[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]


                      DOLLAR DOMINANCE: PRESERVING
                      THE U.S. DOLLAR'S STATUS AS
                      THE GLOBAL RESERVE CURRENCY

=======================================================================

                                HEARING

                               BEFORE THE

                   SUBCOMMITTEE ON NATIONAL SECURITY,
                          ILLICIT FINANCE, AND
                  INTERNATIONAL FINANCIAL INSTITUTIONS


                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              JUNE 7, 2023

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 118-29
                           
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                              __________

                                
                    U.S. GOVERNMENT PUBLISHING OFFICE                    
53-177 PDF                   WASHINGTON : 2023                    
          
-----------------------------------------------------------------------------------  

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

               PATRICK McHENRY, North Carolina, Chairman

FRANK D. LUCAS, Oklahoma             MAXINE WATERS, California, Ranking 
PETE SESSIONS, Texas                     Member
BILL POSEY, Florida                  NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri         BRAD SHERMAN, California
BILL HUIZENGA, Michigan              GREGORY W. MEEKS, New York
ANN WAGNER, Missouri                 DAVID SCOTT, Georgia
ANDY BARR, Kentucky                  STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas                AL GREEN, Texas
FRENCH HILL, Arkansas                EMANUEL CLEAVER, Missouri
TOM EMMER, Minnesota                 JIM A. HIMES, Connecticut
BARRY LOUDERMILK, Georgia            BILL FOSTER, Illinois
ALEXANDER X. MOONEY, West Virginia   JOYCE BEATTY, Ohio
WARREN DAVIDSON, Ohio                JUAN VARGAS, California
JOHN ROSE, Tennessee                 JOSH GOTTHEIMER, New Jersey
BRYAN STEIL, Wisconsin               VICENTE GONZALEZ, Texas
WILLIAM TIMMONS, South Carolina      SEAN CASTEN, Illinois
RALPH NORMAN, South Carolina         AYANNA PRESSLEY, Massachusetts
DAN MEUSER, Pennsylvania             STEVEN HORSFORD, Nevada
SCOTT FITZGERALD, Wisconsin          RASHIDA TLAIB, Michigan
ANDREW GARBARINO, New York           RITCHIE TORRES, New York
YOUNG KIM, California                SYLVIA GARCIA, Texas
BYRON DONALDS, Florida               NIKEMA WILLIAMS, Georgia
MIKE FLOOD, Nebraska                 WILEY NICKEL, North Carolina
MIKE LAWLER, New York                BRITTANY PETTERSEN, Colorado
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee

                     Matt Hoffmann, Staff Director
          Subcommittee on National Security, Illicit Finance, 
                and International Financial Institutions

                 BLAINE LUETKEMEYER, Missouri, Chairman

ANDY BARR, Kentucky                  JOYCE BEATTY, Ohio, Ranking Member
ROGER WILLIAMS, Texas                VICENTE GONZALEZ, Texas
BARRY LOUDERMILK, Georgia            WILEY NICKEL, North Carolina
DAN MEUSER, Pennsylvania             BRITTANY PETTERSEN, Colorado
YOUNG KIM, California, Vice          BILL FOSTER, Illinois
    Chairwoman                       JUAN VARGAS, California
ZACH NUNN, Iowa                      JOSH GOTTHEIMER, New Jersey
MONICA DE LA CRUZ, Texas
ANDY OGLES, Tennessee
                           
                           C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 7, 2023.................................................     1
Appendix:
    June 7, 2023.................................................    39

                               WITNESSES
                        Wednesday, June 7, 2023

Billingslea, Hon. Marshall, Senior Fellow, Hudson Institute; and 
  former Assistant Secretary, Terrorist Financing and Financial 
  Crimes, U.S. Department of the Treasury........................    10
Faulkender, Hon. Michael, Dean's Professor of Finance, Robert H. 
  Smith School of Business, University of Maryland; and former 
  Assistant Secretary, Economic Policy, U.S. Department of the 
  Treasury.......................................................     6
Goodspeed, Tyler, Kleinheinz Fellow, Hoover Institution, Stanford 
  University; and Chief Economist, Greenmantle LLC...............     4
McDowell, Daniel, Associate Professor, Maxwell School of 
  Citizenship & Public Affairs, Syracuse University..............     8
Norrlof, Carla, Nonresident Senior Fellow, GeoEconomics Center, 
  Atlantic Council; and Professor of Political Science, 
  University of Toronto..........................................    11

                                APPENDIX

Prepared statements:
    Billingslea, Hon. Marshall...................................    40
    Faulkender, Michael..........................................    46
    Goodspeed, Tyler,............................................    49
    McDowell, Daniel,............................................    51
    Norrlof, Carla...............................................    53

              Additional Material Submitted for the Record

Luetkemeyer, Hon. Blaine:
    Bloomberg Opinion piece, ``The Dollar's Demise May Come 
      Gradually, But Not Suddenly,'' by Niall Ferguson, dated 
      April 23, 2023.............................................    62
    Written statement of the Coalition for a Prosperous America..    72
De La Cruz, Monica:
    Moody's Investors Service, ``Dollar dominance will persist 
      for decades despite new challenges,'' dated May 25, 2023...    77
Waters, Hon. Maxine:
    Written responses to questions for the record submitted to 
      Michael Faulkender.........................................    88
    Written responses to questions for the record submitted to 
      Daniel McDowell............................................    89
    Written responses to questions for the record submitted to 
      Carla Norrlof..............................................    93

 
                      DOLLAR DOMINANCE: PRESERVING
                      THE U.S. DOLLAR'S STATUS AS
                      THE GLOBAL RESERVE CURRENCY

                              ----------                              


                        Wednesday, June 7, 2023

             U.S. House of Representatives,
                 Subcommittee on National Security,
                               Illicit Finance, and
              International Financial Institutions,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:01 a.m., in 
room 2128, Rayburn House Office Building, Hon. Blaine 
Luetkemeyer [chairman of the subcommittee] presiding.
    Members present: Representatives Luetkemeyer, Barr, 
Williams of Texas, Loudermillk, Meuser, Kim, Nunn, De La Cruz, 
Ogles; Beatty, Gonzalez, Nickel, Pettersen, Foster, and Vargas.
    Also present: Representative Green.
    Chairman Luetkemeyer. The Subcommittee on National 
Security, Illicit Finance, and International Financial 
Institutions will come to order. Without objection, the Chair 
is authorized to declare a recess of the subcommittee at any 
time.
    Today's hearing is entitled, ``Dollar Dominance: Preserving 
the U.S. Dollar's Status as the Global Reserve Currency.''
    I now recognize myself for 5 minutes to give an opening 
statement.
    First, we would like to thank our very impressive set of 
witnesses for being here today. You possess tremendous 
expertise on the U.S. dollar and global economics, and we look 
forward to your insights.
    The U.S. dollar has been the preferred global currency 
since the end of World War II, providing our nation with 
inherent economic advantages as well as responsibilities. 
Today, an estimated 88 percent of all currency transactions by 
value are conducted in U.S. dollars. Among other things, this 
limits the risk of a balance-of-payments crisis, which 
inherently lowers our exchange rate risk. The dollar's position 
also allows the United States and Americans to borrow at rates 
such as 50 to 60 basis points lower.
    Our currency strength not only benefits the U.S. 
Government, but it also helps American consumers by lowering 
the price of imported goods, resulting in an estimated $25 
billion to $45 billion a year in savings.
    Further, the dominant dollar offers investors dependability 
and a save haven in times of economic uncertainty, as seen 
during the 2008-2009 financial crisis, and more recently in the 
economic shock caused by the coronavirus pandemic.
    Finally, possibly the most important advantage of having 
the global reserve currency within our country is embedded in 
the title of our subcommittee: ``National Security.'' The 
dollar's status allows us to apply powerful economic sanctions, 
which when used properly as a targeted tool, can alter our 
adversaries' actions in a way that advances U.S. and global 
security.
    Today, the biggest threat to American and global security 
is the Chinese Communist Party (CCP). Next week, Treasury 
Secretary Yellen will appear before our committee, and one 
thing I hope to find out is, does this Administration have a 
plan for when China inevitably attacks Taiwan? I asked the same 
question of Under Secretary Nelson in April and was not 
impressed by his answer. And I asked that same question of Fed 
Chairman Powell and was not impressed with his answer. We have 
concerns about that.
    Committee Republicans have seen the writing on the wall and 
have acted by putting forward meaningful legislation. I only 
hope that the Administration also has some foresight.
    Sanctions are a powerful tool, and their use should not be 
considered lightly. As such, diverse opinions exist on the 
effectiveness of the U.S. approach to sanctions. Some believe 
that carrying out sanctions too broadly rather than in a 
targeted manner can have a negative effect and ultimately 
undermine dollar dominance. And some believe we should use 
every tool in our kit to maximum effect.
    Because of the formidable impact that U.S. unilateral 
sanctions can have, adversaries and even some friends have 
sought alternative payment methods and systems. It is 
anticipated that when the BRICS--which stands for Brazil, 
Russia, India, China, and South Africa--have their annual 
summit this summer, they will discuss the feasibility of a 
common currency mechanism for trade among their countries as an 
alternative to the dollar. Other countries, including Saudi 
Arabia, Iran, Argentina, the UAE, Algeria, Egypt, Bahrain, and 
Indonesia have also expressed interest in such a mechanism. 
While I don't think this idea is practical in the moment, 
something like it could materialize in the not-so-distant 
future.
    China is also engaged in creating an alternative in the 
form of a central bank digital currency (CBDC), which the 
Chinese communist security agencies intend to use to surveil 
the financial activity of any user. Because this eCNY presents 
an assault on financial privacy and has a risk to our national 
security, I introduced H.R. 804, the Chinese CBDC Prohibition 
Act of 2023. This bill prohibits U.S. money services businesses 
from engaging in transactions involving a central bank digital 
currency issued by China.
    Eventually, the United States will need to make a decision. 
Do we open the door to the expansion of CCP's digital dollar, 
or do we slam it shut? My bill slams the door and locks it.
    Finally, our own domestic actions should make dollar-based 
assets less attractive, particularly, the unsustainable Federal 
spending trajectory and resulting inflation that has spread 
around the world. We must take this risk seriously. It is all 
too clear that inflation is undermining U.S. national security.
    The good news is that despite attempts by the Chinese 
government and other bad actors, the dollar seems secure for 
now, as there is no clear or immediate alternative to serve as 
a global reserve currency. But to ensure that remains the case, 
we must keep our eye on the ball and preserve and protect this 
key national asset.
    With that, the Chair now recognizes the ranking member of 
the subcommittee, the gentlewoman from Ohio, Mrs. Beatty, for 4 
minutes for an opening statement.
    Mrs. Beatty. Good morning. Thank you, Mr. Chairman, for 
holding this hearing. And thank you to our witnesses for 
appearing here today to discuss the preservation of the U.S. 
dollar as the global reserve currency, a topic which we all 
agree is of the utmost importance.
    The U.S. dollar is considered the global reserve currency 
because roughly 60 percent of central bank reserves around the 
world are held in U.S. dollars. The dollar is the preferred 
currency for international trade, oil is priced and settled in 
U.S. dollars, and nearly 90 percent of transactions in foreign 
exchange markets involve, yes, the dollar.
    The market for U.S. Treasuries is also the deepest and 
most-liquid market in the world, and the reliability and 
stability of U.S. capital markets makes the dollar the 
preferred currency for investors.
    The dominance and supremacy of our currency affords the 
United States numerous benefits, from reduced borrowing costs, 
to increased financial stability, to influence over global 
financial markets. It also allows us to leverage economic 
measures against those that seek to threaten our national 
security and foreign policy.
    Given the undeniable value of the U.S. dollar's dominance, 
it is critical that we address the currency and the present 
threats to it. As we speak, foreign adversaries like Russia and 
China are actively working to undermine the U.S. dollar and 
cripple our global power and influence. We see this in Russia's 
rapid accumulation of gold reserves over the last decade, as 
well as China's development of non-SWIFT (Society for Worldwide 
Interbank Financial Telecommunications) systems to settle and 
clear transactions involving the renminbi (RMB).
    Furthermore, several other countries are pushing efforts to 
bypass the use of the U.S. dollar in the U.S.-led financial 
system. That is why I agree that the subject of this hearing 
unquestionably deserves our time and attention in Congress and 
in this subcommittee. Thank you, Mr. Chairman.
    However, I can't help but note the irony of my colleagues 
holding this hearing after months of threatening a default on 
our debt that would undermine the strength of the U.S. dollar. 
While we are discussing the threats of the dollar's dominance, 
let us not forget that the biggest threat to the dollar is 
political brinkmanship and hostage-taking, a tactic that we 
witnessed by the other side of the aisle, and that is 
conspicuously employed only when a Democrat is in charge. It is 
paramount that we preserve the trust and confidence that the 
world has in the ability of the United States to pay its debt.
    Just yesterday, our Financial Institutions Subcommittee 
held a hearing on the debt ceiling and Treasury Department 
calculations, and our witnesses unanimously agreed that 
defaulting on the debt would greatly damage the U.S. dollar's 
status as the global reserve currency and hand-deliver a 
victory to foreign adversaries that seek to replace us on the 
global stage.
    After once again coming within hours of defaulting on our 
debt and collapsing our economy, perhaps it is time to consider 
measures that will prevent the weaponization of the debt 
ceiling debate. The U.S. economy and the U.S. dollar is not a 
political tool.
    I look forward to continuing the efforts of my fellow 
Committee Democrats who have led the charge to protect and 
promote the United States competition and our standing on the 
global stage. Once again, I thank our witnesses for their 
presence here today, and I look forward to your testimony.
    And with 1 second left, I yield back, Mr. Chairman.
    Chairman Luetkemeyer. The gentlelady yields back.
    With that, we will go to our witnesses for today: Dr. Tyler 
Goodspeed, a Kleinheinz Fellow at Stanford University; Dr. 
Michael Faulkender, the Dean's Professor of Finance at the 
University of Maryland, and Chief Economist at the American 
First Policy Institute; Dr. Daniel McDowell, an Associate 
Professor of Political Science at the Maxwell School of 
Citizenship & Public Affairs at Syracuse University, and a 
Wilson China Fellow at the Wilson Center; Mr. Marshall 
Billingslea, a Senior Fellow at the Hudson Institute; and 
Professor Carla Norrlof, a Nonresident Senior Fellow at the 
Atlantic Council, and a professor at the University of Toronto.
    I thank each of you for taking the time to be here today. 
Each of you will be recognized for 5 minutes to give an oral 
presentation of your testimony. And without objection, each of 
your written statements will be made a part of the record.
    Dr. Goodspeed, welcome, and you are now recognized for 5 
minutes.

