In a recent address, Janet Yellen, the Treasury Secretary, expressed concerns about the future of the US dollar, prompting discussions about efforts to prevent its decline. Yellen acknowledged the potential impact of the administration’s use of the dollar as a political tool, including the seizure of Russian central bank sovereign dollars, which failed to achieve the desired results and instead caused setbacks within our own banking system. This approach raises ethical concerns as it violates the trust that the dollar will remain a stable and reliable currency for all nations, even those facing international sanctions.
Yellen further admitted that various countries, including France, members of the BRICS alliance, and even Saudi Arabia, have started to avoid the dollar. However, she argued that most countries are still dependent on the dollar due to a lack of viable alternatives. Yellen’s statement that there is a “natural tendency” for a growing world to diversify its reserve currency is historically inaccurate. Throughout the past three centuries, during periods of global economic growth, there has been a tendency to concentrate on a single reserve asset, first the British pound and later the American dollar. This preference is based on the currency’s ability to preserve value and its liquidity.
It is surprising that Yellen, with her extensive academic background and experience in the financial sector, would make such claims. Her assertion that there is an inherent inclination for a reserve currency to lose its status contradicts the very purpose of having a reserve currency, which is to consolidate economic stability and global trade. Yellen’s remarks appear disingenuous, particularly when she discusses the supposed absence of meaningful alternatives for weaker nations, given China’s efforts to provide such alternatives.
The potential consequences of losing reserve currency status are significant. The substantial amount of dollars held abroad could flood back into the United States, leading to a surge in inflation that could persist for years. Ultimately, the dollar could lose significant value, potentially triggering a severe economic depression akin to those experienced in the past century. Currently, the US economy bears resemblance to that of the 1970s, but the loss of reserve currency status could propel it into a state reminiscent of the 1930s great depression. It is disheartening that the US government does not seem sufficiently committed to addressing this critical issue.
These developments warrant close attention, and the implications will be closely monitored.
Until next time, stay informed and stay vigilant.