Does the U.S. political crisis demonstrate what Beijing has been saying for years: that it is dangerous for U.S. creditors to allow the dollar to continue as the global currency of choice? According to this article by Li Xiangyang for the state-run People’s Daily, until the dollar is dethroned, holders of U.S. sovereign debt ‘must either endure the enormous immediate financial risk brought about by a U.S. default, or hold additional U.S. debt at their peril.’
For the People’s Daily, Li Xiangyang, director of the Institute of Asia-Pacific Studies at the Chinese Academy of Social Sciences, writes in part:
Foreign holders of U.S. debt confront a serious risk. Because U.S. political parties only consider their own interests and dare to ignore those of foreign creditors, it is very likely that sooner or later, America will harm the interests of foreign creditors for its own political, economic or security interests.
In other words, the U.S. may use the possibility of a debt default to threaten other countries. This is the horrific systematic risk hidden within the current international financial system. The U.S. debt crisis poses a real dilemma for foreign creditors. They must either endure the enormous immediate financial risk brought about by a U.S. debt default, or hold additional U.S. debt at their peril.
At the same time, the U.S. debt crisis serves as a wake-up call to China, the largest foreign holder of U.S. Treasury bonds. China must stop increasing its already massive holdings of foreign exchange reserves and be alert to the national security and national financial risks inherent in excessive U.S. dollar assets.
There is a growing consensus in this post-global financial crisis era that the dollar-centered system of international currency exchange should be reformed as quickly as possible. Getting rid of the dollar will serve not only the interests of creditor countries, but ensure the stability and sustainability of the international financial system.
Getting rid of the dollar will serve not only the interests of creditor countries, but ensure the stability and sustainability of the international financial system.
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