    STATEMENT OF TYLER GOODSPEED, KLEINHEINZ FELLOW, HOOVER 
   INSTITUTION AT STANFORD UNIVERSITY; AND CHIEF ECONOMIST, 
                        GREENMANTLE LLC

    Mr. Goodspeed. Good morning. Thank you, Chairman 
Luetkemeyer, Ranking Member Beatty, and members of the 
subcommittee. I am a Kleinheinz fellow at the Hoover 
Institution at Stanford University and chief economist at 
Greenmantle LLC, a global macroeconomic and geopolitical 
advisory firm.
    From 2017 to 2021, I had the privilege to serve on the 
President's Council of Economic Advisors as Senior Economist, 
Chief Economist for Macroeconomic Policy, Member, and Acting 
Chairman.
    In 2022, as the ranking member highlighted, 88 percent of 
all foreign exchange transactions, by value, involved the 
United States dollar, a figure that has been roughly constant 
since 1989, which is testament to the substantial past 
dependence in international currency usage due to large 
positive network externalities. As the ranking member also 
highlighted, 59 percent of all official foreign exchange 
reserves were held in U.S. dollars, which is down from a figure 
of 71.5 percent in 2001.
    By comparison, 31 percent of all foreign exchange 
transactions, by value, involve the euro, which is the second-
most commonly-transacted currency, which accounted for 20 
percent of official foreign exchange reserves.
    The fact that 90 percent of all foreign exchange 
transactions continue to involve the United States dollar and 
that global central banks continue to hold almost 60 percent of 
their foreign exchange reserves in U.S. dollars confers net 
economic benefits on the United States economy.
    First, foreign demand for reserves of U.S. dollars raises 
demand for dollar-denominated securities, in particular, United 
States Treasuries. This effectively lowers the cost of 
borrowing for U.S. households, U.S. companies, and Federal, 
State, and local governments. It also means that, on average, 
the United States earns more on its investments in foreign 
assets than we have to pay on foreign investments in the United 
States, which allows the United States to import more goods and 
services than we export.
    Second, foreign demand for large reserves of U.S. dollars 
and dollar-denominated assets raises the value of the dollar, 
and a stronger dollar benefits U.S. consumers and businesses 
that are net importers of goods and services from abroad.
    Third, large reserve holdings of U.S. currency abroad, in 
effect, constitutes an interest-free loan to the United States 
worth about $10 billion to $20 billion per year.
    Fourth, the denomination of the majority of international 
transactions in U.S. dollars likely modestly lowers the 
exchange rate risks faced by U.S. companies.
    Fifth, given the volume of foreign U.S. dollar holdings and 
dollar-denominated debt, monetary policy actions by foreign 
central banks generally have a smaller impact on financial 
conditions in the United States than actions by the United 
States' central bank have on financial conditions in other 
countries.
    However, the benefits of the U.S. dollar's global reserve 
status are not without costs. The lower interest rates in the 
United States benefit U.S. borrowers, especially the Federal 
Government. They also lower returns to U.S. savers.
    In addition, although a stronger dollar benefits U.S. 
consumers and businesses that net import goods and services 
from abroad, it does also disadvantage U.S. firms that export 
goods and services abroad as well as firms that compete against 
imported goods and services.
    Furthermore, the perception of the U.S. dollar as a safe-
haven asset means that demand for the dollar tends to increase 
in response to adverse macroeconomic events that are global in 
nature. As a result, the competitiveness of U.S. exporters and 
U.S. firms that compete against imported goods and services are 
likely to face an increased competitive disadvantage at times 
of elevated global macroeconomic stress.
    However, despite these costs, studies generally find that 
the economic benefits of the dollar's prominent global status 
outweigh the costs, providing a modest net benefit to the 
United States economy. This does not include the substantial 
benefit to which the chairman referred of the United States 
dollar's centrality in global transactions, allowing the United 
States to utilize financial sanction tools when appropriate in 
support of national security objectives.
    There are economic policies that would help to preserve 
this net economic benefit. Prudent fiscal policy, avoiding 
excessive levels of regulation that would allow for continued 
financial innovation to occur within the United States rather 
than without, restoring low and stable inflation.
    I look forward to your questions and participating in this 
important economic discussion.
    [The prepared statement of Dr. Goodspeed can be found on 
page 49 of the appendix.]
    Chairman Luetkemeyer. Thank you, Dr. Goodspeed.
    Dr. Faulkender, you are recognized for 5 minutes.

STATEMENT OF THE HONORABLE MICHAEL FAULKENDER, DEAN'S PROFESSOR 
 OF FINANCE, ROBERT H. SMITH SCHOOL OF BUSINESS, UNIVERSITY OF 
MARYLAND; AND FORMER ASSISTANT SECRETARY, ECONOMIC POLICY, U.S. 
                   DEPARTMENT OF THE TREASURY

    Mr. Faulkender. Thank you, Mr. Chairman, Ranking Member 
Beatty, and members of the subcommittee. Thank you for the 
opportunity to speak with you today on dollar dominance, 
Federal fiscal mismanagement, and the implications for our 
nation's economy.
    I had the honor of serving as Assistant Secretary for 
Economic Policy at the Department of the Treasury during the 
previous Administration. In that role, I worked with Members on 
both sides of the political aisle and with the Small Business 
Administration to quickly implement the Paycheck Protection 
Program (PPP) to ensure that the economic devastation that 
might have resulted from the pandemic was not realized.
    As Assistant Secretary, I told my team that the Treasury 
Secretary proudly states that the dollar will never not be the 
world's reserve currency, and our job is to make sure that is 
true. Maintaining that role means engaging in prudent economic 
stewardship, continuously upgrading the technology supporting 
the nation's payment system, and showing restraint in our 
deployment of unilateral sanctions. Most importantly, we must 
demonstrate to the rest of the world that we are financially 
responsible by addressing our unsustainable fiscal path.
    To understand why this is the case, we must start with the 
role of money. Academic literature has identified three 
purposes of money: one, to facilitate the exchange of goods and 
services; two, to serve as a store of value from when the money 
is received until it is used; and three, to act as a unit of 
measurement.
    One reason the dollar is the world's reserve currency is 
because approximately half of global trade is invoiced in U.S. 
dollars, even though U.S. trade only accounts for approximately 
10 percent of global trade.
    Some countries peg their currency to the dollar, bringing 
greater stability to their trade with the United States by 
removing currency risk. However, to keep the peg in place, 
those countries must also adopt the interest rates of the U.S. 
Federal Reserve, causing interest rate effects here to be 
exported abroad.
    Foreign companies operating in non-dollar-pegged currencies 
may still invoice in dollars because they want a currency 
easily converted and that stores value in the interim. As has 
been recognized by both the chairman and the ranking member, a 
significant portion of trading in spot, forward, and swap 
markets features the U.S. dollar in one leg of the transaction.
    Our financial markets are the most-liquid in the world. 
Transactions are implemented at low cost with fast execution 
and minimal price impact. Thus, part of maintaining our role as 
the world's most-transacted currency means keeping our markets 
open with ongoing improvements in technology that speeds order 
implementation while safeguarding against illicit transactions 
and cybersecurity threats.
    Most importantly, dollar dominance is aided by policies 
that reinforce the dollar's historical strength and stability. 
When fiscal and monetary policy generate robust economic growth 
with low inflation, the U.S. dollar is stronger and less-
volatile, thus serving the important second role of money as a 
store of value. In contrast, stagnant growth and high inflation 
do not serve foreign transactors looking to mitigate currency 
risk.
    During COVID-19, aggressive fiscal policy was essential to 
ensure that our nation's families and small businesses survived 
its devastation. By January 2021, the economy had nearly fully 
recovered from the pandemic. Nevertheless, Congress and the 
Administration enacted an additional $1.9 trillion in Federal 
spending, resulting in the highest inflation our nation has 
endured in 40 years.
    Even last year, well after the pandemic had ended, Federal 
spending was still 24 percent of national output, significantly 
above its 20-person average that existed between 1980 and the 
onset of the pandemic.
    Under current projections, our debt is anticipated to reach 
566 percent of national output by the end of the 75-year 
forecast period in the financial report of the U.S. Government. 
Our growing debt erodes confidence around the world that the 
U.S. will continue being a responsible economic steward worthy 
of its status as the world's reserve currency.
    Given the outsized role of the Federal Government in our 
economy, recent growth has been anemic. Inflation is still well 
above the Federal Reserve's 2-percent target. Inflation-induced 
interest rate hikes have resulted in three of the four largest 
bank failures in U.S. history.
    Yet, there seems to be an insistence on throwing more 
gasoline on the stagflation fire. Washington directed spending 
that replaces low-cost, reliable sources of energy with high-
cost, unreliable sources of energy. It creates both inflation 
and contraction.
    The Federal Reserve alone cannot mitigate the inflationary 
impacts of fiscal and regulatory policy. Higher interest rates 
further undermine the banking system and erode the value of the 
dollar. Instead, the Federal Reserve needs help from Congress 
and the Administration. They should reduce Federal spending, 
and rescind regulations that are curtailing economic growth and 
devaluing the dollar.
    Policymakers must return to the responsible fiscal 
stewardship that made the U.S. the premier economic and 
financial nation in the world. Reduced government spending 
facilitates greater private sector ingenuity and dynamism, 
thereby improving living standards for the American people.
    I look forward to participating in this important 
conversation. Thank you.
    [The prepared statement of Dr. Faulkender can be found on 
page 46 of the appendix.]
    Chairman Luetkemeyer. Thank you, Dr. Faulkender.
    Dr. McDowell, you are recognized for 5 minutes.

