The U.S. dollar is still the most important currency in the world, said S & P on Thursday, but added that rising levels of debt and U.S. dependence on foreign investors owning part of a heavy debt, represents a danger to the primacy of the currency.
Without a credible plan to curb the fiscal costs, foreign creditors could reduce the dollar reserves, which could pressure the highest credit rating of the U.S., which supports the cost of borrowing at a low level.
At this time, the rating agencies agree that the U.S. economy - the largest in the world, and the depth of financial markets means continued dominance in global trade and currency transactions.
These benefits have helped the dollar maintain its status, despite the financial crisis of 2008-2009, which began in the United States - the report says S & P.
Also, the agency added that the dollar is an important factor supporting the credit rating of 'AAA' USA, which is currently the highest rating in the world.
The main risk for the dollar's status comes from the growing volume of U.S. public debt, which shares owned by foreign central banks and sovereign funds.
S & P also stated that the expansion of the U.S. budget deficit was the risk, adding: "no medium-term fiscal consolidation plan, which markets deem reliable, foreign creditors could reduce their dollar assets, especially if they come to the conclusion that the members of the eurozone are implementing strong macroeconomic policy.
China owned 23% of the huge debt the U.S. in 2009, Japan possessed 21% - said the agency. In total, 46% of U.S. public debt owned by official and private foreign investors.
This percentage has increased every year since 2001, when foreign investors owned 30% of U.S. debt.
U.S. budget deficits for fiscal 2010 is projected within 11%, while the ratio of total public debt to GDP ratio will reach 82% by 2013, more than twice as much as in 2007, which amounted to 38% - the agency said.
"From our point of view, inflation data, trading volumes, volatility in foreign exchange and the state of the current account, will be critical indicators, if the impact of the dollar will fall," - the report says. "Such a scenario may even put pressure on the 'AAA' credit rating of the U.S..
Some major U.S. lenders, such as China and Russia, were dissatisfied with fiscal and monetary policies of the U.S. over the past year and talked about alternatives to the dollar.
In the meantime, it was not so much signal to ensure that investors and governments abandon the dollar.
S & P notes that the dollar still accounts for about 62% of foreign exchange reserves in central banks, only slightly down from 72% mark in 2001.
"Any decrease in the share of dollar assets is likely to continue to be quiet, gradual and secure for many years", - said the agency.
The dollar is still amounted to 86% in currency exchange operations by the fall of 2009, only slightly down from 90% in 2001.
And while the euro is clearly intruding into international finance, the dollar continues to dominate world trade.
"In each of the countries surveyed the proportion of exports in U.S. dollars exceeds the share of U.S. exports from the country, and often by a large margin" - the report says.
Without a credible plan to curb the fiscal costs, foreign creditors could reduce the dollar reserves, which could pressure the highest credit rating of the U.S., which supports the cost of borrowing at a low level.
At this time, the rating agencies agree that the U.S. economy - the largest in the world, and the depth of financial markets means continued dominance in global trade and currency transactions.
These benefits have helped the dollar maintain its status, despite the financial crisis of 2008-2009, which began in the United States - the report says S & P.
Also, the agency added that the dollar is an important factor supporting the credit rating of 'AAA' USA, which is currently the highest rating in the world.
The main risk for the dollar's status comes from the growing volume of U.S. public debt, which shares owned by foreign central banks and sovereign funds.
S & P also stated that the expansion of the U.S. budget deficit was the risk, adding: "no medium-term fiscal consolidation plan, which markets deem reliable, foreign creditors could reduce their dollar assets, especially if they come to the conclusion that the members of the eurozone are implementing strong macroeconomic policy.
China owned 23% of the huge debt the U.S. in 2009, Japan possessed 21% - said the agency. In total, 46% of U.S. public debt owned by official and private foreign investors.
This percentage has increased every year since 2001, when foreign investors owned 30% of U.S. debt.
U.S. budget deficits for fiscal 2010 is projected within 11%, while the ratio of total public debt to GDP ratio will reach 82% by 2013, more than twice as much as in 2007, which amounted to 38% - the agency said.
"From our point of view, inflation data, trading volumes, volatility in foreign exchange and the state of the current account, will be critical indicators, if the impact of the dollar will fall," - the report says. "Such a scenario may even put pressure on the 'AAA' credit rating of the U.S..
Some major U.S. lenders, such as China and Russia, were dissatisfied with fiscal and monetary policies of the U.S. over the past year and talked about alternatives to the dollar.
In the meantime, it was not so much signal to ensure that investors and governments abandon the dollar.
S & P notes that the dollar still accounts for about 62% of foreign exchange reserves in central banks, only slightly down from 72% mark in 2001.
"Any decrease in the share of dollar assets is likely to continue to be quiet, gradual and secure for many years", - said the agency.
The dollar is still amounted to 86% in currency exchange operations by the fall of 2009, only slightly down from 90% in 2001.
And while the euro is clearly intruding into international finance, the dollar continues to dominate world trade.
"In each of the countries surveyed the proportion of exports in U.S. dollars exceeds the share of U.S. exports from the country, and often by a large margin" - the report says.
Reuters
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