In a congressional hearing, White House economist Jared Bernstein says there’s “some evidence” that China wants the U.S. dollar to lose its status as the world’s reserve currency. However, U.S. Senator Bill Hagerty stressed that the biggest threat to the USD dominance comes from within.
China Wants to See U.S. Dollar Losing World’s Reserve Currency Status, Says Bernstein
White House economist Jared Bernstein answered some congressional questions about the U.S. dollar’s status as the world’s reserve currency before the Senate Banking Committee on Tuesday during a hearing on his nomination to be chairman of the Council of Economic Advisers.
Bernstein, a current member of the White House Council of Economic Advisers, previously served as chief economist to then-Vice President Joe Biden in the Obama-Biden Administration before joining the Center on Budget and Policy Priorities, where he served as a senior fellow from 2011 to 2021.
During the hearing, Senator Bill Hagerty (R-TN) noted efforts by several countries that threaten the status of the U.S. dollar as the global reserve currency, such as Brazil’s president, Luiz Inácio Lula da Silva, calling for an end to the dollar trade dominance. Emphasizing that China applauded this, the senator from Tennessee asked Bernstein: “Do you agree that China wants to see this happen?” The White House economist promptly replied:
I think there’s some evidence that it does.
Commenting on why China wants to see the USD dominance reduced, Bernstein detailed: “I think there are extremely important privileges, and even in the realm of security reasons, to have — the benefits from having — the reserve currency.” He added: “One of the most obvious is, of course, sanctions. If you control the reserve currency, you’re able to impost sanctions as we’ve done on Russia to considerable effect.”
Debt Ceiling and the ‘Biggest Threat’ to USD
Senator Hagerty proceeded to raise concerns about “the incredible debt” the U.S. government “has piled up,” and “the interest rate cost, which the CBO [Congressional Budget Office] has projected to actually be greater than our entire defense budget.”
However, Bernstein said: “One thing we could really do to help both the dollar maintain its reserve currency status, but also to protect the value of the dollar, would be to raise the debt ceiling.”
Commenting on the U.S. dollar potentially losing its reserve currency status, Hagerty stressed the importance of getting fiscal policies in order. “The fiscal spending is, I think, going to let the market dictate what happens to the dollar as a reserve currency, and if we continue to allow deficit spending to get out of control, I very, very seriously am concerned that we do it to ourselves. I know China would like to do it to us.” He concluded:
China would like to see us lose our status as a reserve currency but I think the biggest threat is from within by allowing our spending to get out of control. That’s the path that we’re on now. We need to see it back under control.
Do you think the U.S. dollar will lose its status as the world’s reserve currency? And, do you agree that the biggest threat to the USD comes from within? Let us know in the comments section below.