European leaders are considering dumping $2.34 trillion in US debt if Trump abandons Ukraine, potentially triggering an economic crisis worse than 2008
European leaders are considering dumping $2.34 trillion in US debt if Trump abandons Ukraine, potentially triggering an economic crisis worse than 2008
It’s also absurd. No holder of that much paper would take that write-down on their balance sheet, and even if they did, whoever bought that debt for EU100 could sell it for far more and earn a fortune. Equilibrium would almost instantaneously be restored.
And the thinking about the risk of USD’s status as a reserve currency is largely magical. It’s a reserve currency because of the stability and strength of the economy that backs it. But most of the disaster scenarios are based on that causality being reversed.
If, for some reason, USD was no longer used as a reserve currency, that would introduce friction to trade with the US, since there would need to be currency exchange done. For high volumes, that might add a fraction of a percent to transaction costs. That’s not enough to lead to massive changes in trade flows. And the liquidity of US government debt markets might be lessened, but liquidity is more a threshold phenomenon than a continuous one: 20% less liquidity in a market makes no difference, unless that means there’s not enough liquidity remaining to clear that market.