By David Milliken
LONDON, Dec 3 (Reuters) – The U.S. dollar’s status as a global reserve currency could be undermined by the country’s reduced support for its friends and military allies, Bank of England policymaker Catherine Mann said on Wednesday.
“If you can’t depend on a certain country to be your ally, then why are you holding their currency in reserve?” Mann said at an event in New York hosted by the Global Interdependence Center and Bloomberg.
Mann, a U.S. citizen, has served on the BoE’s Monetary Policy Committee since 2021 and before that was the chief economist at Citi and the Paris-based Organisation for Economic Co-operation and Development.
The United States could draw lessons from Britain, where the pound’s share of global reserves shrank from 80% in 1900 to 5% now, she said. The dollar accounted for 58% of global official currency reserves last year, according to data from the International Monetary Fund, down from 65% in 2016.
Part of sterling’s decline was caused by the cost of World War One, when Britain shifted from being a creditor nation to a debtor, as well as the growth of the U.S. economy in the 20th century, and the further financial hit from World War Two.
But recent academic research placed increased emphasis on diplomatic factors as Britain gave up its empire and global military role, rather than purely economic and financial ones, Mann said.
“The military alliances, the institutional relationships across countries, the agreements that countries have with each other, these … have been identified as being much more important than people thought in the past,” she said.
“I do see a corollary in today’s environment, where there’s a retreat from these alliances by the United States,” she said.
U.S. President Donald Trump has been much more insistent than his predecessors in telling European countries to shoulder more of the cost of NATO.
Mann said this could lead to greater dominance of the euro as a reserve and trade currency in Europe and nearby areas, much as the dollar took over in Latin America in the 1920s and 1930s.
But the stalled growth of the yen as a global currency since the 1980s showed this was not a certainty and relied on countries with potential reserve currencies being willing to give up some control over financial institutions.
“It’s going to be a long time before we see the renminbi moving in that direction,” she said.
(Reporting by David Milliken; Editing by Daniel Wallis)
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