US Dollar’s ‘Impenetrable Armor’ Weakening As Chinese Yuan and Alternate Currencies Grow: BlackRock’s Bonds Chief

A top strategist at the world’s largest asset manager says the US dollar is no longer the invincible world reserve currency that it once was.

In a new interview with Semafor Business, BlackRock’s Rick Rieder, who manages over $2.4 trillion in the giant’s Global Fixed Income arm, says other currencies including crypto assets are “chipping away” at the dollar’s supremacy.

Says Rieder,

“But we keep chipping away at the impenetrable armor of the dollar. Yuan is being used more, euros, there is a part of the market that looks at crypto as an alternative. I’ve been watching gold have a good run [up 8% this year].”

Commenting on the recent debt ceiling crisis, Rieder says that if the US were to ever default on its debt, it would be a major blow to the US dollar and US bonds. Since the US government made many countries wary of its sanctions on Russia and its seizure of Russian assets, Rieder says the next flight to quality may not include the US dollar as it has in previous times of uncertainty.

“A ratings downgrade would be a big deal because of how international investors and other central banks would view our debt. Secondly, U.S. Treasury bonds are the most liquid and actively used collateral in the world.

And a third thing, which is harder to decipher, is the impact on the dollar. Normally the flight to quality in the world is into dollars. But after sanctions and the dynamic around deglobalization [post-pandemic], international investors are inclined to diversify.”

Rieder predicts that next year, interest rates will be lower, but not to the extreme lows of the past decade.

According to the BlackRock executive, the near-zero interest rates of recent years have created artificial prices for many assets, which will now need to readjust.

“I think interest rates will come down next year, but they’re going to stay higher than they did historically. And markets are funny. They like to believe that things are going to go back to normal and then all of a sudden, they readjust fast. We’re witnessing that today. The rollover financing for leveraged loans, the rollover financing for commercial real estate, in housing, we haven’t seen this in years.”

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