Dollar to Be 'Discarded' by World: China Rating Agency

CNBC

August 8, 2011

The man who leads one of China’s top rating agencies says the greenback’s status as the world’s reserve currency is set to wane as the world’s most powerful policy makers convene to examine the implication of S&P’s decision to strip the United States of its triple “A” rating.

The United States "should get a clear understanding that the continuous decline of the debt service capability will inevitably result in the outbreak of a sovereign debt crisis.”

Guan JianzhongChairman, Dagong Global Credit Rating

In comments emailed to CNBC, Guan Jianzhong, chairman of Dagong Global Credit Rating, said the currency is “gradually discarded by the world,” and the “process will be irreversible.”

Dagong made headlines last week when it became the first rating agency to cut its U.S. credit rating from “A+” to “A” after policymakers in Washington failed to act in a timely manner to lift its debt celing.

However, the announcement failed to register in the markets as investors have yet to decide whether to take the Beijing-based company seriously.

“It has been around for quite a while, but I do not know of anyone assigning risk assessment to thir portfolio according to Dagong,” said Steen Jakobsen, chief economist at Saxo Bank. “However, clearly the rating industry could do with some competition and deviance from firm beliefs.”

But Guan’s observation—made just before S&P slashed its ratings on the world’s biggest economy—now seems strangely prescient.

“I think the most pressing issue facing the U.S. at the moment is to reflect on the crisis which happened in relation with the debt ceiling," Guan said. "They should get a clear understanding that the continuous decline of the debt service capability will inevitably result in the outbreak of a sovereign debt crisis.”

Read the entire article