  STATEMENT OF DANIEL MCDOWELL, ASSOCIATE PROFESSOR, MAXWELL 
  SCHOOL OF CITIZENSHIP & PUBLIC AFFAIRS, SYRACUSE UNIVERSITY

    Mr. McDowell. Thank you. Chairman Luetkemeyer, Ranking 
Member Beatty, and distinguished members of the subcommittee, 
it is my honor to be speaking with you today about preserving 
the U.S. dollar's status as the world's preeminent 
international currency.
    I would like to open with my bottom line up-front. As the 
United States has increased its reliance on financial sanctions 
as a tool of foreign policy, it has provoked anti-dollar policy 
responses from our adversaries. While such steps are unlikely 
to upend the dollar's position as top international currency, 
including the reserve currency role, over time, such policies 
could diminish the coercive capabilities that the United States 
derives from dollar centrality.
    Although our republic has never been ruled by a monarch, 
the U.S. dollar has become a powerful symbol of American 
financial royalty. Indeed, the dollar is often described as the 
king of all currencies and rightly so. Across the full spectrum 
of international roles that a national currency can play--the 
reserve currency role, cross-border payments and trade 
settlement, turnover in foreign exchange markets, and so on--
America's currency outcompetes all comers and presently lacks a 
true rival in this space.
    Dollar preeminence and U.S. financial centrality are not 
without consequence for American coercive power, as you all 
know. With little more than the stroke of the President's pen 
or through an Act of Congress, the U.S. Government can use 
financial sanctions to impose enormous economic costs on 
targeted foreign actors, be they individuals, firms, or State 
institutions, by freezing their dollar assets or cutting them 
off from access to the banks through which those dollars flow.
    The consequences for individual targets known as Specially 
Designated Nationals (SDNs) are severe, significantly impairing 
the target's capacity to participate in international trade, 
investment, and debt repayment, and depriving them of access to 
their wealth.
    Over the last 2 decades, the United States has used the 
tool of financial sanctions with increasing frequency. For 
example, in the year 2000, just 4 foreign governments were 
directly targeted under a U.S. Treasury country program 
overseeing the Office of Foreign Assets Control (OFAC). Today, 
that number is greater than 20, and if we include penalties 
from secondary sanctions, the list gets even longer.
    The more that the United States has reached for financial 
sanctions, the more it has made adversaries and foreign 
capitals aware of the strategic vulnerability that stems from 
dependence on the dollar. Some governments have responded by 
implementing anti-dollar policies, measures that are designed 
to reduce an economy's reliance on the U.S. currency for 
investment in cross-border transactions. Although these 
measures sometimes fail to achieve their goals, others have 
produced modest levels of de-dollarization.
    Notable examples here include Russian steps to cut its 
dollar reserves and reduce the use of the dollar in trade 
settlement in the years leading up to its full-scale invasion 
of Ukraine, or China's ongoing efforts to build its own 
international payments network based on the yuan, efforts that 
have taken on a new sense of urgency as Beijing has become more 
aware of its own strategic vulnerabilities from dollar 
dependence.
    To be clear, I do not believe that geopolitically-motivated 
moves by Russia, China, or any other country gravely threaten 
the dollar's supremacy in the near or immediate term. The 
dollar remains the world economy's indispensable currency and 
maintains economic and political advantages over all 
alternatives. However, the growing number of states espousing 
anti-dollar viewpoints and adopting anti-dollar policies does 
threaten to weaken the future potency of U.S. financial 
sanctions.
    I will conclude my remarks with three suggestions for U.S. 
sanctions policy moving forward, aimed at protecting the 
dollar's global status and preserving the tool's effectiveness 
for moments when U.S. interests are most gravely threatened.
    First, the United States should reconsider the use of so-
called symbolic financial sanctions. That is, if the main 
objective of a tranche of sanctions is to signal to the world 
or to a domestic audience that Washington disapproves of a 
foreign government's policy choices, other measures that can 
send a similar signal but do not politicize the dollar system 
ought to be considered first.
    Second, the use of financial sanctions against issuers of 
potential rival currencies--in particular, China and its yuan--
should face a higher bar of scrutiny. Even a small targeted-
sanctions program provides information to our adversaries about 
their vulnerabilities and gives them time to prepare for a 
future event when a broad U.S. sanctions program may be called 
upon as part of a major security crisis when such measures will 
be most needed.
    Finally, whenever possible, U.S. financial sanctions should 
be coordinated with our allies in Europe and Asia, who should 
feel as if they are key stakeholders in the dollar system and 
not vassals to it. Such coordinated efforts will prevent our 
friends from seeking to conduct business with U.S. adversaries 
outside of the dollar system and will send a message to the 
whole world that moving activities into secondary currencies 
like the euro or the yen is not a safe haven.
    It is my privilege to be here with you today and speak on 
this critically important issue. And I am happy to answer your 
questions.
    [The prepared statement of Dr. McDowell can be found on 
page 51 of the appendix.]
    Chairman Luetkemeyer. Thank you, Dr. McDowell.
    Mr. Billingslea, you are recognized for 5 minutes.

STATEMENT OF THE HONORABLE MARSHALL BILLINGSLEA, SENIOR FELLOW, 
HUDSON INSTITUTE; AND FORMER ASSISTANT SECRETARY FOR TERRORIST 
FINANCING AND FINANCIAL CRIMES, U.S. DEPARTMENT OF THE TREASURY

    Mr. Billingslea. Thank you, Mr. Chairman. It is great to be 
back with this committee, this time in a personal capacity. The 
last time I was here was as Assistant Secretary of the Treasury 
for Terrorist Financing and Financial Crimes during the Trump 
Administration, where we talked about a wide range of sanctions 
programs that we were imposing.
    I will say at the outset that I agree with you and others 
that, to paraphrase Mark Twain, reports of the dollar's demise 
have been greatly exaggerated. That being said, we need to 
remind ourselves that in the 16th Century, the Spanish silver 
dollar was the dominant currency. In the 17th Century, it was 
Dutch florins. In the 18th Century, it was the pound sterling.
    The link between a nation's currency and its role as the 
relatively-dominant political actor on the world stage is 
pretty clear. And that is why people like Lula de Silva from 
Brazil, Vladimir Putin, and Xi Jinping all aspire to undercut 
the role of the dollar as the global reserve currency.
    In my view, Chairman Xi poses the most serious threat to 
this effort. He has dictatorial control of Communist China. He 
has purged all of his main rivals. He has a vision of China as 
the Middle Kingdom to which all of the nations on the periphery 
ultimately will pay tribute. And some cultures, like the 
Uyghurs, will be enslaved and eradicated.
    And to that end, he has overseen a massive expansion in 
Chinese conventional military capability, an unprecedented 
nuclear weapons buildup, and he is now ominously threatening 
invasion of Taiwan. It should therefore come as no surprise 
that he, via the People's Bank of China, would like to both 
undercut the dollar and sanctions-proof the Chinese economy as 
they plan for that invasion of Taiwan.
    If we look at what Russia did in the run-up to its further 
invasion of Ukraine, they began dumping ownership of Treasury 
bonds in 2018. In that year, they plummeted from $96 billion in 
holdings down to $15 billion, and they also started buying 
large amounts of gold.
    China is now, as the ranking member has observed, embarking 
on its own gold-buying spree. I haven't seen the data from May, 
but April marked the sixth straight month of Chinese expansion 
in its gold holdings. And I am not sure I believe the official 
figures. We have to recall that China is the dominant gold-
mining player around the world, and half of those gold-mining 
companies are state-owned, so the actual size of China's war 
chest when it comes to gold reserves may be far higher. In 
fact, I suspect it is inevitably far higher than official 
numbers suggest.
    Last year, China also started dumping its Treasuries--2022 
marked the second-largest decrease on record, with a drop of 
about $174 billion, and China stood at the lowest levels since 
2010 in terms of its holdings, although this past March, they 
did reverse course. This bears close watching because a sell-
off may be a strong indicator of planned aggression.
    But I think the area where we really need to focus, and 
where I would agree with you, Mr. Chairman, is that I am not 
sure the Treasury has a plan. How do we deal with the fact that 
the sheer size of the Chinese economy dwarfs what we have been 
contending with in the form of Iran, Russia, and so on?
    One of the first things the Biden Administration did in the 
wake of Russia's attack was start sanctioning Russian banks and 
de-SWIFTing them. And that is one thing when you are going 
after an economy smaller than the size of Texas. It is quite 
another when you consider that, out of the 100 largest banks in 
the world, China has 20, and all 4 of the top 4 are Chinese 
banks. And that is why many within the Treasury contended when 
I was there, and they still contend to this day, that these 
Chinese banks are simply too big to sanction.
    I don't agree that we can allow that to stand, but I do 
believe we have to start taking very swift action to put us in 
a situation where we could take punitive measures on these 
banks if necessary.
    And to that end, it is good that the market is beginning to 
respond to Chinese bellicose rhetoric. We have seen the Chinese 
stock market and the capitalization of Chinese companies come 
way down. We have also seen a drop in most of the major 
indexes. We have also seen the three biggest banks in the 
United States start to trim their exposure. But I believe we 
need to encourage further reduction.
    And to that end, one of the things we should do is increase 
the capital requirements on banks that have substantial 
exposure. We need to ensure that our largest banks can 
withstand the systemic shocks that would arise from a tit-for-
tat with China.
    We also need to recognize, as the Atlantic Council has 
pointed out, that China holds over $5 billion in various 
liabilities to western investors that they could hold hostage 
in the event of a sanctions war. And we need to begin educating 
our pension funds and our investment funds on the substantial 
risk that they run by leaving those assets in China.
    Again, I appreciate the chance to testify before this 
committee, and I look forward to your questions.
    [The prepared statement of Mr. Billingslea can be found on 
page 40 of the appendix.]
    Chairman Luetkemeyer. Thank you, Mr. Billingslea.
    And Professor Norrlof, you are recognized for 5 minutes.

    STATEMENT OF CARLA NORRLOF, NONRESIDENT SENIOR FELLOW, 
    GEOECONOMICS CENTER, ATLANTIC COUNCIL; AND PROFESSOR OF 
            POLITICAL SCIENCE, UNIVERSITY OF TORONTO

