IMF’s Lagarde Says US Dollar May Lose ‘Privilege’ Amid Debt-Limit Crisis

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IMF’s Lagarde Says U.S. Dollar May Lose ‘Privilege’ Amid Debt-Limit Crisis (Bloomberg, Jul 29, 2011):

International Monetary Fund Managing Director Christine Lagarde said the dollar’s standing as the world’s main reserve currency may be diminished as U.S. lawmakers fail to lift the nation’s debt limit.

The U.S. currency has had an “exorbitant privilege because it was the reserve currency that most central banks had,” Lagarde said in an interview on PBS’s “Newshour” yesterday. “If there was a dent in this exorbitant privilege and the confidence that most people have towards the dollar, it would probably entail a decline of the dollar relative to other currencies.”

U.S. lawmakers are negotiating to raise the nation’s $14.3 trillion debt limit by Aug. 2 to prevent a default. The Dollar Index, which tracks the currency against those of six trading partners, slid to an eight-week low this week.

The delay may cause “doubts in the mind of those people who reserve currencies as to whether the dollar is effectively the ultimate and prime currency of reserve,” Lagarde said.

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