June 15, 2023 - 7:00am
US Secretary of Treasury Janet Yellen this week warned that there would be “slow decline” in the US dollar as the global reserve currency. Asked if the US should be concerned about “slapping sanctions around the world”, Yellen told US lawmakers that countries fearful of sanctions were “motivated” to look for dollar alternatives. “It’s something we have to accept,” the Treasury Secretary noted.
Despite her gloomy prediction, Yellen remained bullish about the dollar. Giving her annual testimony on the state of the international financial system to the House Financial Services Committee, the former chair of the Federal Reserve said that no alternatives could fully replace the US currency due to unique strengths like deep financial markets, the absence of capital controls and strong rule of law.
Yellen went further by noting that while the dollar’s status as a reserve currency had eroded over the past 20 years, it remained the most popular. “We should expect over time a gradually increased share of other assets in reserve holdings of countries,” the Treasury Secretary stated. “It’s a natural desire to diversify, but the dollar is by far and away the dominant reserve asset”.
This year, Yellen has become increasingly vocal about threats to the dollar. During debt-ceiling negotiations last month, the Treasury Secretary warned that a failure to reach a deal would have an “adverse impact” on the dollar’s status. And in April, she announced that there was a “risk” associated with sanctions that could “undermine the hegemony of the dollar.”
The Treasury Secretary joins a long list of leading figures in the Western world who have expressed concerns about the dollar’s eroding status. Back in April, ECB President Christine Lagarde announced that global competitors were seeking “alternatives to major traditional currencies for international trade”, while former Treasury Secretary Larry Summers told Bloomberg that the US was “getting lonely” on the world stage. “There’s a growing acceptance of fragmentation, and — maybe even more troubling — I think there’s a growing sense that ours may not be the best fragment to be associated with,” he said.
During the hearing, the threat posed by China was raised several times. Yellen was asked how the Treasury would respond if China — the second largest creditor of US treasuries — “dumped” $859 in treasury securities “overnight” following an invasion of Taiwan. Yellen responded that she was “certainly concerned” about the possibility, but had not considered the scenario in detail. In response, lawmakers instructed that the Treasury and Federal Reserve “make preparations” and “be on the ready” for such an event.
Join the discussion
Join like minded readers that support our journalism by becoming a paid subscriber
To join the discussion in the comments, become a paid subscriber.
Join like minded readers that support our journalism, read unlimited articles and enjoy other subscriber-only benefits.
SubscribeThe ‘gradual’ theory advanced by Yellen seems like wishful thinking, like most left wing monetary policy. Although at least she’s acknowledging that it is happening. The U.S. has been able to abuse the reserve currency status of the US dollar to mask the inflationary impacts of its massive money printing. Being the reserve currency means its always in high demand and the demand helps props up its relative value. Once there’s an alternative available for international trade, that demand support starts to disappear and the bottom could fall out. Years of reckless money printing will finally come home to roost. And the process, once begun, will feed on itself as each devaluation further undermines the confidence that a reserve currency requires to be the basis for stable trade. Imagine the impact of a massive US dollar devaluation on the American economy and society. Its staggering that this has been allowed to happen – as Logan Roy would say, the people in charge these days “are not serious people”.
I think you are right, when nations start to unload US treasuries that will create a discount in them, which will create a rush to unload them. When that happens all those dollars will come home to the US creating an inflationary issue that looks more like a 30%+. Which IMO this is when the Biden admin will rescue all the poor folks by swapping the USD out with the new digital dollar (CBCDs). This is the great reset Davos has been waiting for. No one can do anything after that unless their social credit score allows for it. This is why multi-national corporations have been so concerned about their ESG score. If all Western central-banks are in on it, we’re all screwed.
what about the impact on vassal states like the UK/Mexico or those using the USD as an ersatz currency like Zimbabwe and many Lat Am economies
You asking me? I don’t know. My understanding of all of this only goes so deep. No one really knows what’s going to happen in the future.