    Ms. Norrlof. Thank you, Chairman Luetkemeyer and Ranking 
Member Beatty, for inviting me to testify on this important 
topic. I am honored.
    I will speak to three themes: the dollar's dominance; 
threats to dollar dominance; and what the U.S. should do to 
maintain dominance. And my written statement provides further 
explanation and context.
    The dollar is the most-important currency in the world for 
both official and private actors, although its dominance has 
been declining since the 1970s, and there has been a recent 
downward cycle since 2016. Now, dominance can simply mean 
relatively stronger than anyone else, but here I take dominance 
to mean a currency that other currency majors are unable to 
balance, effectively, a unipolar currency order.
    I will note that the dollar's dominance is not quite as 
strong amongst private actors and private markets as it is with 
governments. In private transactions, it averages about 45 
percent of the world's total. That includes ethics 
transactions, but also things like issuance of international 
debt securities and cross-border banking.
    On threats to dollar dominance, the Russia sanctions have 
had little impact to no impact, actually, on dollar dominance. 
In fact, given the recent uptick in the dollar's reserve 
currency status, sanctions may be reinforcing dollar dominance.
    The Chinese yuan poses no immediate threat to dollar 
dominance. It accounts for roughly 3 percent of overall 
reserves. And so far, China has been successful in promoting 
the yuan with its trade partners, but the yuan is scarcely used 
by countries outside trade with China.
    China is a potential long-term challenger due to its active 
pursuit of trade and investment relationships. If the yuan is 
increasingly used by third countries, it will pose a greater 
threat to the dollar. And in addition to these external 
threats, there is also a domestic threat. Flirting with the 
possibility of a voluntary default puts dollar dominance at 
risk.
    What should the U.S. do to maintain dominance? To curb the 
domestic threat, Congress should consider creating an 
alternative mechanism for resolving political differences on 
government spending and its consequences. To rein in external 
threats, the United States should, whenever possible, implement 
multilateral sanctions in support of broadly-endorsed goals to 
shore up the liberal international order. This is likely to 
limit dollar backlash. To counter China's advances, the U.S. 
should consider economic inducements, in addition to its use of 
sanctions, as a tool of economic statecraft.
    The United States cannot afford to alienate security allies 
in this geopolitical environment. Security relationships are 
increasingly informing economic relationships. Just as 
countries are starting to source goods from friendly nations, 
they may adopt friendly-nation currencies as they did during 
the Cold War.
    Thank you.
    [The prepared statement of Dr. Norrlof can be found on page 
53 of the appendix.]
    Chairman Luetkemeyer. Thank you for your testimony.
    And I thank each of you for your testimony this morning. It 
was very impressive.
    And with that, I will now recognize myself for 5 minutes as 
we begin the questioning portion of our hearing.
    The conversation around the dollar being the reserve 
currency is becoming louder and louder as we have more and 
more, I think, threats to it. I think I agree with all of you 
that there is not an immediate threat within the next few 
years. But as a businessman, I usually look at not only short-
term problems, but I look at long-term problems. And I look 
from 30,000 feet. And from 30,000 feet, and from a long-term 
perspective, I see the threat that each of you have discussed 
this morning with regards to China. They are trading now in 
their own currency with their friends and allies. As that 
sphere of influence gets bigger, it chips away at our reserve 
currency. I think one of you gave some statistics on it.
    So, I would like to talk a little bit about how we are 
forcing them into this position from the standpoint that--I 
think each of you made the comment--Dr. McDowell made a comment 
with regards to the history of the currency.
    We are looking at a currency that is being challenged now 
because we are putting sanctions on China, and they are looking 
at other ways to get around it. As long as our friends are our 
friends, they are okay with our dollar. When the enemies are 
getting pushed into a corner, they look for ways to get out of 
it, and our dollar is a way to control people, and they don't 
want to be under our control. Therefore, they are looking at 
ways to get around it.
    Mr. Billingslea, would you comment on that? They seem to be 
decoupling themselves from our own--trying to establish their 
own currency. Where do you see this going in the next, say, 20 
years?
    Mr. Billingslea. Thank you, Mr. Chairman. I think that 
their desire to establish their national currency as a true 
international currency fits hand-in-glove with their vision of 
themselves as the dominant player on the world stage, or at 
least that is what they would like to become.
    I agree with you that for the time being, I don't see that 
they are going to have all that much success in establishing 
yuan as a hard currency globally for basically two reasons. 
One, China is a currency manipulator, so people who hold the 
yuan are also holding a lot of risk that it may not have the 
same value tomorrow that it has today. And two, they have a 
very restrictive capital outflow regime that basically prevents 
you from moving currencies out of the country. They are very 
closed in that respect. And those are going to be their two 
main impediments.
    The thing I do worry about--and I come back to the fact 
that they have been buying a lot of gold, which would be very 
concerning if they wind up having larger reserves of gold than 
we believe--is that they could start issuing gold-denominated, 
gold-backed yuan contracts. And that would further their 
ambition for introducing the yuan onto the world stage.
    But at the moment, the yuan is not a widely-held reserve 
currency. In fact, a third of all yuan reserves are sitting in 
Russia today. Thank you, Mr. Chairman.
    Chairman Luetkemeyer. Believing or suggesting, perhaps, 
that they go into Taiwan, how would this affect our reserve 
currency status with them--basically, the world would be in a 
lock-down position for a period of time until that situation is 
resolved because they will invade, we will sanction, and off we 
go.
    I think a couple of you talked about the sanctions being 
something we have to be very careful about how we manipulate. 
It can be counterproductive. Would somebody like to comment on 
that?
    Mr. McDowell. Yes. Chairman Luetkemeyer, thank you for a 
great question.
    My own view on China here is that their short-term efforts 
are focused primarily on increasing their resilience and 
autonomy in the event of a future sanctionings package from the 
United States, perhaps as a result of a conflict with Taiwan.
    Their focus, I think, is on trade settlement and cross-
border payments. That is where I think we are seeing most of 
the developments. Right now, around 20 percent of China's 
cross-border trade is settled in its own currency. That is up 
over the last few years after reaching 30 percent prior to 
2015.
    The reason they are focused on that is I think the strength 
of our sanctions are actually more on stopping firms, 
individuals, and government institutions from participating in 
cross-border trade and payments, more so than even freezing 
assets, which is sort of a one-time, one-off sanction. Whereas, 
cutting actors off from banks means your ability to participate 
in cross-border trade, debt payment, et cetera, is constrained 
for as long as those sanctions are in place.
    And the Chinese have been interested, I think, in improving 
the use of the yuan through networks like the Cross-Border 
Interbank Payment System (CIPS)--piloting eCNY and other things 
like that--which will eliminate their 100-percent reliance on 
using the dollar and the dollar system.
    Chairman Luetkemeyer. As the last thing, I would like to 
really follow up with regards to your gold comment, Mr. 
Billingslea, because it looks to me like, at some point, there 
may be a shift to the gold standard again. And if that is 
happening, if they are going to push us in that direction, it 
would be interesting to at least play a, ``what-if,'' game of 
what could happen there.
    My time is up. With that, I will recognize the ranking 
member of the subcommittee, the gentlelady from Ohio, Mrs. 
Beatty, for 5 minutes.
    Mrs. Beatty. Thank you, Mr. Chairman.
    And, again, thank you to the witnesses.
    Let me echo what the chairman and I were talking about. 
Certainly, your presentations--all of you were not only quite 
impressive and scholarly, but this is probably one of the best 
panels that I have witnessed on this topic. So, again, thank 
you for that.
    Not to mention, Mr. Chairman, let the record show that they 
did quote me several times.
    With that, let me move to the first question to Dr. 
Norrlof. I would like to start with other countries' efforts to 
replace or bypass the U.S. dollar. We have heard from all of 
you a lot about China and Russia increasing their gold 
reserves, the use of alternative payment systems, and certain 
African nations also partnering up to develop a multilateral 
system that evades the dollar.
    Can you tell me if there is any one thing that stands out 
to you, that you can share with us about efforts led by China 
and Russia and other nations to circumvent the U.S. dollar and 
the U.S.-led financial system?
    And then, Mr. Billingslea, I am going to ask you the same 
question.
    Ms. Norrlof. Yes. I think that those efforts are a new 
development, but I think that they are not very consequential 
because they build on the idea that local currencies will be 
used, the bilateral currencies, and these relationships will be 
used. And in order to internationalize the currency, you really 
need to use a third-party currency, so, outside that 
relationship. And that is not happening on any scale that is 
significant whatsoever. Therefore, I see those efforts as very 
limited.
    Now, as has been pointed out by the entire panel here, I 
think that there is something to still track in that these 
alternative payment systems allow for a relative insulation of 
the dollar system. And as we move forward, it is important to 
look at where those investment and trade relationships are 
going.
    Mrs. Beatty. Thank you.
    Mr. Billingslea?
    Mr. Billingslea. Thank you, Congresswoman. I would offer 
two thoughts in this respect.
    The first is that China considers the actual composition of 
its foreign exchange reserves to be a state secret. So they 
don't publish, and they view it as a criminal offense to try to 
obtain that information in terms of the balance of how much is 
gold, and how much is dollar- and euro-denominated. But the 
numbers I have seen suggest that still, at this moment, about 
50 to 60 percent of their forex reserves are still in dollars 
or euros, which means that they are at high risk of sanctions. 
We can affect them.
    The problem is that the war chest that they built up is 
enormous. It is more than $3 trillion that they have in forex 
reserves. Compare that with what Russia had at the onset of its 
assault, which was around $680 billion, of which we managed to 
freeze overseas half of it. But Russia is still keeping its 
economy going, despite the Biden Administration's sanctions. So 
imagine how they are going to be able to continue with that 
sizable war kitty in Beijing if they do decide to go off after 
the Taiwanese.
    The final point on gold, the reason why regimes that come 
under sanctions like gold is because it is hard to trace. It is 
fairly anonymous. The only problem with it is that it is 
really, really heavy.
    Mrs. Beatty. Thank you very much.
    Let me just skip to another question. And I am really 
asking you this because I want it to be on the record. We spent 
a lot of time after our debt ceiling vote on getting educated. 
We know we will revisit this in 2 years, in January 2025.
    So let me ask all of you, and this is a yes-or-no question; 
I will go down the line and ask you to comment yes or no on the 
effect of the debt default on the strength of the U.S. dollar. 
Is it yes or no for you that the dollar's position as the 
world's reserve currency would be harmed by a default on 
Americas' debt? And we will start at this end.
    Mr. Goodspeed, yes or no?
    Mr. Goodspeed. If the U.S. defaulted on its debt, it would 
harm the U.S. dollar status.
    Mrs. Beatty. Okay.
    Mr. Faulkender?
    Mr. Faulkender. I agree, yes.
    Mrs. Beatty. Okay.
    Mr. McDowell?
    Mr. McDowell. I agree.
    Mrs. Beatty. Mr. Billingslea?
    Mr. Billingslea. Absolutely.
    Mrs. Beatty. Ms. Norrlof?
    Mr. Norrlof. Yes.
    Mrs. Beatty. Thank you so much for that.
    I don't know if I have time for the next question, so I 
will read it, and you can all respond in writing.
    We know that non-U.S. mobile payment applications 
reportedly have reached more than 1 billion consumers and 
processed more than $6 million worth of transactions. So, I 
believe the continued advancement of these products into 
foreign markets can diminish U.S. competitiveness and yield 
opportunities for foreign governments to influence 
international payment.
    The question to all of you will be, what do you think about 
that? And we will take those responses in writing.
    My time is up.
    Chairman Luetkemeyer. The gentlelady yields back.
    The gentleman from Kentucky, Mr. Barr, who is also the 
Chair of our Subcommittee on Financial Institutions, is 
recognized for 5 minutes.
    Mr. Barr. Thank you, Mr. Chairman, and thank you for 
holding this hearing and for the witnesses' impressive 
testimony. This is probably the most important hearing we have 
held this entire Congress, and the testimony is excellent.
    Let me ask Dr. Goodspeed and Dr. Faulkender about the 
relative risks to the dollar's dominance. We have these 
internal risks, regulatory failure, that diminish the dynamism 
of the U.S. free enterprise system. We may have bad tax policy. 
We have an unsustainable debt trajectory. Those are internal 
threats.
    Then, we have these exogenous external threats: BRICS; a 
Saudi oil deal with China denominated into yuan; the CIPS 
system, which is an alternative to SWIFT; the advent of crypto; 
and the adoption of a Chinese CBDC. Compare the risks, and 
which is the more significant risk, in your mind?
    Mr. Goodspeed. Economists like to talk about the short term 
versus the long run, and I think that is applicable here.
    Short term, I think the risk is that we continue to see 
diversification away from the dollar, PRC continuing to push 
other countries to use trade invoicing and renminbi, that they 
continue to promote the offshore renminbi market, that they 
