Kevin Helms
A student of Austrian economics, Kevin found Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open source systems, network effects and the intersection of finance and cryptography.
Threats to US Dollar Dominance Mostly Domestic – Not BRICS Currency or Chinese Yuan – Economy Bitcoin News
Bank of America has warned that the main threats to the US dollar’s dominance are largely domestic, as opposed to competition from other currencies, including a BRICS currency. “The US fiscal threat, with the risk of a government shutdown, or even worse default, continues to surface during discussions about the debt ceiling,” the bank’s analysts stressed.
Bank of America on threats to US dollar dominance
Bank of America reportedly said in a note on Thursday that despite recent de-dollarization headlines, the US dollar is not in danger of losing its dominance anytime soon. However, the bank warned that the USD is exposed to domestic fiscal problems, such as the possibility of the US defaulting on its debt obligations.
“Because much of the USD’s dominant role comes from being ahead of the TSY [U.S. Treasury] market, a surprise default from a debt ceiling settlement would compromise the dollar’s attractiveness as a store of value, Bank of America’s analysts say in detail and elaborate:
Therefore, the main threats to the USD’s dominant role seem largely domestic, as opposed to competition from other currencies.
The analysts warned that the longer-term risk to the US currency is debt complacency, noting that, apart from Japan, US government debt as a percentage of GDP is the highest in the G10. Moreover, the International Monetary Fund (IMF) predicts that the US debt-to-GDP ratio will increase from 122% in 2022 to 136% by 2028.
Bank of America described:
America’s fiscal threat, with the risk of a government shutdown, or even worse default, constantly comes up during discussions about the debt ceiling.
US Treasury Secretary Janet Yellen recently revealed that the Treasury Department may not be able to pay all of the government’s bills by June 1 “if Congress does not raise or suspend the debt ceiling before then.” She also warned, “If Congress fails to raise the debt limit, it will cause severe hardship for American families, damage our global leadership position, and raise questions about our ability to defend our national security interests.”
Alternative currencies to USD
Despite the risk of the US defaulting on its debt obligations and a growing de-dollarization trend, Bank of America believes that there are no viable alternative currencies to the US dollar, and the USD remains the dominant currency in trade, international invoicing and SWIFT payments . Nevertheless, the analysts warned that the US dollar has lost some market share among central bank reserves.
The analysts wrote:
The USD is not about to lose its exorbitant privilege… no single alternative has emerged.
Bank of America further noted that the use of the Chinese yuan could expand internationally, but stressed that Chinese regulators must open up the capital account, which could leave China vulnerable to outflow volatility and monetary policy interference.
In addition, Bank of America analysts believe that a BRICS currency is unlikely to replace the US dollar as the world’s reserve currency, as it would require cooperation among member countries that have limited trade with each other, apart from China, and whose relations can often be tense. The BRICS nations include Brazil, Russia, India, China and South Africa. The economic bloc has gained influence globally. Nineteen countries have either applied to join or have expressed an interest in joining.
However, several economists expect a common BRICS currency to erode the US dollar’s dominance. A Swedish university professor recently said that Saudi Arabia joining the BRICS group will accelerate the use of the Chinese yuan as a trade currency.
Do you agree with Bank of America about the dominance of the US dollar? Let us know in the comments section below.
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