Experts Warn US Lawmakers Of Risks Posed To Dollar As Global Reserve Currency - Hearing

A group of economics experts from institutions around the United States warned the US House Financial Services Committee on Wednesday about risks posed to the US dollar and its status as a global reserve currency, as well as potential subsequent impacts to the broader economy

WASHINGTON (UrduPoint News / Sputnik - 07th June, 2023) A group of economics experts from institutions around the United States warned the US House Financial Services Committee on Wednesday about risks posed to the US Dollar and its status as a global reserve currency, as well as potential subsequent impacts to the broader economy.

The panel's Subcommittee on National Security, Illicit Finance, and International Financial Institutions held a hearing on "dollar dominance" and preserving the US dollar as the global reserve currency.

"Continuing our existing fiscal policies will ultimately cause a bond market failure, irrespective of the actions of the Federal Reserve," former US Assistant Treasury Secretary for Economic Policy Michael Faulkender said in testimony to lawmakers. "Fewer international transactions will be traded in dollars. Foreign central banks will further reduce their holdings of dollar-denominated securities, causing interest rates to skyrocket and a loss of dollar dominance in international trade."

The US must reduce federal spending and rescind regulations curtailing economic growth and devaluing the dollar, Faulkender said. The Federal Reserve is not alone capable of mitigating the inflationary impacts of fiscal and regulatory policy, needing assistance from Congress and the executive branch to achieve dollar dominance and economic growth, Faulkender said.

The dollar's dominance is threatened by high inflation and low growth, which results in "too many Dollars chasing too few goods and services," Faulkender said.

Moreover, US foreign policy decisions are also impacting the dollar's performance on the world market, Syracuse University Associate Professor Daniel McDowell said.

"The more the United States has reached for financial sanctions, the more it has made adversaries in foreign capitals aware of the strategic vulnerability that stems from dependence on the dollar," McDowell said. "Though these measures sometimes fail to achieve their goals, others have produced modest levels of de-dollarization."

McDowell pointed to efforts by Russia to reduce its US dollar reserves and China's attempts to develop its own international payment networks based on the Yuan as examples of de-dollarization.

However, such actions do not "gravely threaten" dollar supremacy, with the Currency remaining "indispensable" for the world economy, McDowell said.

The US should reconsider the use of "symbolic" financial sanctions that are primarily meant to signal US disapproval, McDowell said.

The US should also apply more scrutiny before sanctioning potential rival currencies, particularly the Chinese yuan, so as not to reveal to adversaries their financial vulnerabilities, which could give them time to prepare for more serious circumstances, McDowell added.