continue to promote or force bilateral clearing.
    Longer term, I think the bigger risk is that foreign 
investors no longer perceive the United States Federal 
Government debt to be as safe and risk-free as it is perceived 
today.
    Mr. Faulkender. I tend to agree.
    I would say that in the short run, as you see more trading 
take place in other currencies, just for facilitating 
transactions, you'll see reserve banks around the world 
increasing their holdings of other assets denominated in things 
other than dollars.
    But for purposes of holding long-term reserves, ultimately, 
it is a claim on the underlying country. And for reasons that 
have been spoken to, I don't trust claims against the Chinese 
economy when it comes to commodity-backed currencies. One is 
always concerned about whether they would suspend 
convertibility in times of crisis, and whether those asset-
backed currencies actually will be backed by those assets when 
the time comes.
    And instead, you are still going to be a claim against the 
underlying economy, which is why growth, along with fiscal 
stewardship, is essential to maintaining our status as what you 
would hold for long-term reserve assets.
    Mr. Barr. It sounds like preserving the dollar's dominance, 
maintaining that, is both offensive and defensive. We need to 
be defensive when it comes to keeping our house in order, 
getting our house in order here at home, but also recognizing 
some offensive threats outside of the United States.
    Mr. Billingslea, and also Dr. McDowell, I wanted to ask you 
about this idea of sanctions. Mr. Billingslea is advocating for 
a legislative proposal that would implement some investment 
screening, Western investment screening. It would use the 
architecture of OFAC to sanction Chinese entities that threaten 
our national security, to give a clear red light to Western 
investors to not invest in Chinese technology, defense, 
military, and surveillance companies that threaten our national 
security on exchanges, A-shares, outside of the United States 
as well.
    But I wanted Dr. McDowell to speak about this idea of 
symbolic sanctions and politicizing the dollar. Is there a risk 
with that kind of approach that we would be doing what you 
advise against?
    Mr. McDowell. It sounds like what you are describing is 
more of an investment restriction, using sort of access to 
information through OFAC to prohibit or advise against 
investment. That is different, I think, from cutting off the 
firms from using dollar payments, so I think the risk is lower 
based on what you have just described.
    Mr. Barr. Right.
    And, Mr. Billingslea, are there alternatives to a central 
bank digital currency (CBDC) that would help maintain the 
dollar's dominance as China pursues a CBDC? In other words, 
would a stablecoin regulatory framework that would encourage 
stablecoins denominated in the dollar be a better alternative 
than the United States adopting our own CBDC? What I always say 
is we shouldn't counter China by becoming more like China.
    Mr. Billingslea. The Chinese CBDC is a surveillance tool. 
And I think we all need to just understand that they are kind 
of very open about the fact that they intend to track holdings 
of this.
    I also have some doubts that--if we can't even get a 
website for healthcare functioning, I am not exactly sure that 
we can build a digital dollar in any meaningful timeframe under 
the Federal Reserve.
    There is a stablecoin already out there that is denominated 
in dollars, and for every dollar they issue, they do hold in 
reserve.
    Mr. Barr. I yield back. Thank you.
    Chairman Luetkemeyer. The gentleman's time is up.
    The gentleman from North Carolina, Mr. Nickel, is 
recognized for 5 minutes.
    Mr. Nickel. Thank you, Chairman Luetkemeyer, and Ranking 
Member Beatty.
    And thank you to your witnesses for joining us today.
    One potential threat to the U.S. dollar as the global 
reserve currency is the growth and expansion of alternative 
cross-border payment systems, such as those developed by Russia 
and China. Increased use of these systems could lead to a world 
less dependent on U.S. dollars, which would likely limit our 
traditional methods of economic sanctions.
    Dr. Norrlof, how should U.S. national security experts be 
preparing to respond to this scenario?
    Ms. Norrlof. Thank you. I think that this is a long-term 
threat. And it really requires the countries that are pushing 
alternative payment systems to build economic relationships, to 
build commercial relationships, and to start trading in the 
yuan outside of established bilateral relationships.
    So, I think that the best way that the United States can 
counter this is to start reinforcing its economic relationships 
by expanding trade, expanding investment.
    Mr. Nickel. Thank you.
    Sanctions that are made possible by the strength of the 
U.S. dollar could push countries to reduce their use of U.S. 
dollars and minimize the global economic power of the United 
States. Governments could experiment with other national 
currencies to proactively shield their economies from the 
United States.
    Dr. Norrlof, again to you, what inflection points would 
signal that major economies are making serious attempts to de-
dollarize?
    Ms. Norrlof. I think that we are nowhere close to an 
inflection point in the reserve currency function. There is 
actually more movement on the private dimension.
    And there were some numbers quoted here before--I think 
that in ethics transactions, for instance, the dollar is not as 
dominant as it has been made out to be; it accounts for about 
45 percent of ethics transactions, because the 90-percent 
figure is out of 200 percent. Because currencies exist on both 
sides of an exchange. And we see across-the-board in the 
financial markets that the U.S. dollar is in fact less-dominant 
than it is with official holders.
    Mr. Nickel. Just to sum up here, how should policymakers 
like us be responding to the scenario I laid out?
    Ms. Norrlof. I think, again, the key here really is to 
reinforce existing relationships, economic relationships that 
the United States has and expand them where they do not exist. 
This is the best way for the United States to undercut the 
developments that are now underway.
    Mr. Nickel. Thank you.
    And, Mr. Chairman, I yield back.
    Chairman Luetkemeyer. The gentleman yields back.
    I now recognize the gentleman from Texas, Mr. Williams, who 
is also the Chair of the House Small Business Committee, for 5 
minutes.
    Mr. Williams of Texas. Thank you, Mr. Chairman.
    And I thank all of you for being here today.
    The U.S. dollar has held a leading position in the global 
economy as a primary reserve currency since World War II. We 
talked about that. And this status has given the United States 
economic and political advantages to strengthen market security 
and boost our monetary independence.
    Now, there are concerns that the rise of China's yuan and 
the euro and other currencies are threatening to replace the 
U.S. dollar as the world's reserve currency. This decision 
would have, as we all know, severe economic consequences. We 
talked about that.
    However, despite challenges to the role of the U.S. dollar, 
other countries' currencies lack the scale and ability to serve 
as the workable alternative. So even still, we must continue to 
examine risks that threaten the dollar's global role as the 
reserve currency.
    Dr. Goodspeed, could you elaborate some more on the dangers 
of replacing the dollar as the global reserve currency, and 
what makes the dollar the safest compared to the alternatives, 
and how we can better promote the retail about the global 
confidence in the dollar?
    Mr. Goodspeed. Sure. I have heard it said by the President, 
``Don't compare me to the Almighty, but compare me to the 
alternative.'' And I think something similar can be said of the 
U.S. dollar, that this is, as members of the panel have said, 
the deepest, most-liquid market for safe assets in the world. 
And if you are going to hold a currency, you want to be able to 
park that currency in a safe liquid asset that you can easily 
dispose of if you want to convert it.
    And that is not the renminbi, for the reasons that have 
been cited, in particular, the capital controls. They are 
working to get around that by having offshore markets. And it 
is not the euro, because they lack a liquid market for a single 
homogenous debt. It is the U.S. dollar. And we benefit from 
that for the reasons I cited economically and for reasons that 
others members of the witness panel have cited in terms of 
national security.
    Mr. Williams of Texas. Thank you.
    In recent years, China has conducted a series of strategic 
initiatives aimed at challenging the dominance of the U.S. 
dollar. One specific strategy has been currency manipulation. 
The Chinese have been manipulating their currency to gain 
unfair advantages in international trade, and Communist China 
is creating an unlevel playing field by imposing capital 
controls and limiting the currency flowing in and out of China. 
This negatively impacts countries with market-driven exchange 
rate systems by creating doubts about the convertibility of the 
yuan. So, we must put an end to this manipulative practice and 
protect U.S. interests by holding China accountable.
    Mr. Billingslea, what actions are the Chinese Communist 
Party (CCP) taking to undermine the global role of the U.S. 
dollar, and how can we hold them accountable for their 
manipulation of currencies while maintaining our dominance?
    Mr. Billingslea. I think it is important that the Treasury 
resume calling it what it is, which is a currency manipulator. 
We did that under the Trump Administration. I also would point 
out that we run a trade deficit with the Chinese, and what that 
means is they export more to us than they import from us. All 
of that delta between what we buy versus what they buy goes 
into that war chest that they are building up. That is their 
forex reserves.
    Under the Biden Administration, the amount of that 
bilateral trade and the deficit has surged yet again from what 
it was when he took over in 2020.
    So, we do need to look at how to become much more 
competitive and to insist on a more-equitable balance of trade.
    Mr. Williams of Texas. My last question, during past 
economic crises, like the financial crisis of 2008 and the 2020 
COVID pandemic, the dollar remained strong on the world stage. 
However, there is a concern that the rapid rise of inflation 
our nation is currently facing is not only hurting us at home, 
but is also hurting our reputation abroad.
    The Biden Administration has fueled the economic downturn 
our country is facing, and many Americans are struggling to 
keep up with increasing costs for groceries, gas, and housing. 
And on top of all of that, small businesses--of which I am 
one--are crippled behind inflation and rising interest rates.
    Despite warnings, this Administration continues their 
reckless spending spree that has brought on the highest 
inflation in decades. Dr. Faulkender, quickly, can you expand 
on how record-high inflation is affecting the U.S. dollar 
globally? How can the government boost dollar assets to protect 
our financial markets and make us more attractive?
    Mr. Faulkender. Absolutely. As you said, during the onset 
of the pandemic, it was necessary to engage in significant 
spending to support American households. But since then, the 
ongoing spending well in excess of historical levels has meant 
that there are way too many dollars chasing too few goods and 
services, and American families and small businesses have 
struggled the most.
    The issue that we also have is that we have called upon 
foreign countries, largely through the budget deficits we run, 
to hold those dollar-denominated assets as part of their 
reserves. And what that does is contribute to the very trade 
deficit we are talking about.
    So, to the extent that we wanted to not facilitate China's 
buildup of a war chest, running something closer to a balanced 
budget that does not necessitate foreign countries buying our 
debt would be beneficial.
    Mr. Williams of Texas. Thank you.
    I am out of time. I yield back.
    Chairman Luetkemeyer. The gentleman's time has expired.
    The gentlelady from Colorado, Ms. Pettersen, is recognized 
for 5 minutes.
    Ms. Pettersen. Thank you all so much for being here today. 
This is a very important conversation, and it has been on all 
of our minds after going through the debt ceiling debate and 
what might happen if we were unable to come to an agreement. 
This is my first year in Congress, but I have been watching 
this for a long time, and the hostage-taking that unfortunately 
has taken place every time this comes up is deeply concerning.
    And it is even more concerning to me, having gone through 
it now in this body. When I think about the long-term impacts, 
the message that this sends globally when people have to 
question whether or not investing in the United States is 
viable, and whether or not the United States of America will 
pay its bills, that is a huge security risk, and we made it 
past this time, even though I think that the tactics you used 
were deeply disappointing.
    But I am very concerned about this in the long term. And 
when I think about some of my colleagues who oftentimes talk 
about the threat to China, inadvertently, this is--China would 
want nothing more than what we have gone through and what the 
potential consequences are.
    It would reduce the value in the dollar, the security of 
the United States and our reputation, and our long-term 
investments here in this country.
    So, do you think that it is in the best interest of our 
national security and the strength of our dollar to address the 
debt ceiling and take that off the table for the United States?
    Ms. Norrlof. Was that question directed to me?
    Ms. Pettersen. Anyone who would like to answer.
    Ms. Norrlof. I think it is very detrimental to the United 
States' credibility and to the dollar status in the world. I 
also want to underline that any default that occurs on the part 
of the United States is entirely voluntary. There can be no 
forced sovereign default in the case of the United States.
    Mr. Billingslea. Congresswoman, the dilemma is that once 
you issue debt, you need to honor it, so defaulting on that 
would do grave harm. But the problem is that at a certain 
point, if you keep issuing debt and debt and debt and you have 
runaway spending, that also winds up biting you, because it 
begins to call into question whether or not we actually can be 
trusted to honor that debt.
    So there is a balance here, but it is clear that the 
profligate spending really does have to come to an end.
    Ms. Pettersen. Absolutely. And I think that everyone here 
in Congress is concerned about the debt that the United States 
has and has different approaches on what we need to do to deal 
with that. But that should be a legislative process and much 
