The Status of U.S. Treasuries and the Dollar

By Jamie McGeever

ORLANDO, Florida (Reuters) – U.S. Treasuries may not be as risk-free as before, and the dollar’s grip on global currency reserves is loosening, but discussions about their decline are premature.

Recent debates at the Kansas City Fed’s Jackson Hole Symposium focused on whether the increasing U.S. government debt threatens America’s safe-haven status.

Nevertheless, America’s ‘exorbitant privilege’ allows the U.S. government to borrow significant amounts at low costs due to the dollar’s status as the world’s reserve currency.

No other government debt market or currency provides the same level of liquidity and safety, making a crash scenario for the dollar and U.S. debt unlikely in the near future.

Concerns About U.S. Fiscal Policy

While the U.S. public debt is around 100% of GDP and expected to rise, reaching 122% by 2034, annual deficits may climb to almost $2 trillion, well above historical averages. Research indicates this ‘exorbitant privilege’ allows the U.S. to sustain an additional 22% of GDP in public debt, roughly adding $6 trillion in sustainable borrowing capacity.

Demand for Treasuries

Despite rising debt levels, the Treasury market remains stable, buoyed by domestic investors and the Federal Reserve, countering concerns about foreign central banks’ declining demand. The dollar’s share of global reserves has decreased but remains dominant, outpacing competitors like the euro and maintaining investor confidence.

In conclusion, while fiscal challenges persist, both U.S. Treasuries and the dollar continue to play crucial roles in global finance.