You asking me? I don’t know. My understanding of all of this only goes so deep. No one really knows what’s going to happen in the future.
I think you are right, when nations start to unload US treasuries that will create a discount in them, which will create a rush to unload them. When that happens all those dollars will come home to the US creating an inflationary issue that looks more like a 30%+. Which IMO this is when the Biden admin will rescue all the poor folks by swapping the USD out with the new digital dollar (CBCDs). This is the great reset Davos has been waiting for. No one can do anything after that unless their social credit score allows for it. This is why multi-national corporations have been so concerned about their ESG score. If all Western central-banks are in on it, we’re all screwed.
what about the impact on vassal states like the UK/Mexico or those using the USD as an ersatz currency like Zimbabwe and many Lat Am economies
The ‘gradual’ theory advanced by Yellen seems like wishful thinking, like most left wing monetary policy. Although at least she’s acknowledging that it is happening. The U.S. has been able to abuse the reserve currency status of the US dollar to mask the inflationary impacts of its massive money printing. Being the reserve currency means its always in high demand and the demand helps props up its relative value. Once there’s an alternative available for international trade, that demand support starts to disappear and the bottom could fall out. Years of reckless money printing will finally come home to roost. And the process, once begun, will feed on itself as each devaluation further undermines the confidence that a reserve currency requires to be the basis for stable trade. Imagine the impact of a massive US dollar devaluation on the American economy and society. Its staggering that this has been allowed to happen – as Logan Roy would say, the people in charge these days “are not serious people”.
So many games being played by so many people.
What is Yellen’s motivation in publicly expressing some reservations about excessive use of sanctions? Who is she really speaking to?
If any part of the US government wants to know her opinion on this issue they can ask in private. Is she playing her own version of politics here? Why break (even slightly) with the Biden regime in its use of sanctions?
I bet there’s the basis for an interesting article here.
So many games being played by so many people.
What is Yellen’s motivation in publicly expressing some reservations about excessive use of sanctions? Who is she really speaking to?
If any part of the US government wants to know her opinion on this issue they can ask in private. Is she playing her own version of politics here? Why break (even slightly) with the Biden regime in its use of sanctions?
I bet there’s the basis for an interesting article here.
Three different interpretations in the first three comments and they all seem reasonable. Very confusing stuff.
Three different interpretations in the first three comments and they all seem reasonable. Very confusing stuff.
The issue is, and will always be, what’s the plausible alternative? No one’s going to trust Chinese currency; it’s explicitly managed and hard to convert. The Euro nations engage in basically the same behavior as the US. Unless you’re going back to gold, there simply aren’t any realistic alternatives to the dollar.
There must be some alternatives, other wise Yellen would not be talking about it. The dollar has been declining slowly for several years but that decline is accelerating at the moment. I read somewhere that around 30% of the Global Economy is being sanctioned by the US. That is a lot of economy looking for something else. That is without mentioning the theft of US currency reserves held for countries such as Russia, Venezuela, Iran and Afghanistan, just to name four.
The US has destroyed it’s trust and integrity and any sane country would be trying to avoid this vicious gangster country like the plague.
Gold. Bitcoin. Hence the war against them.
I have been colleting bottle tops since 2012
Gold has a relatively fixed supply which makes it deflationary. Deflation is the single worst thing for a modern, debt-based, economy.
Crypto is a Ponzi scheme and has none of the characteristics of a good currency. The value is unstable, the supply is fixed, and the system is rife with fraud and theft.
So is the US$!
Pray why is deflation so bad? is this not just a scare story put about by those with a vested interest in seeing inflation
So is the US$!
Pray why is deflation so bad? is this not just a scare story put about by those with a vested interest in seeing inflation
When hackers blackmailed me for my data I had to pay in bitcoin but it was backed by the dollars in my bank account.
I have been colleting bottle tops since 2012
Gold has a relatively fixed supply which makes it deflationary. Deflation is the single worst thing for a modern, debt-based, economy.
