Sports teams know the value of a home field advantage. They do everything they can to preserve it. The U.S. Congress appears on the verge of making an unforced turnover that could surrender our advantage as the global reserve currency.
Even though a handful of conservative lawmakers believe defaulting on the national debt is no big deal, financial leaders around the world think it is. They are beginning to question the stability of the mighty U.S. dollar.
Not waiting to find out if Congress can manage an 11th-hour deal to avoid debt default, the Chinese called for replacing the dollar as the world's reserve currency, citing the "pernicious impasse" on Capitol Hill.
The European Union has sounded alarm bells about the financial crisis that could occur if the United States falls into a technical default later this week. Its central bankers also seized on the occasion to return the lectures American officials gave them during the EU's most recent financial difficulties, saying the United States needs to "get its act together."
The British, our best friends in Europe, haven't been as snarky as other Europeans, but just cut a deal to serve as the main offshore hub for trading China's currency. It is step toward the Chinese yuan taking its place as a world currency. According to a Reuters report, London and Beijing also agreed to allow the yuan to be traded against sterling directly, rather than through the dollar, thereby reducing transaction costs.
Economists say there is no real alternative to the dollar as the world's gold standard. But the conversation going on around the globe about "de-Americanizing" the world economy should be sobering to Americans.
Like sports team, there are definite advantages to being the world's reserve currency. One of the biggest is reduced transaction costs when an export or import is made with dollars in or dollars out. There also is less risk of currency valuation fluctuations that easily can turn a profit into a loss. Of course, the most significant benefit is attracting investment from around the world, which comes in handy when running domestic fiscal deficits and foreign trade imbalances.
Since it began buying up U.S. reserve notes, the Chinese government has worried about loose spending habits in the United States that could weaken the dollar and deflate the value of their investments.
The world's economic order is changing rapidly enough with the emergence of China without accelerating it through U.S. policy missteps. The prolonged government shutdown of the world's most prominent democracy and the looming default on national debt is beginning to look a lot like a fumble on the one-yard line.