Former Reserve Bank of India Governor Y. V. Reddy does not think the U.S. dollar will lose supremacy because there is no alternative.
“After all, there is no alternative global currency now. If those countries with large exposure to the U.S. T-bills start selling them, then it will devalue the dollar more, which in turn will hurt these countries more than what it does now,” he told PTI over the telephone from Hyderabad.
“From that angle also, the supremacy of the dollar will continue,” he added.
When asked if the U.S. downgrade would lead to an eventual loss of the position of the dollar as the global reserve currency, Dr. Reddy said, “The fact is that the American greenback still dominates. The Euro is in trouble, so is the yen. There may be some weakening of the dollar as a fall out of the current crisis, but the relative position of the dollar to all other currencies has not changed.”
According to U.S. Treasury Department data, America owes $4.5 trillion to foreign countries that hold its government securities. China is the single largest holder of U.S. treasury bills, or T-bills, with an exposure of over $1.15 trillion, which is nearly half of Beijing's forex reserves. New Delhi comes 14th, with an exposure of $41 billion, or Rs.1.83 trillion.
The overall national debt of the U.S. is moving nearer to $15 trillion following the consensus reached in August to raise the nation's debt ceiling.
Following the unprecedented debt downgrade of the U.S. from the top-notch AAA level by ratings agency Standard & Poor's to AA+ earlier this month, there was expectation that the Reserve Bank of India, which allows holdings of government bonds of countries with mostly AAA rating, may take some action.
However, nothing has come from Mint Street as yet.
According to reports, a vast majority of the $41 billion portfolio is owned by the RBI itself, but some domestic banks also might have some exposure.
Sources had earlier said the RBI was likely to allow holdings of U.S. securities even with a notch-lower rating, as it had been amassing the U.S. treasury securities over the past one year despite a deepening debt crisis there. The country's total holdings of U.S. T-bills have grown by about $10 billion in the past one year alone, according to the U.S. Treasury Department data.