Treasury Secretary Janet Yellen admitted that the US dollar’s status as the world’s reserve currency could be at stake. This scenario should be taken seriously because financial sanctions against several countries, first and foremost, Russia pose a challenge to the US dollar’s dominance.
Tough economic restrictions could backfire on the US currency, the Treasury Secretary warns. The sanctions “could undermine the hegemony of the dollar," Yellen said in an interview with CNN. “Of course, it does create a desire on the part of China, of Russia, of Iran to find an alternative," Yellen commented on the side effect of Western sanctions. Russia has teamed up with allies to pursue the de-dollarization policy. In this context, the fate of the US dollar as the number one reserve currency is in question, she added.
Nevertheless, the rivals of the US are likely to encounter difficulties in the search for a full-fledged alternative to the US dollar because of the strong financial market in the US and its political status. The Treasury Secretary said that a currency employed for global trade settlements should be backed by powerful fundamentals. The policymaker is certain that it is not easy to replicate the ecosystem that supports the US dollar. Interestingly, Janet Yellen does not insist on lifting the sanctions because they are an effective tool of economic leverage.
Earlier, Jared Bernstein, a policymaker from the White House Council of Economic Advisers, also voiced concern about the future US dollar’s status. He points out that China has an ambitious goal of undermining the US dollar as an international reserve currency. Besides, the official appealed to Congress to raise the federal debt ceiling to safeguard the US dollar’s value.
From his viewpoint, increasing the public debt ceiling will protect the greenback as the world’s reserve currency. This status ensures some benefits to the US economy. Therefore, Washington is interested in maintaining the US dollar’s leadership on a global scale.
Meanwhile, a lot of analysts predict that the US dollar is set to lose its dominance sooner or later. The greenback's main competitor is the yuan because China has become the key trade partner for most countries. As long as China steps up its economic power, the yen will tighten its grip on global financial institutions, experts conclude.
