The U.S. dollar downswing in the global economy will be “far greater” than what Treasury Secretary Janet Yellen has warned, according to Euro Pacific Capital CEO Peter Schiff.
He explained that the U.S. had “too much debt.” Schiff also noted that the country’s budget and deficits in trade were larger than other countries. The economist said Thursday that the dollar’s falling value and dwindling share in global reserves would lead to a significant deterioration in the standard of living in the U.S.
Yellen had said earlier on Tuesday during a hearing with the Housing Financial Services Committee that the dollar’s share in global reserves would “gradually” decline over time. Yellen, however, said the dollar was “far and away the dominant reserve asset.” She explained that no country could replicate the U.S. dollar’s role in the global financial system.
JUST IN: 🇺🇸 Treasury Secretary Yellen says to expect a slow decline in the US dollar as reserve currency.
— Watcher.Guru (@WatcherGuru) June 13, 2023
The U.S. official discussed how the country’s “deep liquid open” markets, robust regulation and a lack of capital controls supported the greenback. According to Yellen, countries will encounter difficulties in devising a way to “get around the dollar.”
Answering an inquiry by Rep. Warren Davidson, Yellen acknowledged that the U.S. sanctions on Russia and its adversaries had prompted countries to seek currency alternatives. Asset Management firm Eurizon earlier also reported that the use of other currencies in global trading had accelerated since the Ukraine War broke out.
Politicians also asked Yellen whether the U.S. should slow its use of sanctions, saying that allied nations like France had also made non-dollar transactions. The Treasury Secretary said it was “natural” for nations to diversify their reserve assets in a growing global economy.
“We should expect over time a gradually increased share of other assets in reserve holdings of countries — a natural desire to diversify,” Yellen said.
Yellen still noted several risks to the U.S. dollar’s strength in the global market, including the recent debt ceiling crisis. According to the financial regulator, the crisis undermined the global’s faith in the U.S.’s ability to pay its debt obligations, leading to a decline in the dollar’s reputation.
Congress says to Janet Yellen to have the Treasury and Federal Reserve be on the ready for a situation where China could dump all of their US Treasuries: pic.twitter.com/rKUMqoNlJK
— unusual_whales (@unusual_whales) June 13, 2023
According to Schiff, the Federal Reserve’s decision to pause its rate hike campaign also indicates that financial regulators are wary of the “evolving financial crisis.” Schiff said Fed chairman Jerome Powell did not want to “spook” the market by immediately ending the tightening cycle.
He warned the market not to “believe the hype” on the Fed’s further rate hikes. Schiff said the Fed might begin the rate cutting soon because the job market “finally cracks.” At a press conference last Wednesday, Powell said the central bank would cut rates when inflation slowed down significantly.
Recent reports suggested that in addition to using non-dollar fiats to trade, some nations have also increased their gold reserves. The International Monetary Fund said gold accounted for 15 percent of global reserves by the end of last year.
Putin: Russia does not aim to de-dollarize
Russian President Vladimir Putin claimed that his country did not plan to de-dollarize its economy or aim to influence worldwide de-dollarization. At the St. Petersburg International Economic Forum last week, Putin said the U.S. remained a formidable economy in the global landscape.
The Russian leader, nevertheless, acknowledged signs of the declining dollar. Putin said the Chinese economy had surpassed the U.S. in terms of purchasing power. Analysts have pointed out that the yuan’s share in the global reserves is significantly increasing as China has formed agreements with several other nations to trade in its domestic currency.
Putin said the U.S. government used the dollar as a “weapon” in geopolitical conflict. He argued the American lawmakers’ tactic increased the doubt about the dollar’s reliability in global trade. Putin noted that the use of alternative currencies was rising, especially in Latin America, Arab nations and Asia. According to Putin, economies that do not adapt to the multipolar trend in currency use may be at a disadvantage.