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- BlackRock’s Rick Rieder says that the supremacy of the US dollar global reserve currency it used to have diminished.
- A potential default by the US on its debt would significantly impact both the US dollar and US bonds.
In a recent interview with Semafor Business, BlackRock’s Rick Rieder, a top strategist at the world’s largest asset manager, says that the supremacy of the US dollar as the unassailable global reserve currency it used to be has diminished.
He further told Semafor, “Normally the flight to quality in the world is into dollars,” due to sanctions and the changing landscape of deglobalization in the post-pandemic era, international investors are now more inclined to pursue diversification. The company manager of over $2.4 trillion in the giant’s Global Fixed Income arm added that the US dollar’s dominance is gradually undermined by various currencies, including cryptocurrencies, the Chinese yuan, the euro, and gold. as they steadily erode its position. Rieder further added,
But we keep chipping away at the impenetrable armor of the dollar. Yuan is being used more, euros, there is a part of the market that looks at crypto as an alternative. I’ve been watching gold have a good run [up 8% this year].
In reference to the recent debt ceiling crisis, Rieder emphasizes that a potential default by the US on its debt would significantly impact both the US dollar and US bonds. Rieder pointed out one of the consequences: the potential downgrading ratings for US Treasury bonds. According to Rieder, the US government’s sanctions on Russia, the confiscation of Russian assets, and the notion of seeking safety and stability during uncertain times may no longer be solely tied to the US dollar.
This presents an intriguing shift in the traditional flight to safety.
Normally, the flight to quality in the world is in dollars. But after sanctions and the dynamic around deglobalization [post-pandemic], international investors are inclined to diversify.
According to Rieder, a US debt default may not immediately cause significant price drops, but it carries the potential to undermine trust in Treasurys as a dependable form of collateral. The erosion of confidence in their reliability could have widespread implications, emphasizing the importance of maintaining trust in this essential asset class.
Moreover, as the world navigates the aftermath of the pandemic and embraces deglobalization, international investors are exploring diverse avenues to safeguard their investments. He added that this evolving landscape prompts a reimagining of the role of the US dollar as the global beacon of security, opening up new possibilities and exciting opportunities for investors.
Rieder anticipates that in the upcoming year, interest rates will decrease, although not to the exceptionally low levels witnessed in the past decade. The BlackRock executive states that the near-zero interest rates observed in recent years have led to inflated prices for numerous assets, necessitating a period of readjustment.
