International Monetary Fund Managing Director Kristalina Georgieva said the U.S. dollar is likely to remain the dominant currency in the global financial system, even after a recent period of depreciation.
"We should not get carried away by short term variations of the exchange rate," Georgieva said in an interview with Bloomberg Television. "I don't see a change in the role of the dollar anytime soon." She made the comments while attending an IMF conference focused on emerging markets in Al-Ula, Saudi Arabia.
Georgieva pointed to several structural features that, in her view, underpin the dollar's continued centrality. She highlighted "the depth and liquidity of capital markets in the United States, the size of the economy and the entrepreneurial spirit of the US" as factors that sustain the greenback's position in international finance.
At the same time, Georgieva noted that a softer dollar can carry benefits for many emerging-market economies by lowering the local currency cost of dollar-denominated liabilities. "Those that borrow in the greenback will pay less now," she said, adding that a weaker dollar "eases their interest payments on foreign debt."
Her comments coincided with a Bloomberg report that Chinese regulators have instructed financial institutions to reduce holdings of U.S. Treasuries because of concerns about concentration risks and market volatility.
Implications and context
Georgieva's assessment underscores the IMF's view that temporary exchange-rate movements do not necessarily signal a durable shift in the international monetary order. She emphasized the continuing role of U.S. capital markets and the broader economy as stabilizing forces for the dollar, while also acknowledging that currency depreciation can relieve debt-service burdens for borrowers with obligations denominated in dollars.
Her remarks arrive amid market attention to portfolio allocation among sovereign and institutional holders of U.S. debt, as reflected in the report about Chinese regulatory guidance on Treasury exposure.
Conference setting
Georgieva delivered these observations while participating in IMF events addressing emerging-market issues in Al-Ula, Saudi Arabia. The conference setting provided a platform for discussing currency dynamics and their effects on external indebtedness and market stability.