Potential default in the U.S. would have a negative impact on the dollar as a global currency

A possible default in the United States on the federal debt would have a negative impact on the dollar as a global currency.

Bankruptcy of banks, rising inflation and the current political stalemate in negotiations between U.S. President Joe Biden and Congress on the debt ceiling undermine the country’s credibility and “make you wonder about the status of the dollar” as a reserve currency. As we speak, more and more countries are renewing talk of de-dollarization.

“It’s becoming increasingly difficult to view the U.S. as a well-functioning, dynamic economy with a sound financial system,” said Eswar Prasad, a senior fellow at the Brookings Institution in Washington.

The Biden administration has recently urged Congress to raise the national debt ceiling, set by law at $31.4 trillion. The Republican Party, which controls the House of Representatives, has traditionally been skeptical about raising the debt limit and favors cutting government spending.

In turn, U.S. Treasury Secretary Janet Yellen warned Congress in early May that the administration could exhaust the emergency measures in connection with the debt ceiling as early as June 1. In that case, as she repeatedly emphasized, the country would face a default on federal debt, which would lead to an “economic catastrophe” in the United States, which would cause turmoil in the global economy.

The ceiling, which was first enacted by Congress in 1917, prevents the Treasury Department from issuing new government bonds to finance government operations after a certain level of national debt is reached or a certain date occurs. Exceeding the cap means that the federal government’s ability to make many routine budget payments, including covering various social expenditures, is at risk.

You may be interested: The Oldest Bible Written in Hebrew Sold at Sotheby’s for Over $38 Million