Janet Yellen Secretary of the Treasury | Twitter Website
Thank you, Michelle, and thanks to Linda, Ricardo, and Fabiola for the chance to be here.
Before discussing how new payment systems impact the role of the dollar, I want to start with its current role and how we at Treasury view it.
People and institutions demand the dollar globally because it fulfills diverse and important needs. It is a safe, stable, and liquid instrument, making it an effective store of value. The borrowing cost of dollars is a reliable benchmark or risk-free rate. The dollar facilitates international transactions in a highly liquid currency, which reduces transaction costs.
Due to these features, the dollar’s global usage far exceeds the U.S. share of global economic and financial activity. Statistics reflect this high demand: the dollar has the largest single currency share in trade invoicing and commodity pricing; it is used in one leg of 88% of foreign exchange transactions; sometimes as a vehicle currency due to trading efficiency. Dollar-denominated assets account for about 60% of central bank foreign exchange reserves globally and a similar percentage of international banking sector liabilities and claims.
The foundation of this robust demand lies in the United States’ governance of the dollar system. Key components include open, deep, and liquid financial markets; high institutional transparency; reliable legal systems; sound macroeconomic policy; commitment to a free-floating currency; and that the dollar is legal tender for a large economy. Values like rule of law, respect for privacy, and protections against illicit finance also underpin our system. Demand likely stems from U.S. support for smooth functioning during economic stress periods.
I argue that the dollar’s international role reflects confidence in our governance's robustness and durability. Treasury and other U.S. institutions work hard to ensure that the dollar-based system continues fulfilling its functions.
The role of the dollar serves our national interest by ensuring a well-functioning international financial system that follows rules supporting a rules-based order. Moreover, global demand for dollars suggests that maintaining its role benefits not only the U.S. but also broader international economic systems.
While some countries are working to internationalize their currencies or suggest changes in technology could erode the dollar’s prominence, we don’t see evidence today but acknowledge it's possible with ongoing innovations in global payments.
Several principles guide Treasury’s engagement on future money and payments:
First, payment innovations must not compromise safety or reliability within the international financial system since stability is crucial for overall financial stability.
Second, emerging payment arrangements must meet international standards like PFMI and FATF Recommendations to preserve stability while combating illicit finance.
Thirdly policymakers should preserve optionality for innovation recognizing private sector's essential role in improving cross-border payments without picking winners among technologies while encouraging development within public policy parameters.
Finally circling back competitiveness isn't solely about technology but also about institutions' governance requiring mutually acceptable terms among jurisdictions involved in new multilateral payment arrangements maintaining clear strong reliable terms underpinned by collective work towards innovation keeping them intact.
QUESTION: You mentioned steps being taken by Administration regarding maintaining competitiveness within realm payments?
Treasury leads an interagency working group focused on future money/payments laying proactive strategy reflecting US democratic values complementing/supporting Federal Reserve independent efforts investing/improving US payment systems monitoring technological evolution extensively engaging bilaterally/multilaterally supporting G20 Cross-border Payments Roadmap priorities addressing technical/legal/operational misalignment promoting interoperability reducing frictions upgrading existing infrastructures aiming faster cheaper transparent accessible cross-border solutions avoiding legacy issues recreation rolling out newer technologies side-by-side legacy ones until full transition achieved policymakers globally progressing goals remittance costs falling significantly fast retail service providers reaching recipients quicker infrastructure investments aligning standards further enhancing benefits shaping future promoting longstanding commitments transparency rule-law sound governance active G7 consideration evolving systems technologies critical roles shaping/promoting sound economic governance.
