WASHINGTON - Five years after the U.S. financial crisis helped cause a deep global recession, foreign leaders are worried that history is going to repeat itself.
The fiscal impasse that has partially shut the federal government now threatens to trigger a U.S. default that could roil financial markets worldwide, leading an agitated China to suggest selecting a different international reserve currency.
"As U.S. politicians of both political parties are still shuffling back and forth between the White House and the Capitol Hill without striking a viable deal to bring normality to the body politic they brag about, it is perhaps a good time for the befuddled world to start considering building a de-Americanized world," China's official state-run news agency, Xinhua, said in an English-language commentary Sunday.
There is no viable alternative to the dollar as the centerpiece of the global financial system, and there probably won't be for the foreseeable future, experts said.
"The U.S. remains the core of the global financial system at this point," said Nicolas Veron, a senior fellow at Bruegel, a think tank in Brussels. "But the sort of thing happening in the U.S. might move people toward a system less reliant on the U.S."
China echoed calls from world financial officials urging an end to what it called the "pernicious impasse" in the U.S. over funding the government and raising the $16.7 trillion debt limit.
The Treasury Department has said the debt limit must be raised by Thursday or it will run out of borrowing authority. That would leave it dependent on just cash on hand and incoming revenue to pay the federal government's bills.
Given the world financial system's dependence on the dollar, a default on payments of interest or principal on U.S. Treasury bonds would be catastrophic for the global economy, analysts said.
Treasury bonds and other dollar-based investments are used as the main form of collateral worldwide, so questions about their security would cause more problems than the financial system failures in fall 2008, said Benjamin J. Cohen, an international political economy professor at the University of California, Santa Barbara.
"It would make the Lehman Bros. episode look like a garden party by comparison," Cohen said.
Most countries hold their foreign exchange reserves in U.S. dollars because the currency is viewed as the world's most stable.
"The very fact that more than 60 percent of central banks' reserves are in dollars gives them every reason to be concerned," Barry Eichengreen, a professor of economics and political science at UC Berkeley and a former senior policy adviser at the IMF, said. "If the bank in which you held 60 percent of your savings was threatening to default, you'd be concerned too."
China is the largest foreign holder of U.S. debt, with about $1.3 trillion in Treasury bonds, and probably more in other dollar-denominated investments.