Crypto is a Ponzi scheme and has none of the characteristics of a good currency. The value is unstable, the supply is fixed, and the system is rife with fraud and theft.
When hackers blackmailed me for my data I had to pay in bitcoin but it was backed by the dollars in my bank account.
In 2022 Central banks globally bought more gold than any other year since 1950. BRICS nations seem to be banking on gold (and other rare earth commodities) backed currencies. They are in the process of creating that alternative right now for trade between each other.
Nations in the global South are looking to back their own nation’s currencies with some sort of objective value like this. Brazil and Argentia were even talking about a common currency. So, if you can imagine in the new multi-polar world, all the nations of South America with a common currency back by those objective standards will be worth something.
The shift is from GDP valued nations currencies under the old US hegemony through its rules-based order, to currency “purchasing power” in a multipolar world.
Theoretically, once the USD collapses, and nations around the world have objective value backing their currencies, trade and diplomacy will be more greatly elevated things.
This is the optimistic view of course. I mean, we can imagine doom and gloom and all having to learn to speak Chinese too.
There must be some alternatives, other wise Yellen would not be talking about it. The dollar has been declining slowly for several years but that decline is accelerating at the moment. I read somewhere that around 30% of the Global Economy is being sanctioned by the US. That is a lot of economy looking for something else. That is without mentioning the theft of US currency reserves held for countries such as Russia, Venezuela, Iran and Afghanistan, just to name four.
The US has destroyed it’s trust and integrity and any sane country would be trying to avoid this vicious gangster country like the plague.
Gold. Bitcoin. Hence the war against them.
In 2022 Central banks globally bought more gold than any other year since 1950. BRICS nations seem to be banking on gold (and other rare earth commodities) backed currencies. They are in the process of creating that alternative right now for trade between each other.
Nations in the global South are looking to back their own nation’s currencies with some sort of objective value like this. Brazil and Argentia were even talking about a common currency. So, if you can imagine in the new multi-polar world, all the nations of South America with a common currency back by those objective standards will be worth something.
The shift is from GDP valued nations currencies under the old US hegemony through its rules-based order, to currency “purchasing power” in a multipolar world.
Theoretically, once the USD collapses, and nations around the world have objective value backing their currencies, trade and diplomacy will be more greatly elevated things.
This is the optimistic view of course. I mean, we can imagine doom and gloom and all having to learn to speak Chinese too.
The issue is, and will always be, what’s the plausible alternative? No one’s going to trust Chinese currency; it’s explicitly managed and hard to convert. The Euro nations engage in basically the same behavior as the US. Unless you’re going back to gold, there simply aren’t any realistic alternatives to the dollar.
“During the hearing, the threat posed by China was raised several times. Yellen was asked how the Treasury would respond if China — the second largest creditor of US treasuries — “dumped” $859 in treasury securities “overnight” following an invasion of Taiwan.”
Didn’t the US threaten us with something very similar over Suez?
“During the hearing, the threat posed by China was raised several times. Yellen was asked how the Treasury would respond if China — the second largest creditor of US treasuries — “dumped” $859 in treasury securities “overnight” following an invasion of Taiwan.”
Didn’t the US threaten us with something very similar over Suez?
Yellen is clearly part of a wider effort to undermine US dominance on the global stage and destabilize the global status quo – to allow other nations (among which, presumably, Communist China) a more dominant role.
Obama was a part of the same effort.
This will be exceedingly obvious to future historians – and to be quite frank it is obvious to all but the slowest learners even now.
If the US wishes to avoid a destructive decade of rebalancing, it has only to remove the patently senile, dangerous Biden from office forthwith.
Yellen is clearly part of a wider effort to undermine US dominance on the global stage and destabilize the global status quo – to allow other nations (among which, presumably, Communist China) a more dominant role.
Obama was a part of the same effort.
This will be exceedingly obvious to future historians – and to be quite frank it is obvious to all but the slowest learners even now.
If the US wishes to avoid a destructive decade of rebalancing, it has only to remove the patently senile, dangerous Biden from office forthwith.