JPMorgan Chase: The biggest threat to the US dollar hegemony comes from the United States itself

According to a recent webinar by JPMorgan Chase, dollarization will only become an issue if allowed in the United States.

One of the key conclusions of this meeting is that the biggest threat to the dominance of the US dollar is the continuously expanding levels of US debt and fiscal deficits, which officials in Washington can accelerate efforts to address.

Overseas demand for US Treasury bonds reinforces the international status of the dollar, as foreign investors need dollars to purchase US Treasury bonds. According to data from the Peter G. Peterson Foundation, as of December 2023, foreign investors held around 29% of US Treasury bonds.

However, some caution that this situation could change if US Treasury bonds lose their attractiveness.

Despite the attractiveness of US Treasury bonds due to their safe-haven reputation, some analysts express concerns about risks. Since the pandemic, US spending has surged, with the current deficit equivalent to around 6% of GDP, far above the 50-year average of 3.7%.

At the same time, the latest forecasts from the federal government project that by 2034, the debt-to-GDP ratio will rise from last year's 97.3% to 122.4%. With this increasing ratio, the US will find it harder to repay its debts. Experts warn that if this trend continues, Washington may face debt default within just 20 years.

Mark Sobel, former chief economist at the Treasury Department who participated in the webinar, had previously warned that the US must address its "enormous deficits" to maintain manageable fiscal policy. In earlier comments, he pointed out that under the leadership of the Trump administration, this threat would increase.

"While the dominance of the US dollar remains deeply rooted, the towering debt and potential policies of Trump imply reduced confidence and trust in US leadership, weakened macroeconomic management, and an increased burden on the market for financing a large amount of US Treasury debt," said Sobel, the current Chairman of the Official Monetary and Financial Institutions Forum in the US.

In recent years, concerns about de-dollarization have arisen from actions taken by other countries. While the international community continues to diversify towards other currencies, the conclusion drawn from the aforementioned webinar is that warnings about the demise of the dollar have been exaggerated. Instead, the dollar has maintained its global status as a reserve currency and international financing tool.

For example, many alarmists have focused on the share of the dollar in foreign exchange reserves, often pointing out that central banks have been buying large amounts of gold as an alternative. However, JPMorgan Chase points out that this overlooks the fact that bank deposits, sovereign wealth fund assets, and other dollar-denominated assets in central bank foreign exchange reserves have been increasing.

Experts from the webinar also noted that nearly every long-term indicator overestimates the trade-weighted dollar. JPMorgan Chase stated that over the past 10 years, the strong US economy, attractive yields, and significant capital inflows have driven the trade-weighted dollar to appreciate by 30%