Is The Dollar’s Reserve Currency Status In Peril?
Status Of US Dollar As Reserve Currency Remains An Issue
During the two-week government shutdown some analysts excitedly worried aloud that the status of the dollar as the world’s reserve currency was in peril. While it may not seriously be in peril, the long-term fiscal problems facing the US and its unwillingness – so far – to confront them has some analysts carefully watching the dollar, says Stephen King in The Financial Times.
“Reserve currency status helps keep the creditors at bay – the costs of walking away from a dollar-based global financial system are possibly greater for America’s creditors than they are for the US itself – but reserve currency status also allows Washington to slip into bad habits that no other country could ever contemplate. Even if the debt ceiling is raised, even if further shutdowns are avoided, there is a danger of a growing mismatch between America’s own fiscal ambitions and the interests of its creditors,” writes King.
Regardless of whether the dollar’s reserve status is in danger or not due to the shutdown, the drama provided China an opportunity to renew its calls for a reevaluation.
“As U.S. politicians of both political parties are still shuffling back and forth between the White House and the Capitol Hill without striking a viable deal to bring normality to the body politic they brag about, it is perhaps a good time for the befuddled world to start considering building a de-Americanized world,” China’s official state-run news agency, Xinhua suggested.
Matt Egan of Fox Business News, however, says the hand-wringing about the dollar’s status is “hype” that should not be considered serious.
“In addition to having the deepest pool to swim in, the U.S. debt market enjoys a huge advantage because there simply are no legitimate rivals at the moment. China’s currency is not convertible and the eurozone’s sovereign debt crisis has illustrated the euro’s underlying issues. The currency bloc doesn’t issue its own debt, other than its permanent bailout facility, whose first bond was for a mere 5 billion euros, which is hardly enough to be considered a rival to U.S. debt,” he contends.
The Economist: Debt Showdown Shows Washington Has A European Problem
“Kick the can down the road” was a phrase heard repeatedly around Washington in the wake of the agreement to reopen the Federal government. It also is a phrase Americans used to employ frequently when referring to Europe’s inability – or lack of will – to address underlying fiscal problems.
The Economist outlines the concerns that official Washington failed to acknowledge.
In addition to a deficit that is 3.4% of GDP, the paper notes, “the country’s long-term fiscal problem is immense: it taxes like a small-government country but spends like a big-government one. Eventually demography—and the huge tribe of retiring baby-boomers who expect pensions and health care—will bankrupt the country. By the IMF’s calculation, if America is to reduce its debt to what it regards as a sensible level by 2030, allowing for all this age-related spending, it needs a “fiscal adjustment” of 11.7% of GDP—more than any other advanced country other than Japan,”
In Dealing With Russia, Europe Needs To Look Beyond The Headlines
Stefan Meister of the European Council on Foreign Relations contends Europeans are to quick to view Russian relations through the prism of its views of Vladimir Putin.
Putin may speak for Russia, but his voice is not reflective of all Russians, he says, noting that Russia is “much more complex and pluralistic than the dominant political discourse in Europe asserts.”
” The near-exclusive focus on Putin’s political regime and ignorance about social processes in Russia lead to a false evaluation of the current situation. Russia does not begin and end with the authoritarian Putin who contravenes democratic norms and human rights standards, but rather consists of a society which is equally critical of its own politicians as it is of western influences,” he cautions.