Dollar supremacy to continue as there's no alternative: Reddy

MUMBAI: Former RBI Governor Y V Reddy does not think the US dollar will lose supremacy because there is no alternative.

"After all, there is no alternate global currency now. If those countries with large exposure to the US 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 US downgrade would lead to an eventual loss of the position of the dollar as the global reserve currency, 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 fallout of the current crisis, but the relative position of the dollar to all other currencies has not changed."

According to US Treasury Department data, America owes USD 4.5 trillion to foreign countries that hold its government securities. China is the single largest holder of US treasury bills, or T-bills, with an exposure of over USD 1.15 trillion, which is nearly half of Beijing's forex reserves.

New Delhi comes 14th, with an exposure of USD 41 billion, or Rs 1.83 trillion.


The overall national debt of the US is moving nearer to USD 15 trillion following the consensus reached in August to raise the nation's debt ceiling.


Following the unprecedented debt downgrade of the US from the top-notch 'AAA' level by ratings agency Standard & Poor's to AA+ earlier this month, there was expectation that the Reserve Bank, which allows holdings of government bonds of countries with mostly AAA rating, may take some action.
However, nothing has come from Mint Road as yet. According to reports, a vast majority of the USD 41 billion portfolio is owned by the RBI itself, but some domestic banks also might have some exposure.

Sources had earlier said the RBI is likely to allow holdings of US securities even with a notch-lower rating, as it has been amassing the US treasury securities over the past one year despite a deepening debt crisis there.


The country's total holdings of US T-bills have grown by about USD 10 billion in the past one year alone, according to the US Treasury Department data.

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