US Dollar Hegemony would suffer extraordinarily from inflation
Norrlöf 6/5, (Carla Norrlöf is a Senior Fellow at the Atlantic Council and Professor of Political Science at the University of Toronto), “Dollar dominance: Preserving the US dollar’s status as the global reserve currency”, Atlantic Council, 6/5/2023, https://www.atlanticcouncil.org/commentary/testimony/dollar-dominance-preserving-the-us-dollars-status-as-the-global-reserve-currency/ // EE
While the dollar enjoys an extraordinary lead over other international currencies, it is not invincible. Poor domestic policies could shake confidence in the dollar. Structurally, the United States’ liquidity-creating role—providing dollar assets to the rest of the world—and the ability to invest in the United States can interact unfavorably with low savings in the United States, resulting in large deficits, rising public and/or private debt. Unlike the euro-zone, however, the United States does not face the prospect of involuntary sovereign default because the dollar is a convertible sovereign currency. The recent specter of US default, a possibility which arises periodically, is entirely voluntary and due to a self-imposed debt ceiling. In the United States, the upper bound of the debt limit is rather determined by foreigners’ willingness to hold dollars, at worst resulting in inflation and depreciation. Although the United States cannot be forced to default, such an adjustment process may not be benign.