Tags: ECB | Nowotny | currency | dollar

ECB's Nowotny Says Dollar to Stay Lead Currency Amid Debt Debate

Friday, 18 October 2013 09:32 AM

European Central Bank Governing Council member Ewald Nowotny said the debate about the debt ceiling in the U.S. hasn’t threatened the dollar’s role as the leading global currency.

“The dollar will remain the most important currency in the world, not least because the American capital market is the biggest in the world,” Nowotny said at a panel discussion in Vienna. “The U.S. will hear alarm bells ringing once the oil price isn’t quoted in U.S. dollars anymore, but we are very far from that point.”

President Barack Obama signed a bill to fund the U.S. government and lift the debt limit early yesterday, ending a shutdown that began Oct. 1 and has taken $24 billion out of the world’s largest economy, according to Standard & Poor’s. While the measure puts government workers back to work, it suspends the debt limit only through Feb. 7, shifting the focus to a new series of deadlines.

“The long-term uncertainty remains,” Nowotny said. “One knows that this bill only lasts for a relatively short period of time. This isn’t a significant improvement of the situation.”

While the dollar will remain the world’s main currency, the uncertainty about the debt ceiling forces investors to look for alternatives, Nowotny said.

Chinese Attempts

“There’s an attempt to diversify,” he said. “The euro is gaining significance as a currency reserve, about 25 percent of the world’s currency reserves are being held in euros, with an upward trend. In addition, there are serious attempts to establish the Chinese currency as a trading currency.”

The ECB and the People’s Bank of China agreed last week to establish a bilateral currency swap line, bolstering access to trade finance in the euro area and strengthening the international use of the yuan. Britain announced this week it will allow Chinese banks to set up branches as it seeks to establish London as a hub for offshore yuan trading.

Nowotny also said that the 17-nation euro-area economy, which emerged from its longest-ever recession in the second quarter, will gather pace next year. The ECB predicts the currency bloc’s economy will shrink 0.4 percent this year before growing 1 percent in 2014.

“We expect an exceptional strong upward boost in Germany,” he said. “We are quite optimistic for 2014.”

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European Central Bank Governing Council member Ewald Nowotny said the debate about the debt ceiling in the U.S. hasn't threatened the dollar's role as the leading global currency.
Friday, 18 October 2013 09:32 AM
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