A new survey from the CFA Institute Research and Policy Center reveals global investment professionals are uneasy about the sustainability of US government finances, with concerns surrounding the rising national debt bubbling over into concerns about the US dollar’s status as the world’s reserve currency.
The report, titled "The Dollar's Exorbitant Privilege – CFA Institute Global Survey on the US Debt and the Role of the US Dollar," gathered responses from over 4,000 professionals worldwide.
The survey highlights a stark assessment of the country's fiscal path, with 77 percent of respondents expressing concern about the sustainability of US debt-to-GDP levels. Many are worried that both political parties are failing to address the mounting deficit, leaving the country's financial health in jeopardy.
Sheila Bair, former chair of the Federal Deposit Insurance Corporation and founding chair of the CFA Institute Systemic Risk Council, summarized it bluntly in the foreword of the report.
“Unfortunately, in the 21st century, the U.S. political leadership has concluded that deficits don’t matter,” she wrote. “They have become wary of braving the political pain of deficit reduction, knowing their successors could easily squander those hard-fought battles with more deficit-financed spending and tax cuts.”
Those concerns were reflected by a panel of strategists convened by Franklin Templeton on Wednesday, who estimated the deficit would be stretched to at least 7 percent regardless of whether former president Donald Trump or Vice President Kamala Harris prevails in the hotly contested 2024 election.
"It’s a question of bad and worse," Sonal Desai, portfolio manager and chief investment officer at Franklin Templeton Fixed Income, commented during the event. "The fiscal deficit is enormous."
In one of its most striking findings, the CFA Institute survey revealed nearly two-thirds (63 percent) of respondents estimate the US dollar will lose some of its reserve currency status over the next 5 to 15 years.
A plurality of investment professionals are concerned that a multipolar currency system, involving a mix of global currencies, could supplant the dollar’s dominance (38 percent), while a smaller minority see digital currencies (12 percent) and hard currencies like gold (12 percent) as possible alternatives. The Chinese renminbi, often discussed as a potential rival, was selected by only 6 percent of respondents.
Olivier Fines, head of advocacy for EMEA at CFA Institute, noted the long-term risks this shift could pose. “The survey results are unequivocal. They signal great concern about the lack of fiscal discipline in the world’s largest economy and the potential implications for the role of the U.S. dollar as the preeminent reserve currency, on which global financial stability is still dependent.”
The report also revealed geographic differences in opinion. Respondents from developed markets were more pessimistic, with 79 percent expressing doubts about the sustainability of US finances, compared to 65 percent in emerging markets. Meanwhile, in BRICS countries – comprising Brazil, Russia, India, China, and South Africa – expectations of the dollar losing its reserve status were even higher, with 72 percent predicting that outcome.
Despite these growing concerns, the survey found that 59 percent of respondents still believe that investors maintain confidence in the US government’s ability to borrow freely and meet its debt obligations. However, the growing dissonance between this confidence and the concerns over long-term fiscal health suggests that trust may not endure unless the US makes substantial policy changes.
Paul Andrews, managing director for research, advocacy, and standards at CFA Institute, acknowledged the complexities of the issue.
“While its reserve currency status grants the United States distinct advantages, it also imposes the responsibility to act judiciously to preserve economic resilience and trust across the international markets,” he said. “It is unfortunate that at present, both major party candidates lack policy proposals to reduce the deficit.”
With 69 percent of respondents advocating for cuts to non-mandatory spending such as defense, and 52 percent calling for reductions in mandatory programs like social insurance and healthcare, the survey emphasizes a broad consensus that action is needed to reduce the ballooning debt.
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