The dollar’s role as the world’s leading reserve currency is at risk because of the political impasse in the United States, which has raised fears of a debt default, European Central Bank policymaker Ewald Nowotny said.
President Barack Obama and congressional Republican leaders inched toward resolving the standoff on Friday, but struggled to agree on a short-term deal to increase U.S. borrowing authority beyond an Oct. 17 limit and to reopen the government.
“If it really comes to a collapse, no one knows exactly what will happen. One expects that there are chances to postpone the effects but by the end of the year at the latest it will be rather dramatic,” Nowotny told Austrian broadcaster ORF in an interview aired on Saturday.
“It is apparent that it is extremely dangerous when the politics of a country whose currency is the world currency – it is still the most important currency – are driven primarily by very narrow domestic considerations,” he added.
“This discrepancy is very dangerous and in my view will have a negative impact on the long-term role of the dollar.”
Interviewed in Washington during meetings of the International Monetary Fund and World Bank, Nowotny said jitters over the U.S. budget standoff were already pushing the euro higher.