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by foofie
876 days ago
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> Obviously, a loss of global prestige and reserve currency abandonment could be the result, but if there’s no other country to step in that has that prestige or offers a replacement… I don't think the role of the US dolar as a reserve currency is put into question with a hypothetical default. The typical impact of a default is that lenders are stiffed out of the money they lended. Some might go bankrupt as a result, but the only consequence to the US government is a hypothetical inability to get further loans at lower rates. This might be problematic for the US if the US federal government still runs a deficit. Now, there is the question of what would this "inability" mean. When Greece defaulted on its sovereign debt, their credit rating tanked and the global financial market hiked interest rates for Greek debt to the point they reached double digits. That lead the Greek government to beg the EU and IMF for emergency loans, which were accompanied by fiscal policy changes. I doubt the US would follow a similar pattern, mainly because the IMF does not have funds of this hypothetical magnitude. |
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Why would it not ? Wasn't that how the previous reserve currencies ended ? Are there many examples of relatively as bad defaults that did not result in such an end ?
Especially when the lenders first to be screwed here are (or at least were in 2020) Japan and China.