Lawmaker Warns US Default Risks Dollar’s Reserve Currency Status, Exploitation by China and Russia

The top Democrat on the House Intelligence Committee has warned that China and Russia would seek to exploit the chaos resulting from a U.S. default. He further cautioned that the U.S. dollar’s reserve currency status could be eroded if the U.S. defaults on its debt obligations.

Congressman Jim Himes (D-CT), the ranking Democrat on the House Intelligence Committee, warned Sunday during an appearance on CNN’s “State of the Union” about the risks of the U.S. defaulting on its debt obligations.

The lawmaker was asked whether the current U.S. “debt crisis” is “a national security threat” and whether any world leaders have expressed concern to him about it. Avril Haines, Director of National Intelligence, informed the Senate last week that Russia and China would try to exploit the chaos resulting from a U.S. default to show that “We’re not capable of functioning as a democracy.”

Himes replied, “It has not come up in the meetings that we had in Jordan and Israel and Egypt,” emphasizing:

But, of course, the Russians and the Chinese would seek to exploit it. The United States has never really come close to defaulting on its debt before. So it’s hard for us to imagine what that might look like. But, of course, it could be catastrophic.

“Frankly, the full faith and credit of the United States is the bedrock on which the global financial system is built,” he noted.

The congressman stressed that if the U.S. debt default comes into question, “all kinds of things could happen.” He warned:

The U.S. dollar could … its position as the global reserve currency could be eroded. People may choose to invest in the United Kingdom or in the European Union, rather than the United States.

U.S. Treasury Secretary Janet Yellen said last week that the Treasury may not be able to pay all of the government’s bills as early as June 1 “if Congress does not raise or suspend the debt limit before that time.”

On Sunday, Yellen also warned on ABC’s “This Week” that if Congress fails to act on the debt ceiling, it could lead to a “constitutional crisis” with implications for financial markets and interest rates. Additionally, she cautioned that not raising the debt ceiling would result in a “steep economic downturn” in the U.S. The Treasury Secretary said:

There is no way to protect our financial system and our economy other than Congress doing its job and raising the debt ceiling and enabling us to pay our bills. And we should not get to the point where we need to consider whether the president can go on issuing debt. This would be a constitutional crisis.

Do you think Russia and China will take advantage of the chaos if the U.S. defaults on its debt obligations? Let us know in the comments section below.