- Rick Rieder, BlackRock’s Global Fixed Income Chief, suggests that the US dollar’s dominance as a world reserve currency is weakening, with the Chinese Yuan, Euros, and even crypto assets posing potential threats.
- Amid the recent debt ceiling crisis, Rieder warns that a possible US default on its debt or a ratings downgrade could trigger a significant blow to the value of the US dollar and US bonds, causing international investors to consider alternatives.
The US Dollar’s Unassailable Standing Faces Challenge
Rick Rieder, a top strategist at BlackRock, the world’s largest asset manager, recently expressed his belief that the US dollar’s reign as the undisputed global reserve currency is being contested. Speaking to Semafor Business, Rieder, who oversees more than $2.4 trillion under BlackRock’s Global Fixed Income portfolio, highlighted how alternative currencies, including crypto assets, are progressively eroding the dollar’s supremacy.
“We continue to chip away at the once impregnable armor of the dollar. The Yuan is being used more frequently, the Euros as well, and there’s a segment of the market considering crypto as an alternative. Not to mention, gold’s impressive performance recently, showing an 8% increase this year.”
Debt Ceiling Crisis and the Implications for the US Dollar
In the context of the recent debt ceiling crisis, Rieder cautioned that a potential US default on its debt would significantly impact the US dollar and US bonds. The US government’s sanctions on Russia and the confiscation of Russian assets have prompted wariness among many countries. Consequently, Rieder contends that in future times of uncertainty, the flight to safety might not automatically favor the US dollar, as has been the case historically.
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“A ratings downgrade would significantly influence how international investors and other central banks perceive our debt. U.S. Treasury bonds are the most liquid and actively utilized collateral globally. Furthermore, the impact on the dollar, though more challenging to decipher, is undeniable. Traditionally, global investors turn to the dollar in times of crisis. However, the recent sanctions and post-pandemic deglobalization trends might drive international investors to seek diversification.”
Looking to the future, Rieder projects that while interest rates will fall next year, they will not plummet to the record lows of the past decade. According to him, near-zero interest rates have inflated the prices of many assets, necessitating a market readjustment.
“We haven’t seen this type of rapid adjustment in years, especially in areas such as the rollover financing for leveraged loans and commercial real estate. It’s a clear reminder that markets can recalibrate quickly when they sense a deviation from the norm.”
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