more long-term planning than the hostage taking that we have 
seen.
    Something that you brought up, Mr. McDowell, was around the 
symbolic financial sanctions that have been used if we don't 
agree with a country politically. And one that immediately 
comes to mind, that has impacted my community and is still on 
the books, is the sanctions on Canada for lumber that has 
increased costs for housing and actually addressing the needs 
there.
    I don't know if you have any other examples of what that 
looks like, but making sure that we use these sanctions very 
strategically, and that we should consider other measures to 
send signals to countries so it is not compromising our dollar.
    Can you give examples of what those measures look like, 
recognizing, of course, that utilizing these economic tools is 
important for ensuring peace, but making sure that they are 
very limited?
    Mr. McDowell. Yes, thank you for that question, 
Congresswoman. Time is short, so I will be brief. When I talk 
about symbolic sanctions, again, I am talking about sanctions 
specifically using the financial system and access to the 
dollar. Other forms of sanctions are not part of the discussion 
that I provided today.
    An example I would use would be sanctions that were used to 
target Carrie Lam and other officials in Hong Kong in 2020. I 
was as upset as anyone about what was happening there. But in 
that case, it is very unlikely they are going to change Xi 
Jinping's behavior and plan for Hong Kong. And the effect is 
that it raised alarm bells in Beijing about the United States' 
willingness to use sanctions against China, which I think has 
sort of precipitated further steps from the Chinese to again 
build up the resilience to a future event where we may need 
sanctions in a moment where our security is critically at risk.
    Chairman Luetkemeyer. The gentlelady's time has expired. 
With that, we will go to the gentleman from Pennsylvania, Mr. 
Meuser, for 5 minutes.
    Mr. Meuser. Thank you very much, Mr. Chairman. And thank 
you all for being here. We are having a serious discussion on 
the economy because we have some serious issues. The present 
Administration policies are weakening our economy through 
excessive spending and the value of the dollar which causes 
inflation, energy policies that are causing energy to spike and 
maintain a level of stagflation perhaps; a Fed reaction that 
was overdoing it with stimulus, followed by the most-rapid 
increase in interest rates we have ever seen. And, of course, 
the threat of taxes on American businesses, which is pretty 
much the worst thing you can do and gives nothing but an 
advantage to China.
    Meanwhile, China is strengthening. It has RMD incentives, 
more engineers, strategic alliances, low-cost production, and 
workforce availability. So, we need to get into shape. We are 
getting ourselves out-of-shape, and we need to be serious about 
being the strongest economy in the world.
    Mr. Billingslea, I would like to start with you. Do you 
think reversing some course here where we rein in spending, 
i.e., curbing inflation, create some predictability to future 
taxes, and have an independent energy program, will be steps in 
the right direction?
    Mr. Billingslea. I do, and it would certainly help my 
investment portfolio. But more to the geo-strategic point here, 
because of what the Biden Administration has done on energy, we 
are seeing that our efforts to go after Putin are not being 
successful because we have been unwilling to actually sanction 
his oil exports.
    The Biden Administration has actually issued a license that 
explicitly permits all of those sanctioned banks--it is still 
fine to transact with them as long as it is related to energy 
exports, because they don't want to see the price at the pump 
go up, but they are not willing to allow the exploration and 
production necessary to bring the price of the pump down 
through American energy.
    Mr. Meuser. Sure. And it's a huge cost to the typical 
American family and business.
    Mr. Billingslea. And to the Ukrainian people who are 
suffering from the fact that the war machine in Russia keeps 
going.
    Mr. Meuser. Agreed. I have a bill, the China Exchange Rate 
Transparency Act, which would require the U.S. Executive 
Director of the International Monetary Fund (IMF) to advocate 
for enhanced transparency and surveillance of the People's 
Republic of China's exchange rate arrangements. Do you think 
this level of transparency is something that would make an 
impact, would make a difference? And are we doing enough to 
maintain, to keep China following the rules all of the other 
IMF nations are following? Mr. Billingslea?
    Mr. Billingslea. I would have defer to my colleagues, sir. 
I actually haven't had a chance to read your bill, but I would 
be happy to take a look at it.
    Mr. Meuser. Please, Mr. Faulkender, I would appreciate it.
    Mr. Faulkender. I would reiterate something that was said 
earlier, which is that the Biden Administration should yet 
again label China as a currency manipulator and once again take 
steps to mitigate some of those impacts, some of the things 
that we did during the Trump Administration in our trade 
administrations to punish them for not only the intellectual 
property theft and the forced technology transfers, but also 
their currency manipulation. And I think we need to take a much 
harder line on reining in some of the manipulation they are 
doing.
    I don't know whether the IMF is the best way to do it 
versus doing it through bilateral activities in multilateral 
sanctions, but certainly, there needs to be at least a 
relabeling of them as a currency manipulator.
    Mr. Meuser. That is one of many actions that probably need 
to be taken.
    Mr. Faulkender, my colleague, French Hill, introduced the 
21st Century Dollar Act. Could you speak to how requiring the 
Treasury to develop a real strategy to strengthen the dollar 
would help set a clear path for Congress, moving forward?
    Mr. Faulkender. Absolutely. As I mentioned in my opening 
remarks, the Treasury Secretary, more than anyone, has a 
responsibility for ensuring that the dollar maintains its 
status as the world's reserve currency. So, Treasury should be 
at the forefront of the intersection of the three things that 
Congressman Hill's bill speaks to, which are upgrades to the 
payment system, fiscal responsibility, and appropriate use of 
sanctions.
    I think the Treasury needs to take a much greater role as 
the steward of American debt to help guide us towards a path 
towards fiscal responsibility, but we also need to make sure 
that we create a regulatory sandbox of where financial 
innovation and technology investments can take place, but find 
the balance between speeding payment implementation with the 
national security anti-money laundering statutes that we have.
    Mr. Meuser. Okay. I have limited time here.
    Mr. Billingslea, you mentioned how the dollar is not under 
short-term threat but is under long-term threat. So as a 
follow-up to this hearing, maybe you could send me something on 
what you think should be done, what Congress can do over the 
longer term. I yield back, Mr. Chairman.
    Chairman Luetkemeyer. The gentleman's time has expired. The 
gentleman from Illinois, Dr. Foster, is recognized for 5 
minutes.
    Mr. Foster. Thank you. Many of the witnesses here have 
emphasized the advantages that the American consumer gets from 
having a strong U.S. dollar. And over the last 40 years, 
without exception, the U.S. dollar has strengthened under 
Democratic Administrations and weakened under Republican 
Administrations.
    This is the data here, which is a pretty impressive plot. 
And I will just read you the actual number--the United States 
dollar weakened by 2.2 percent under President Reagan, and 
another 1 percent under President Bush.
    It then strengthened by 18 percent under President Clinton 
and weakened by 24 percent under President George W. Bush. It 
then strengthened by 13 percent under President Obama, and 
weakened by 10 percent under President Trump. And the last time 
I made this plot, it would have been up about 12 percent under 
President Biden. So, this is a pretty impressive correlation.
    I was wondering what the witnesses' thoughts are on what is 
driving them? Is it simply the fact that the international 
community has a lot more confidence in the U.S. economy when 
Democrats are running it? Is there a pattern that we see here 
of Republicans getting the keys to the car, sending it into the 
ditch, and then Democrats have to go dig it out and get it 
moving again? What are the things that are responsible for that 
really impressive correlation? Any thoughts on that? I will 
just go left to right.
    Mr. Goodspeed. I think that there are many factors that 
influence foreign exchange rate movements that don't boil down 
to political cyclical factors, but rather asynchronous, 
monetary policy tightening.
    In recent years, in 2018-2019, the Federal Reserve was 
engaged in quantitative tightening and was raising interest 
rates, while Europe, Japan, and the United Kingdom were 
continuing quantitative easing and low----
    Mr. Foster. So, you would argue that it was just an 
accident, that without exception, it is always with every 
Democrat?
    Mr. Goodspeed. It is also a function of budget deficit. 
Typically, if we are having to borrow more, that means yields 
on government debt here are going to be higher. That is going 
to----
    Mr. Foster. Okay. So Republican tax cuts, for example, 
would be one of the things that would weaken the dollar or 
actually maybe----
    Mr. Goodspeed. Insofar as they contributed to larger 
deficits, that would actually increase the dollar. Because 
deficits can----
    Mr. Foster. If we can go down the line, any other thoughts 
on what the reason for this might be?
    Mr. Faulkender. I have not yet studied the data. I am happy 
to respond for the record and look into the timing of when it 
took place and try to factor out what were the policy decisions 
versus what were the other factors, but I would be hesitant to 
speak to six data points and try to claim, on the fly, a 
causation.
    Mr. Foster. Okay. Yes, so if you can all follow up for the 
record on that. I think it is a pretty powerful correlation, 
and we have to understand it. And also, as someone who started 
a manufacturing business that exports a good fraction of what 
we manufacture, this is a double-edged sword when people 
complain about currency manipulation, which is artificially 
depressing the value of your currency.
    So, it is not a clean win. Some business sectors win and 
some lose when you have a strong or weak dollar. But it is my 
feeling that as much as anything, it is a statement about the 
confidence that the rest of the world has in the way Democratic 
Administrations take their responsibility seriously.
    Dr. Goodspeed, thank you for your service on the Council of 
Economic Advisers for the last President. But last month your 
former boss, President Trump, urged Republicans to do a default 
as part of their budget negotiating tactics. Is this a policy 
that the Trump White House Council of Economic Advisors 
considered or endorsed during the times of Republican control?
    Mr. Goodspeed. If I recall from the town hall, I don't 
think he urged them to default. And to answer your question, 
no, it was not something we considered or recommended in the 
Council of Economic Advisers.
    Mr. Foster. Okay. Let's see, previously, President Trump 
had suggested that the entire national debt could simply be 
retired by a one-time wealth assessment on multimillionaires 
and billionaires. First off, is this even feasible in the sense 
that is there enough money in the top fraction of a percent to 
completely retire the national debt?
    Mr. Goodspeed. Not to my knowledge.
    Mr. Foster. Some of you have these numbers. I think it is 
pretty clear there is. It may or may not be a good idea, but 
roughly, the majority of wealth is held by people with net 
worth over $10 million, which is roughly the top 10 percent, I 
believe.
    Mr. Faulkender. If you look at the paper wealth, the wealth 
on paper of the U.S. economy anyway, market capitalization is 
about $80 trillion, which, as you said, is in excess of $30 
trillion. But understand that operationally, you would then 
have to liquidate simultaneously $30 trillion worth of 
financial assets. And when you did so, the market impact is 
going to crush the economy and you would not help----
    Mr. Foster. Sure. I don't think it is a serious short-term 
solution.
    Mr. Faulkender. No, it is not feasible to do so.
    Mr. Foster. But it would be something you would do over 
time. Thank you. I yield back. I look forward to responses for 
the record on the----
    Chairman Luetkemeyer. The gentleman's time has expired. We 
will go to the gentleman from Georgia, Mr. Loudermilk, for 5 
minutes.
    Mr. Loudermilk. Thank you, Mr. Chairman. And thank you all 
for being here and sharing your time and knowledge with us.
    Mr. Billingslea, in your response to Chairman Luetkemeyer's 
question earlier in the hearing, you expressed concern with the 
convertible gold-backed Chinese yuan. I wanted to follow up and 
ask if you would elaborate further on whether a gold-backed 
yuan would possess more credible threat to the dollar than the 
BRICS' common currency?
    Mr. Billingslea. Thank you, sir. Basically, what I mean by 
that, is they have not done that. But the world wants 
relatively safe, stable investments. And that is what the 
dollar represents, but that is also what gold represents. The 
yuan does not currently represent that.
    Mr. Loudermilk. Okay. Thank you for that. What about the 
risk of long-term bilateral trade agreements between China and 
emerging countries? Does the idea that China would use 
multilateral international agreements like BRICS' common 
currency conflict with what we know about their preference for 
deliberate piecemeal strategies.
    Mr. Billingslea. Would you like me to respond to that?
    Mr. Loudermilk. Yes, yes, I'm sorry.
    Mr. Billingslea. Sure. The BRICS are countries--India being 
an exception in that--that are autocratic or otherwise have 
very hostile opinions of the United States, especially Russia 
and China. So, I think we need to understand that they are 
working at cross purposes with us on a full range of issues.
    What we need to be very, very careful on, and where we, I 
think, have perhaps taken a major step backwards is allowing 
China to insert into the Persian Gulf and what they are doing 
with the Saudis, in particular. They want guaranteed access to 
Saudi oil in the event of a crisis. And that is what they are 
up to in brokering those relationships.
    Mr. Loudermilk. Okay. I appreciate that. I think that China 
would want significant control over common currencies, and we 
have to be very vigilant.
    Another question, Mr. Billingslea, how have BRICS and 
BRICS-aligned counties responded to the de-SWIFTing of Russia 
following the Russian invasion of Ukraine?
