As calls for the creation of a global alternative to the greenback grow, credit rating agency Moody’s said on May 25 that rival currencies such as the euro and the Chinese yuan do not yet threaten the U.S. dollar’s position as the world’s reserve currency. The agency said a confidence-sapping policy mistake such as the U.S. Congress’s failure to raise the debt limit poses the “greatest near-term danger to the dollar’s position.”
Rival Currencies Cannot Match the U.S. Dollar’s Core Traits
The global credit rating agency Moody’s has said while the spectre of the U.S. dollar losing its dominance is real, at the moment there are no viable alternatives to take its place. In a note reportedly released on May 25, Moody’s insisted that the current rivals to the greenback such as the euro and the Chinese yuan will not be able to quickly match the core traits that made it the most dominant currency.
As has been reported by various media outlets including Bitcoin.com News, the dollar’s longstanding position as the world’s reserve currency is being threatened by countries that are seeking to create an alternative global currency. The calls for the establishment of a rival to the dollar are being propagated by countries that accuse the U.S. of abusing the greenback’s dominance. Led by Russia, these countries have proposed several steps including the creation of a BRICS (Brazil, Russia, India, China, and South Africa) currency.
However, according to Moody’s latest note, none of the proposed or current rivals to the dollar are backed by an economy as big as that of the United States. In addition, none of the dollar’s current rivals is anchored by a treasury market that compares to that of the U.S. both in terms of depth and perceived safety.
U.S. Default a Near-Term Danger to the Dollar
The note nonetheless still warned of factors that pose a real threat to the U.S. dollar’s position. The note said:
The greatest near-term danger to the dollar’s position stems from the risk of confidence-sapping policy mistakes by the U.S. authorities themselves, like a U.S. default on its debt for example.
As has been reported by Bitcoin.com News, the U.S. Congress’ inability to agree on a deal that raises the debt ceiling to $31.4 trillion could result in the United States government failing to meet its obligations. Treasury Secretary Janet Yellen has warned of an economic catastrophe if the U.S. government defaults.
Meanwhile, Kristalina Georgieva, the head of the International Monetary Fund (IMF), warned of a major disruption to the world economy if the United States government defaults.
“The US Treasury market is the anchor of stability for the global financial system, you pull the anchor, the world economy — the ship on which we all travel — is in choppy and even worse, unchartered waters,” the IMF chief said on May 26.
At the time of writing (May 26, 2023, at 3 p.m. EST), talks between the two U.S. political parties were said to be continuing. However, the prospects for an agreement were reportedly still slim.
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