Georgieva Indicates "More Vulnerabilities" in the US Banking Sector

Georgieva Indicates "More Vulnerabilities" in the US Banking Sector

The International Monetary Fund (IMF) Managing Director, Kristalina Georgieva, has given a strong indication of "more vulnerabilities" in the US banking sector and a growing global de-dollarization trend. "There has been a gradual shift away from the dollar," the IMF Managing Director has acknowledged.

The US Banking Sector Crisis is Not Over

The managing director of the International Monetary Fund (IMF), Kristalina Georgieva, spoke about the US banking crisis and a growing global de-dollarization trend on Monday at the 2023 Milken Institute Global Conference in Beverly Hills, California.

The IMF chief gave a strong indication of more vulnerabilities in the US banking sector, stating that the rapid interest rate hikes by the US Federal Reserve have exposed the vulnerabilities of some banks, and maybe all is not over as more could follow. She said:

"It doesn’t mean that we have a free pass. It doesn’t mean that there wouldn’t be more vulnerabilities to come."

Several major banks in the US have failed in recent months, with the latest being First Republic Bank. The regulators seized the bank on Monday and sold virtually all its assets to JPMorgan Chase. This was the largest US bank failure since the 2008 financial crisis.

Georgieva lauded the US regulators for their swift action in dealing with the collapse of First Republic Bank, highlighting that she expects to see "new regulatory and disclosure thinking around how we deal with this."

Global De-Dollarization Trend

The IMF managing director also spoke on the global de-dollarization trend. Georgieva is yet to see any viable alternative among global currencies to replace the US dollar as the world’s reserve currency shortly. She acknowledged:

"There has been a gradual shift away from the dollar; it was 70% of reserves; now it is slightly under 60%."

She believes the euro is the biggest competitor to the US dollar, while the British pound, the Japanese yen, and the Chinese yuan "play a very modest role."

The BRICS nations (Brazil, Russia, India, China, and South Africa) have emerged as the most vocal advocates of de-dollarization. In addition to promoting the use of national currencies, the economic bloc is working to create a new currency for its member countries to reduce their reliance on the USD. A Russian official recently announced that he expects an agreement on a BRICS currency by the end of the year.

What is your take on IMF Managing Director Kristalina Georgieva's statements on the US banking sector? Please post your comment.