Yellen: decoupling US-China economies 'virtually impossible'

By Al Mayadeen English
Source: Agencies
7 Jul 2023 12:39

US Treasury Secretary Janet Yellen during her four-day trip to China highlights the complexity of the decoupling of US and Chinese economies underscoring it would risk destabilizing global economies thus making it "virtually impossible".

Treasury Secretary Janet Yellen, speaks as US Ambassador to China Nicholas Burns listens during a roundtable meeting with members of the American business community in Beijing, China, Friday, July 7, 2023 (AP)

Concluding the four-day trip to China, US Treasury Secretary Janet Yellen stated, on Friday, that the decoupling of the US and Chinese economies would be "virtually impossible" as it would result in the destabilization of the global markets.

The Treasury Secretary underscored, during a session with representatives of US businesses hosted by the American Chamber of Commerce in Beijing, that the US has not sought a "wholesale separation of our economies," and explained that "we [US] seek to diversify, not to decouple."

Yellen then added, that "a decoupling of the world's two largest economies would be destabilizing for the global economy," adding that "it would be virtually impossible to undertake."

Significantly, the Treasury Secretary also stressed, during the same session, that Washington was "concerned" about the curbs and that the US was still evaluating the impact of these actions, but they remind us of the importance of building resilient and diversified supply chains."

In turn, the Chinese Finance Ministry said, on Friday, that Yellen's visit would serve to "strengthen communication and exchange between the two countries."

In an official statement, it was noted that "the nature of China-US economic and trade relations is mutually beneficial and win-win, and there is no winner in a trade war or 'decoupling and breaking chains'."

Earlier in the morning, the US Treasury Secretary had a "substantive conversation" with her former counterpart, former Vice Premier Liu He, as well as the outgoing governor of China's central bank, Yi Gang, a US Treasury official reported.

According to the official, "They discussed the global economic outlook as well as the respective economic outlooks for the United States and China."

US expects decline in dollar's share of global reserves: Yellen

As the global de-dollarization movement gains traction, Yellen says Washington should expect a gradual reduction in the dollar's share of global reserves.

Yellen made the comments during a hearing of the US House Financial Services Committee on June 14, in response to queries about the potential of de-dollarization caused by further US sanctions. "We should expect over time a gradually increased share of other assets in reserve holdings of countries — a natural desire to diversify," she said.

She also recognized that implementing sanctions has prompted some governments to seek alternate currencies. However, she asserted that no alternatives could replace the dollar, emphasizing that "the dollar is far and away the dominant reserve asset," adding that “we have deep liquid open financial markets, strong rule of law, and an absence of capital controls that no country can replicate. It will not be easy for any country to devise a way to get around the dollar."

Yellen also expressed alarm about the US debt limit situation, saying it affects worldwide confidence in the state's capacity to honor its financial obligations, harming the dollar's reputation. Her remarks come amid rising efforts by many countries to wean themselves from reliance on the US dollar and trade in their own currencies.

All indicators reveal that the amount of US dollars held in reserves by non-US central banks has fallen to its lowest level. The weaponization of the US dollar, as well as US sanctions imposed on perceived adversaries, has made other countries apprehensive of using the greenback in financial dealings. As a result, countries such as Iran and Russia are pushing for the abolition of the dollar.

China, a significant ally of Iran and Russia, as well as other large Asian economies such as India and Malaysia, have shown support for such de-dollarization efforts.

Moreover, the de-dollarization move was fast-tracked when the US Treasury Department decided to confiscate Russia's US dollar foreign exchange reserves. This has caused other countries to reconsider keeping their financial reserves in US dollars and to conclude that their country could be the next to be harassed and vilified if it does not abide by US foreign policy. They could face secondary sanctions at the very least.