the United State’s rising debt levels pose a danger to the US dollar hegemony.
  • According to experts, the British pound’s decline as a reserve currency in the early 1900s was due to high debt levels.
  • According to a CBO projection, the US deficit over the next 30 years might reach 181% of GDP.

 

The US Needs To Handle Its Rising Debt Issues In Order To Maintain The Dollar Dominance: In the words of former International Monetary Fund official Barry Eichengreen, whether or not the US can control its debt difficulties will determine the dollar’s continued dominance.

The US Needs To Handle Its Rising Debt Issues In Order To Maintain The Dollar Dominance

The UC Berkeley economist referred to rising concerns that the dollar may eventually be replaced by a competitor currency in an opinion piece for Project Syndicate on Monday. This is because countries like China and Russia are moving away from using the dollar.

However, rather than conflicts between the US and other BRICS countries, Eichengreen said that the rising US debt mountain poses a real threat to the dollar’s position as the world’s primary foreign reserve currency.

Eichengreen claimed that the British pound’s decline as the most valuable currency in the early 1900s was caused by mounting debt. Even though geopolitical developments undoubtedly had a role in the depreciation of the pound sterling, most academics concur that the nation’s debt balance, which increased sixfold to 130% of GDP throughout both world wars, was the primary cause of the decline.

Therefore, whether the dollar maintains its position as a reserve currency will depend on more than just US ties with China, Russia, and the BRICS. Instead, it will depend on whether the US manages to rein in its ballooning debts, avoids another pointless debt ceiling fight, and overall gets its economic and political house in order,” he cautioned.

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The alarm over the growing US public debt balance has been raised by economists; this year, the total deficit reached $32 trillion for the first time. A recent prediction from the Congressional Budget Office indicates that the debt-to-GDP ratio, which was 123% over the past quarter, might increase to 181% in the following 30 years.

In contrast, the dollar has retreated a little bit versus its rivals’ currencies following the ferocious rally that saw it into 2022. A weakened dollar isn’t necessarily a bad thing, though, as US corporations with operations abroad may suffer if the currency becomes overvalued relative to other currencies.

The yuan and the projected BRICS currency, which aim to divert trade away from the dollar, haven’t created much of a real threat to the dollar, which is still the most commonly used currency in international trade and foreign reserves.

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