What would the world look like without the dollar supremacy? US officials are hammering out a deal to end the government shutdown and increase its debt limit, hoping to avoid a global financial meltdown. Meanwhile, some eyed alternatives to the US dollar to avoid a repeat.
Without a deal, the US treasury is expected to exhaust its ability to borrow money on Thursday. Soon after that, the government would be unable to pay all of its bills and then forced to default. The US dollar is the reserve currency for most of the world, so a default would be a significant shock to the global economy, perhaps comparable to the recession of 2008.
China, the largest foreign owner of US treasury bonds, would feel much of the pain. Earlier this week, an editorial from its state news agency, . 鈥淚t is perhaps a good time for the befuddled world to start considering building a de-Americanized world,鈥� it said.
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China鈥檚 rise
An organisation like the International Monetary Fund could theoretically create an entirely new international currency, says of the University of California, Santa Barbara, but political disagreement would raise its ugly head again. 鈥淭hink of all the trouble the European Monetary Union has had managing with just 17 countries. Now multiply by ten.鈥�
鈥淚 think it much more likely that another national currency becomes more important in international markets,鈥� says Menzie Chinn of the University of Wisconsin in Madison. 鈥淭he Chinese are, with mixed emotions, pursuing a path of making their own currency more international.鈥�
But don鈥檛 expect to be cashing in renminbi any time soon. The last big shift in reserve currency, from British pounds to the US dollar, began in the 1950s and took two decades.
I need a dollar鈥�
Even if we could just dump the dollar overnight, no other currency, including the renminbi, can currently match it, says Cohen. 鈥淕overnments still use the dollar, despite the current political dysfunction in Washington, because of its abundant availability, deep liquidity and wide acceptability.鈥�
As for new-fangled forms of digital money like Bitcoin 鈥� forget about them. 鈥淎ny contender for a new international currency would have to be backed by a national government or monetary authority,鈥� says Chinn. 鈥淎 physical currency will be necessary.鈥�
鈥淭here are already many forms of privately issued electronic currencies, but none are likely to be adopted by governments as a reserve currency,鈥� says Cohen. 鈥淕overnments are conservative about such things.鈥