Foreword written by Sheila Bair, Former Chair of the Federal Deposit Insurance Corporation and Founding Chair of the CFA Institute Systemic Risk Council.
Report Overview
For more than 20 years, the US government has run uninterrupted budget deficits, which, coupled with increasing national debt, have raised concerns about the long-term sustainability of US public finances. The US debt-to-gross domestic product (GDP) ratio in 2024 is at levels not seen since World War II. In addition, the Federal Reserve's balance sheet hit record highs in 2022 due to monetary responses to the COVID-19 pandemic, further increasing the money supply.
Despite these alarming fiscal conditions, however, the US dollar (USD) has maintained its status as the primary global reserve currency, widely used in international trade, central bank reserves, and for US Treasury bond purchases. Nevertheless, concerns about the future stability of the USD persist. The concept of "de-dollarization" has gained attention, particularly as an expansive monetary policy and inflation are eroding the purchasing power of the USD.
The Dollar’s Exorbitant Privilege: CFA Institute Global Survey on the US Debt and the Role of the USD analyzes opinions on the sustainability of US public finances, particularly considering rising debt-to-GDP ratios and persistent budget deficits. Researched in collaboration with Georgetown University and based on a global survey of CFA Institute members, this report explores how high US debt levels may affect the USD’s status as the world’s leading reserve currency.
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The report identifies two key risks to the USD’s dominance: unsustainable government spending and a potential loss of investor confidence. If global investors lose trust in the US government's ability to manage its debt and fiscal policies, the demand for US Treasuries could decline, causing a ripple effect on global markets.
Based on a CFA Institute Membership Survey, conducted 15–31 July 2024, the report’s findings highlight both positive and negative forces affecting the USD. The survey gathered the views of finance professionals on the following key questions:
- Is US government finance sustainable?
- Are investors losing confidence in US Treasuries?
- Will the USD lose its reserve currency status in the next 5–15 years?
- What factors could contribute to the USD’s decline?
- Which currency might replace the USD as the world’s reserve currency?
- Can the US reduce its debt-to-GDP ratio?
- What measures should the US prioritize to reduce debt?
The survey found: Most respondents (77%) believe the US government’s finances are unsustainable, yet 59% think investors still trust the US’s borrowing ability. Developed market participants are more pessimistic (79%) than those from emerging markets (65%). A majority (63%) expect the USD to lose at least partially its reserve currency status within 5–15 years, favoring a multipolar system (38%) or digital currency (12%). Many (61%) doubt the US can lower its debt-to-GDP ratio, and 69% think the government should cut discretionary spending, with 52% suggesting mandatory spending cuts.
In summary, The Dollar’s Exorbitant Privilege: CFA Institute Global Survey on the US Debt and the Role of the USD highlights the need for the US government to control its budget deficits and reduce its debt-to-GDP ratio to avoid undermining the USD’s global position. While the dollar currently faces no serious rivals, continued fiscal irresponsibility could eventually lead to a gradual or sudden loss of confidence, potentially destabilizing global financial markets. Without political will to address these issues, the status quo may persist, but the risks to the USD remain real.