White House economist Jared Bernstein has stated that there is “some evidence” that China wants to see the U.S. dollar lose its status as the world’s reserve currency. Bernstein made the comments during a congressional hearing before the Senate Banking Committee on Tuesday. The hearing was held to discuss his nomination to be chairman of the Council of Economic Advisers. Bernstein, who previously served as chief economist to then-Vice President Joe Biden in the Obama-Biden Administration, emphasized the importance of maintaining the USD’s reserve currency status, citing the benefits of being able to impose sanctions, as the U.S. has done on Russia.
However, U.S. Senator Bill Hagerty stressed that the biggest threat to the USD’s dominance comes from within. During the hearing, Hagerty noted efforts by several countries that threaten the status of the U.S. dollar as the global reserve currency, such as Brazil’s president, Luiz Inácio Lula da Silva, calling for an end to the dollar trade dominance. Hagerty asked Bernstein if he agreed that China wants to see the USD lose its reserve currency status, to which Bernstein replied that there is “some evidence” that China does.
Hagerty then raised concerns about the “incredible debt” the U.S. government has accumulated and the interest rate cost, which the Congressional Budget Office has projected to be greater than the entire defense budget. Bernstein suggested that raising the debt ceiling could help both the USD maintain its reserve currency status and protect its value. However, Hagerty stressed the importance of getting fiscal policies in order, stating that “if we continue to allow deficit spending to get out of control, I very, very seriously am concerned that we do it to ourselves. I know China would like to do it to us.” He concluded that China would like to see the U.S. lose its status as a reserve currency, but the biggest threat is from within by allowing spending to get out of control.
The U.S. dollar has been the world’s reserve currency since the Bretton Woods Agreement in 1944. The status has allowed the U.S. to print money and run deficits without the same consequences that other countries face. However, in recent years, several countries have expressed a desire to reduce their dependence on the dollar. China, for example, has been reducing its holdings of U.S. Treasuries and promoting the use of the yuan in international trade. While it is unclear whether the USD will lose its reserve currency status, the debate over its future continues.