Treasury Secretary Janet Yellen says it is reasonable to expect other countries to gradually seek alternatives to the US dollar as the global geopolitical scene evolves.
Speaking at The Annual Testimony of the Secretary of the Treasury on the State of the International Financial System, Yellen said U.S. sanctions could push other countries to diversify away from the dollar — though she says it won’t be easy for them.
Responding to Texas Representative Vicente Gonzalez Jr., who said US sanctions could create “paranoia” in other countries, Yellen admitted that it was true that the government’s foreign policy forced other countries to make contingency plans to to do business.
“It is true that when we impose sanctions, countries that are afraid that they could be subject to those sanctions are motivated to look for instruments other than the dollar to transact. So that’s something we have to accept. It is much more difficult to find other tools to make payments in other currencies when we work with partners…
But I would say that there is virtually no sensible solution for most countries to use the dollar as a reserve currency.”
Yellen notes that countries around the world have already started diversifying the currencies they hold beyond just the dollar, but she says it’s something to be expected in a “growing world.”
“There is some increase in other reserves, but that is something to be expected in a growing world, an economy where countries are looking to diversify… We can expect a gradually increasing share of other assets in countries’ reserves over time. It is a natural desire to diversify, but the dollar is by far the dominant reserve asset.”
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