    Mr. Billingslea. They don't like it, because they can see 
it being done to their banks in a crisis, but they don't 
currently have much of an alternative. Because of the dominant 
role that the dollar plays, whether it is 200 percent or 100 
percent, it is still the dominant trading currency. SWIFT is, 
for the time being, the only game in town.
    Mr. Loudermilk. Okay. I appreciate that. What risk does the 
excessive use of de-SWIFTing as a sanctions alternative pose to 
U.S. dominance in the global financial system? Anybody can 
answer that.
    Mr. McDowell. I think, again, the demonstration of U.S. 
control over the actual flow of dollars, of communication, 
absolutely provides information to adversaries to prepare for 
events where they may face similar circumstances.
    And I think what we are seeing is China, Russia, and other 
countries trying to create alternative payment networks. Russia 
has its own SPFS payment messaging system. It is quite small. 
It was launched in 2014, coincidentally, not coincidentally, 
after the initial round of sanctions starting in Russia.
    In terms of CIPS, China's cross-payments network, Belarus 
joined and announced it was having banks join immediately 
following the 2022 sanctions.
    So, what I am saying is there is a pattern between when the 
United States mobiles control over the pipes and the messaging 
of cross-border statements, and adversaries looking for 
alternatives. It doesn't mean they are using them, but they are 
getting plugged into the system as at least sort of a rainy-day 
option in the event of a future target.
    Mr. Loudermilk. Thank you, Mr. McDowell. While I have you, 
what standards of scrutiny would you recommend Congress or the 
President consider before leveling sanctions on a country like 
China?
    Mr. McDowell. I think with China, again, I look at China 
not just as a typical country, because I think they are an 
alternative service provider. Most countries fall into 
alternative service users. They are looking for an alternative 
to the dollar.
    China, and you could perhaps put Europe in this as well, 
are the only two sort of economic blocks capable, I think, of 
constructing an attractive enough cross-border statements 
network that could attract those alternative service users that 
are looking for that network.
    And that is why I think, again, with China there should be 
a higher bar of scrutiny. It doesn't mean sanctions would never 
be appropriate against China. We can talk about circumstances 
where they would be very appropriate.
    But I think for smaller bites at the apple, it may not be 
worth the risk of sort of spurring China to move forward and 
build that alternative network, if that makes sense.
    Mr. Loudermilk. Yes. Thank you very much. And, Mr. 
Chairman, I yield back.
    Chairman Luetkemeyer. The gentleman yields back. The 
gentleman from California, Mr. Vargas, is now recognized for 5 
minutes.
    Mr. Vargas. Thank you very much, Mr. Chairman. Again, I 
thank you and the ranking member for holding this hearing. I 
also want to thank the witnesses. I, too, think that this has 
been an excellent hearing.
    Dr. Faulkender, you have mentioned the interest rate in the 
United States. Has the inflation rate been higher or lower in 
the U.K. and the E.U than in the United States?
    Mr. Faulkender. Inflation----
    Mr. Vargas. Has it been higher or lower?
    Mr. Faulkender. Inflation immediately following the 
pandemic was originally higher in the United States, and then 
ultimately became higher in Europe. But it started here and was 
higher here first.
    Mr. Vargas. So it started higher here, then it was higher 
in Europe. Is it higher in Europe now, or is it higher here?
    Mr. Faulkender. It is currently higher in Europe.
    Mr. Vargas. How long has it been higher in Europe?
    Mr. Faulkender. We peaked at 9 percent in early 2022. They 
peaked a little higher than that, later than that. So, it has 
been about a year, if I recall correctly.
    Mr. Vargas. I think it has been longer that they have been 
higher than us.
    Mr. Faulkender. Yes.
    Mr. Vargas. If you go back and look, because I know it has 
been more than a year.
    Mr. Faulkender. It was right around the Russian invasion of 
Ukraine in February, so, I guess, a year and 4 months.
    Mr. Vargas. It is interesting because you keep blaming the 
Biden Administration tangentially for inflation. You don't 
mention that this is a worldwide inflation problem because of 
COVID and also because of, obviously, the war in Ukraine. You 
keep saying it is because of the spending of the United States. 
Well, the spending of the United States is not causing 
inflation in Europe. But anyway, I will move on to my next 
question.
    The interesting thing is you all talk just about cuts and 
not that we are spending too much, but not about money, not 
about bringing more money into the system, taxes, in 
particular. What were the taxes under President Eisenhower? 
What was the highest marginal tax rate? Does anybody know?
    Mr. Goodspeed. I believe before the Kennedy tax cuts, the 
top marginal rate peaked in above 90 percent. Although, that 
was not a rate that anyone really paid.
    Mr. Vargas. Under President Eisenhower, I think it was 91 
percent. In fact, interestingly, President Kennedy ran on 
lowering taxes. And, in fact, he wasn't able to because he was 
murdered before he was able to do that.
    It was President Lyndon Johnson who actually brought it 
down to 78 percent. But the interesting thing was they really 
were worried about the debt. They really didn't want to pay it 
back. They didn't want to put it off on future generations. 
They didn't want to put it off on the poor.
    So, they paid higher taxes. Their effective rate was much 
higher than it is today. But, again, they paid their taxes. You 
all just look at cuts. You want the cuts on the poorest of 
people, but you are not looking at what the wealthy are paying. 
And I think that is very important.
    I do want to ask another question--I am through with those 
questions--about crypto currency. It hasn't been brought up 
much today. What is the issue with crypto currency? Is that a 
danger to the dollar? Some of us know, obviously, it is very 
small at the moment, but it could increase to be a real 
problem. Why don't we start with you, Dr. Goodspeed?
    Mr. Goodspeed. Sure. First of all. I would say the 2017 tax 
law was a lesson in terms of lowering marginal rates and 
broadening the base, and the way we broaden the base is by 
limiting the State and local tax deduction and the mortgage 
interest deduction, which are two deductions that massively 
favor the highest-income earners in the United States.
    In terms of crypto currency, as of yet, I don't see crypto 
currency being a safe liquid asset that would rival other U.S. 
dollar-denominated assets in terms of reserve currency and 
international currency appeal.
    Mr. Vargas. Dr. Faulkender?
    Mr. Faulkender. On taxes, I would just merely mention----
    Mr. Vargas. Not taxes, we are on crypto currency----
    Mr. Faulkender. ----the percentage of GDP that is captured 
in the form of taxes is the third-highest----
    Mr. Vargas. I am going to move on and reclaim my time. If 
you are not going to answer the question----
    Mr. Faulkender. With crypto currency----
    Mr. Vargas. ----no, I am going to move on, thank you.
    Mr. Faulkender. Crypto currency, sir.
    Chairman Luetkemeyer. The gentleman will either ask a 
question or allow your----
    Mr. Vargas. I asked a question, and he answered a different 
question.
    Chairman Luetkemeyer. The gentleman will either reclaim 
your time and go to another witness, or ask a question.
    Mr. Vargas. My time is continuing to run here, so I am 
going to have to----
    Chairman Luetkemeyer. You are going to continue to talk 
about it. You are recognized for the balance of your time to 
ask a question of the witnesses.
    Mr. Vargas. He was answering a question I already asked.
    Chairman Luetkemeyer. And you reclaimed your time and went 
back to go to another witness.
    Mr. Vargas. In fact, my time is almost over now since----
    Chairman Luetkemeyer. I will give you another 30 seconds.
    Mr. Vargas. No, that is okay. When I asked the question, 
they answered the question, and I didn't want them to go back 
to the question.
    Chairman Luetkemeyer. Reclaim your time.
    Mr. Vargas. No, go ahead, but I am going to yield back my 
time. I asked my questions.
    Chairman Luetkemeyer. The gentleman yields back. The 
gentlelady from California, Mrs. Kim, is recognized for 5 
minutes.
    Mrs. Kim. Thank you, Chairman Luetkemeyer, and Ranking 
Member Beatty, for holding this hearing. It is no secret that 
the CCP, under the authoritarian regime of President Xi 
Jinping, wants to displace the United States as the top economy 
in the world and counter the American Dream with the CCP's 
version of the China dream at the global stage.
    The CCP is strategically undermining U.S. interests at 
every turn, as proven by their theft of valuable intellectual 
property and agreements with Russia to circumvent economic 
sanctions triggered by the invasion of Ukraine.
    I am going to direct this question to Mr. McDowell. The 
Russian invasion of Ukraine has been ongoing for over 15 
months, so what lessons should the United States Government 
take from how we utilize sanctions when assessing the 
possibility of a similar impending attack by the Chinese 
towards Taiwan?
    Mr. McDowell. Yes, thank you for that question, 
Congresswoman. I think the lessons we can take from the 
sanctions against Russia, I would say before the war and after, 
again, are that they provoke our adversaries to move into 
alternative currencies. In fact, they sort of require it, 
because targets cannot use the dollar system, so they are 
forced to move into other currencies.
    We have seen, again, leading up to the war, Russia settling 
more trade with China in euros, settling more trade with China 
in yuan. We have seen that increase with the focus on the yuan, 
and then rubles after the invasion and the new rounds of 
sanctions.
    And in one sense, that is a sign that sanctions are 
working. Because if sanctions are working, countries will have 
to move their activity away from the dollar. But it is also a 
sign that sanctions do not stop countries like Russia or China 
from participating in the world economy. There are limitations 
to how effective they can be.
    And again, I think the bigger lesson here is in thinking 
about how to use sanctions in a way that doesn't provoke 
additional sort of infrastructure building that will weaken the 
effectiveness of those in the future.
    Mrs. Kim. Thank you.
    Mr. Billingslea. Congresswoman, may I offer three or four 
specifc things I think we need to learn from what did and 
didn't work? The first lesson is you can't make vague 
unspecified threats in the run-up to hostilities. You have to 
begin imposing consequences before the assault begins.
    Lesson number two, you cannot piecemeal sanctions on banks 
when it comes to state-controlled autocratic systems because 
they simply use the non-sanctioned banks to get around it.
    Lesson number three, you have to go after the thing that 
they export which is giving them the hard currency reserves to 
keep the war effort going. And we have not done that with 
regard to Russian oil. So those, I think, are three major 
deficiencies that we need to fix.
    To the chairman's point earlier, I served as an Acting 
Assistant Secretary of Defense, and Deputy Under Secretary of 
the Navy, as well as Assistant Secretary of the Treasury. And I 
can tell you the Treasury does not sufficiently plan in advance 
for these kinds of consequences. We need to urge Treasury to 
come up with a serious game plan to go after the Chinese if we 
believe an invasion of Taiwan in imminent.
    Mrs. Kim. Thank you. Thank you so much for both of your 
perspectives on that and the lessons that we can take from it. 
But we should all be troubled by the increase of central bank 
swap line agreements deployed by the People's Bank of China. 
According to a 2021 People's Bank of China (PBOC) report, it 
has swapped facilities with 40 countries with a combined 
capacity of almost 4 trillion yen, or about $570 billion.
    And just a few days ago, Argentina, a country facing a deep 
currency devaluation and 109-percent annual inflation, 
announced a deal to renew its currency swap line with China and 
double the amount it can assess to nearly $10 billion. The PBOC 
justifies the swap lines as a way to force countries to utilize 
the yen as a method of exchange.
    I want to ask you, Mr. Billingslea, instead of liberalizing 
its capital account and allowing the yen to be fully 
convertible into the currency exchange markets, the CCP has 
opted its increase into its bilateral swap line agreements to 
further internationalize its currency.
    Is there anything that the United States can do to slow 
down or reduce adaptation of the PBOC's current swap lines?
    Mr. Billingslea. Thank you, Congresswoman. I am not an 
expert on credit swaps, but we do have some experts here, so I 
will defer to my colleagues.
    Mr. McDowell. Quickly, my only reaction here is that the 
swap lines were initially pitched as a way to promote the use 
of RMD and trade settlement. There are some studies that show 
there is a slight increase in trade settlement in yuan when a 
country has a swap line, but they are not transformational.
    Now, it seems like in the case of Argentina, they are being 
used more as a way to help these countries that have found 
themselves heavily indebted to Chinese state-owned banks and 
the Chinese government to effectively get access to RMB to save 
their dollar reserves. To be honest, the use of the swap lines 
from Argentina is actually a stronger symbol of the dollar's 
strength than the reliance of countries like Argentina on the 
dollar as a sign of the line strength.
    Chairman Luetkemeyer. The gentlelady's time has expired. 
With that, we go to the gentleman from Texas, Mr. Green, for 5 
minutes.
    Mr. Green. Thank you, Mr. Chairman. I thank the ranking 
member as well. And I thank the witnesses. I concur with those 
who have indicated that your testimony has been stellar. I 
greatly appreciate what you have said, while I may not agree 
with all of what has been said.
    It seems that in life, I have been relegated the duty to 
ask the most-sensitive questions. So, please forgive me for 
asking what will appear to be a super-sensitive question. But 
there's a reason for it. And please also carefully consider 
your answer, because you will be photographed. I have in my 
office answers that have been photographed to super-sensitive 
questions.
    Here is a question: If you consider yourself as someone who 
is not a White male, someone other than a White male, raise 
your hand, please. If you are something other than a White 
male. I believe there has to be at least one hand. Thank you, 
Doctor, for raising your hand.
    Let the record reflect that but one hand is up, and that is 
