Macroscope | Debt binge, Russia sanctions will hasten end of US dollar global hegemony
- The US has rapidly rising debt levels at the same time as the value and integrity of its assets are being eroded
- Its weaponisation of the official reserves issue also increases the incentive for others to create alternatives, for both trading and reserves purposes
As the US government adds to the supply of US dollar reserve assets by going deeper into debt and issuing more Treasury bonds, the quality of those very assets and the integrity of the US Treasury market is being eroded.
The Tina principle – “there is no alternative” – continues to keep the US dollar and US Treasury market afloat. However, the weaponisation of the official reserves issue by a US administration intent on sanctioning Russia and warning others risks increasing the incentive to create alternatives.
What could conceivably emerge is one bloc of US dollar and euro-based currencies and another bloc based on the Chinese yuan and Russian rouble, accompanied by multiple bilateral payment arrangements. Countries could then decide which of these currencies they use for trading and reserve purposes.
I recently participated in a webinar organised by the City of London that was provocatively titled “Future Of Reserve Currencies – The Myth Of Safe Assets”. It certainly seems like the concept of safe assets is under threat now. More controversial was the claim by veteran Financial Times and The Economist writer John Plender that “there is no such thing as a safe asset” now. A former colleague of mine at The Times in London, Plender is not someone given to making flippant comments.