This primacy has long benefited the American economy. A French official once said that the dollar’s status as the global reserve currency amounted to an “exorbitant privilege” for the United States. At the very least, it comes with some significant perks. Because there is high demand for Treasury assets, the U.S. can borrow money at relatively low rates, helping ensure stability during periods of economic volatility. Lower interest rates for Treasurys extends to lower interest rates in other areas of the economy, such as the rate homebuyers pay for a mortgage. It also means that American sanctions pack a punch: Dollar-based global transactions use American banking infrastructure, so the U.S. government is more easily able to seize assets and freeze activity.
If the dollar lost its status as the primary reserve currency, the country could see a reversal of those benefits. Rates on mortgages and car loans, for example, closely track to Treasury yields. When the federal government is paying higher interest rates, that trickles down to the American consumer.
“If there is less demand for Treasurys, because there’s less demand for all dollars in general, it raises private borrowing costs for mortgages, for auto loans, for business loans,” said Caleb Quakenbush, associate director of economic policy at the Bipartisan Policy Center. “That, of course, makes things less affordable, and it can slow investment and economic growth over time.”
