Dollar's Dominance Declines but Remains Unrivaled, Says US Treasury Secetary

Treasury Secretary Janet Yellen expressed on Tuesday that the dollar's global reserves proportion may experience a steady fall, but assured that no currency could entirely supplant it.

During a Housing Financial Services Committee meeting, Yellen discussed the potential of de-dollarization. In response to Rep. Warren Davidson, R-Ohio, about how US sanctions could affect dollar transactions, she accepted that such actions have propelled nations to explore other currency options. "The dollar's dominance in the world financial system is irreplaceable by any other country, including China," she emphasized, attributing this to factors such as deep financial markets, robust rule of law, and absence of capital controls.

Further probed by Rep. Vicente Gonzalez, D-Texas, regarding a potential reduction in US sanction use, Yellen firmly stated, "There is virtually no viable substitute for most countries to the dollar as a reserve currency"

Yellen acknowledged the gradual diversification of reserve assets in a growing global economy and foresees an incremental increase in the share of other assets in countries' reserve holdings. "The dollar remains the dominant reserve asset," she affirmed.

Despite the dollar's unwavering supremacy in international trade, Eurizon SLJ Asset Management reported a steep decline in its reserve status in 2022. Increased demand for gold among foreign central banks as an alternative to dollar reserves has also been observed.

Yellen implied that US lawmakers could jeopardize the dollar's standing. She expressed concern over the US debt ceiling crisis, emphasizing that it could undermine global confidence in the US's ability to honor its debt obligations, subsequently damaging the dollar's reputation.