A US debt default could hit on Thursday, and world leaders are second guessing the dominant role America plays in finance. Regardless of the final decision in Washington, confidence and credibility in the US has already eroded.
In an editorial published by the Chinese state-owned press agency Xinhua, a columnist says the US economy has ‘failed’ and put many countries who hold state assets in dollars, at risk.
“To that end, several corner stones should be laid to underpin a de-Americanized world,” the editorial read.
Last week China, the biggest US creditor, started to make preparations for a technical default on loans. The European Central Bank and the People’s Bank of China (PBC) have agreed to start supplying each other with their currencies, avoiding the dollar as an intermediary currency. The currency swap agreement will last for three years and provide a maximum of 350 billion Yuan ($56 billion) to the ECB and 45 billion euro ($60.8 billion) to the PBC.
In a further sign of growing distrust, China introduced a so-called “haircut”, or a discount, on the value of US Treasuries held as collateral against futures trades.
Developing and developed nations are equally concerned, and institutions like the World Bank and the International Monetary Fund (IMF) have issued several warnings.
Christine LaGarde, managing director of the IMF told the US they must uphold their financial promises to the international community and raise their debt ceiling. Failing to do so would put the world “at risk of tipping yet again into a recession,” LaGarde said in an interview on NBC’s ‘Meet the Press’, which aired on October 13.