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China wants the dollar’s dominance to fade – and the US should defend its reserve currency status, Biden nominee says

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Dollar vs. YuanThe US should defend the dollar’s reserve status by raising the debt ceiling, according to Biden nominee Jared Bernstein.

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  • China wants the US dollar to become less dominant among currencies, Jared Bernstein says.
  • Lawmakers should raise the debt ceiling to defend the greenback’s reserve currency status, he says.
  • The Biden administration has nominated Bernstein to chair the Council of Economic Advisors.

China wants the dollar’s dominance to end — and the US must act to defend it, according to the Biden administration’s nominee for a top economist position.

Jared Bernstein said Tuesday that Beijing is likely hoping the greenback’s supremacy will fade — and hinted that’s because its reserve currency status helped the US to sanction Russia after it invaded Ukraine last year.

“I think there’s some evidence that it does,” he told Tennessee Senator Bill Hagerty, who had asked whether China wants the dollar’s dominance as the global reserve currency to fade.

“There are extremely important privileges, and even in the realm of security [there are] benefits to having the reserve currency,” Bernstein added. “One of the most obvious is of course sanctions — if you control the reserve currency, you are able to impose sanctions as we’ve done on Russia to considerable effect.”

Bernstein, who has been nominated by the White House to chair the Council of Economic Advisors, was answering questions from the Senate Banking Committee as part of the vetting process.

He made the comments to Hagerty as evidence grows that the dollar’s status as the go-to reserve is under threat.

The greenback’s dominance fell by eight percentage points last year, and its share of international reserves has fallen from 66% to 47% over the past two decades, according to research by Eurizon SLJ Asset Management.

In November, the US Treasury published a report that criticized the lack of transparency around the exchange-rate mechanism for the Chinese yuan. However, Beijing has denied deliberately weakening the currency to boost its dominance of international reserves.

Bernstein told Tuesday’s hearing that the best way lawmakers could respond to any moves by China would be to vote to raise the debt ceiling. That refers to the federal government’s borrowing limit, which is set by Congress.

The US hit its debt ceiling of $31.4 trillion in January – and the Biden administration and the Republican-led House can’t agree on how to resolve the potential crisis.

Lifting the debt ceiling might boost confidence in the greenback, without strengthening the currency to a level that makes US exports unattractive to foreign buyers.

“One thing we could really do to help both the dollar maintain its reserve currency status but also to protect the value of the dollar would be to raise the debt ceiling,” he told Hagerty.

“Having that kind of default out there as a political tool is antithetical to what you and I are talking about right now,” he added.

Read more: The anti-dollar drive spearheaded by Asia has spread to Europe, with France growing sour on the greenback’s dominance. Here are 6 rising threats to the buck’s supremacy of global trade.

Read the original article on Business Insider

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