the hand of Dr. Carla--is it, ``Norrlof?''
    Ms. Norrlof. I get all kinds of pronunciations, but it is, 
``Norrlof.''
    Mr. Green. Thank you very much. I am asking this question 
because Democrats can only have one witness, and you are the 
Democrats' one witness.
    We are witnessing White male privilege. You are the 
beneficiaries of it. You didn't create it. You didn't cause it. 
Someone on the other side should have said: Guys, listen, these 
are all White men. This is super-sensitive. You see, they 
become very much touched by this kind of questioning. But it is 
because we don't do this, that the privilege continues.
    Let me ask all of you, do you know women who could testify 
here today? If you do, raise your hand. Reluctantly, okay. Let 
the record reflect that all of the witnesses know women who 
could testify. Dr. Norrlof, I assume you know a woman who could 
testify other than yourself?
    Ms. Norrlof. Yes.
    Mr. Green. Thank you. So, we have witnesses--women who are 
capable, competent, and qualified, who could do this. But the 
system continues as it is because there are people who are not 
sensitive enough to understand that this depiction of White men 
has an impact on society, has an impact on the little girls who 
look at this.
    I regret to have to do this, and I don't blame any of you, 
but it has to be done. There will be a photograph in my office 
with but one hand up when I did ask that sensitive question.
    Now, let's go on to something more conventional. Do threats 
of default have an adverse impact on the dollar as a global 
currency of choice? Do threats of default have an impact? If 
so, raise your hand. Raise your hand, please. Reluctantly so. 
Dr. Norrlof, do you agree? If so, raise your hand.
    Ms. Norrlof. I don't agree that threats--I do agree that 
defaulting would have adverse consequences.
    Mr. Green. But you don't think that saying we should 
default would have any impact?
    Ms. Norrlof. I think it is mitigated by the dollar safe 
haven status.
    Mr. Green. The dollar safe haven status? What is that?
    Ms. Norrlof. That means that in times of crisis, the dollar 
actually increases.
    Mr. Green. Let the record reflect that all but Dr. Norrlof 
raised their hand indicating that threats of default can have 
an adverse impact. I mention this because we have a former 
President who regularly indicates that we should just let it 
default, which aids and abets those who are in the business of 
extorting, by the way. I don't agree with this. I think that 
the dollar has supremacy because people know that we won't 
default and they believe in it. I yield back.
    Chairman Luetkemeyer. The gentleman's time has expired. The 
gentleman from Tennessee, Mr. Ogles, is now recognized for 5 
minutes.
    Mr. Ogles. Thank you, Mr. Chairman. And I want to thank the 
panel, again, a very esteemed panel, for their great testimony 
today. And, again, I would say of our panels, this has by far 
been the one that I have most enjoyed. Although, we have had 
some great panels. Don't misread my comments.
    But as we talk about the significance of the U.S. dollar, 
we have seen countries take actions to start to move away or 
perhaps diversify away from the United States economy, for 
example, the pact France has made with China and the yuan. And 
the Malaysian Prime Minister said there is no reason to 
continue to solely rely on the United States.
    But yet, the dollar survived the Bretton Woods collapse, 
the launch of the European Union, the euro, the financial 
crisis. We have discussed the stability and the depth, and it 
really did diversify the U.S. economy.
    But as we look to continuing to attract and continue to go 
really kind of remain the dominant predator in the currency 
space, Mr. Goodspeed, what other incentives are there for 
countries to continue to ally with the United States, and then, 
what do we need to do to continue to further those incentives?
    Mr. Goodspeed. I think first and foremost is to maintain a 
dynamic, large, growing economy. Because that constitutes a 
center of gravity within the global economy that people have to 
transact in dollars, they have to invoice in dollars, and the 
market for U.S. dollar-denominated debt remains, to say it 
again, the deepest and most-liquid in the world.
    I would also say we have had some discussion of innovation 
in crypto currency, in payment systems, and we want to make 
sure that we have a regulatory framework in place that allows 
for that innovation to occur within the United States versus 
without. And I would also add that low and stable inflation is 
important for stability in the dollar, and that is why it is 
essential that we get inflation back to target.
    Mr. Ogles. You mentioned inflation, and if you look at our 
current spending levels, that has obviously created inflation 
within the United States. It has also created inflation abroad, 
as was mischaracterized previously. So as we look at the 
current Administration, and we look at our debt levels, we are 
currently at roughly $32 trillion. And we just added $4 
trillion to $5 trillion over the next 2 years. What impact do 
you see on the horizon if we don't get spending under control?
    It should also be noted that we don't have a revenue 
problem. Historically, revenues have only exceeded current 
levels to GDP a few times in recent history. So, spending is 
the issue, not revenue.
    Mr. Goodspeed. I will say it will over time, as deficits 
mount and as the debt burden rises above 100 percent--I think 
the Congressional Budget Office has it ending the budget window 
at about 119 percent of our economy. Then, we will probably 
observe an acceleration of diversification away from the dollar 
as a hedge.
    Again, I don't see another single currency displacing the 
dollar as the major international currency or as the major 
reserve currency, but continued diversification.
    Mr. Ogles. Mr. Billingslea, why would banning of the Allied 
Paid, the cuwala, and WeChat be vital to national security?
    Mr. Billingslea. I'm sorry. I didn't catch the first part 
of that question.
    Mr. Ogles. Why was banning some of the alternative payment 
systems, CCP payment systems, important and imperative for 
national security?
    Mr. Billingslea. I think the CCP had a number of reasons 
for going after some of these. One, I think had to do with some 
concern, some legitimate concern that the People's Bank of 
China had, that they were providing credit in an unregulated 
fashion.
    Some of it is a control mechanism, because Chairman Xi 
wants absolute and total control over the Chinese oligarchs as 
they are. So, I think those are actions that motivated him. And 
I defer to my colleagues on the effect for the U.S. economy.
    Mr. Ogles. Any further comments?
    Okay. As we move forward--and we are about out of time--and 
continue to see escalation from the CCP against Taiwan, what 
impact would that have on the global economy--not the U.S. 
dollar, but the economy? Anyone?
    Mr. Faulkender. It would be catastrophic.
    Mr. Olges. Mr. Chairman, I yield back.
    Chairman Luetkemeyer. The gentleman yields back. The 
gentleman from Iowa, Mr. Nunn, is recognized for 5 minutes.
    Mr. Nunn. Thank you, Mr. Chairman, and thank you to the 
ranking member for holding this hearing. I want to compliment 
you all for being here, based on both merit but also a long 
lineage of successful insight into the strength of the U.S. 
dollar on the global economy.
    Now, it is my belief that we are not under immediate threat 
of the U.S. dollar being replaced as the world's reserve 
currency. However, there are developments here that I applaud 
this Congress for taking a leadership role in helping to drive.
    So, Mr. Billingslea, I am going to begin with you, both in 
your defense service as well as at Treasury, in February of 
this year, the Office of Foreign Assets Control (OFAC) issued 
action against several Russian individuals and proxies accused 
of skirting with the most-aggressive, or at least so-called 
aggressive sanction regimes in U.S. history.
    Can you please talk with us about how Russian individuals 
and defense firms like Rostec have been able to facilitate arms 
sales under this extreme sanction regime leveled by the 
President?
    Mr. Billingslea. Congressman, some of the sanctions that 
this Administration has imposed have been effective. In 
particular, some of the actions taken against Russian 
oligarchs. Likewise, I think it is commendable that they have 
rallied the U.K., and the E.U., and even some Asian allies to 
further impose sanctions.
    But overall, the sanctions imposed by the Biden 
Administration have not, in fact, been the strongest ever, as 
they have touted. They are riddles with loopholes and 
exceptions. We are in the process of allowing the Iranians to 
continue to cut billion-dollar deals with the organization 
which also is expanding the Russian nuclear weapon stockpile, 
for instance.
    So, it has not been comprehensive. We need to go after the 
full set of banks across-the-board, and we need to go after 
Russian oil exports. Otherwise, it prolongs the war.
    Mr. Nunn. I fully agree with you on that. I do. I 
compliment the fact that we have been able to work with our 
allies on this. The challenge, though, remains that there is a 
shadow network in which a lot of this is skirting U.S. 
sanctions, and we are losing the ability to control that.
    Specifically, let's talk about one of these, the Minkoff 
network. It is beginning to chip away at U.S. foreign policy 
and the legitimacy of the U.S. dollar just the way you 
highlight it. Tell me how one of these networks operates 
outside the U.S. control system?
    Mr. Billingslea. They do it in a lot of ways. Russia also 
partners with Hezbollah, for instance, inserting sanctions on 
both sides of that equation. And they use jurisdictions which 
don't have really truly effective anti-money laundering 
regulations. And here I am specifically talking about the 
Emirates, I am talking about Turkey, and we also see a lot 
interest in Venezuelan gold. The largest gold reserves in the 
world are in Venezuela.
    And as I said earlier in my testimony, people love gold 
because it is anonymous. It is hard to trace. And you see those 
gold flows going up into Turkey, over to the Emirates, and then 
onward either into China, India, or Russia itself.
    Mr. Nunn. So, what we just highlighted here is this idea 
that we are weaponizing a network.
    Dr. McDowell, I want to speak to one of these points you 
brought up during your opening statement. When people talk 
about weaponizing currency, I would offer that it is a mistake 
to assume that currency is the weapon beyond the monetary 
means.
    Really what we are talking about here is that currency is 
just a payload. The real weapon is the underlying rails, the 
networks of these currencies and their corresponding payments 
and economic activity are transmitted on. Countries, companies, 
consortia, they control the rail and ultimately wield this as a 
real economic power.
    I would like to highlight here for the record the 
blockchain payment network developed by Rastian Russia 
hospitality. CIPS is a payment clearing settlement out of the 
Communist Chinese currency. In 2022 alone, we saw over $14 
trillion in transactions through this network, in over 109 
countries.
    So, the question I have here is, can you elaborate on how 
China's development of the Cross-Border Interbank Payment 
System (CIPS) has facilitated an alternative payment network 
for clearing these settlements outside U.S. networks?
    Mr. McDowell. Sure. Essentially, what we are talking about 
here is a Chinese replication of the Clearing House Interbank 
Payments System (CHIPS) in the United States. And that is a 
system of correspondent banking accounts between hubs. These 
are big global banks to which thousands of smaller banks are 
connected and have shared accounts with, so if you think about 
when you move around the country in a free airplane, but you 
are connecting in a major hub, all of the smaller airports is 
sort of what we are talking about.
    And CIPS has something like 70 direct participants--these 
are all Chinese state-owned banks that are at the core of the 
CIPS network. And they are connected to now around 1,400 
indirect participants. Some of these are in China, but they are 
in over a hundred countries now. That doesn't mean that all of 
those banks are participating in it, but again, they are hooked 
up to the plumbing, so, essentially, it is a----
    Mr. Nunn. Dr. McDowell, I agree, this is fantastic. I want 
to highlight this point between CIPS and cell, the Russian 
version of this, are they effectively isolating the United 
States out of this, and is it a threat to the United States?
    Mr. McDowell. I don't think it is a threat to the U.S., 
again, I think it is more a tool for China to improve its 
resiliency. It wants to have the plumbing in place so that if 
it gets caught in a Russia-like scenario, it already has that 
network, and if it needs to lean more heavily on it, it is 
already using it, but it is marginal right now.
    Mr. Nunn. Thank you, Mr. Chairman. I yield back.
    Chairman Luetkemeyer. The gentleman's time has expired. We 
will now go to the gentlewoman from Texas, Ms. De La Cruz, for 
5 minutes.
    Ms. De La Cruz. Thank you, Chairman Luetkemeyer, for 
holding this hearing today. Now, this hearing comes at a 
critical time when some academics and naysayers are spreading 
theories that dedollarization has begun, and that the beginning 
of the end has arrived for the dollar's dominant role as a 
global reserve currency.
    I want to start off with some basic observations and 
questions for our witnesses. But before I do that, Mr. 
Chairman, I would like to submit for the record a recent report 
from Moody's Investors Service dated May 25, 2023, ``Dollar 
dominance will persist for decades despite new challenges.''
    Chairman Luetkemeyer. Without objection, it is so ordered.
    Ms. De La Cruz. Thank you, Mr. Chairman. And as our 
witnesses all know, the U.S. dollar enjoys a reserve currency 
advantage over competing foreign currencies, which provides 
benefits to the United States in several ways, including in 
trade, finance, and in financing our unsustainable debt.
    In this report, the Moody's report, it concludes that 
despite the likely emergence of a multipolar currency system 
over the coming decades, the global financial system will still 
be led by the greenback, because its challengers will struggle 
to replicate its scale, safety, and convertibility in full.
    Mr. Faulkender, would you agree with this assessment?
    Mr. Faulkender. I would. There is no other viable 
competitor out there immediately that has the depth of market, 
the international trade, and that other countries want claims 
against our future economy the way that our competitors would 
offer.
    Ms. De La Cruz. Thank you. Is there a genuine risk that the 
dollar could lose its reserve currency status in the short- to 
medium-term?
    Mr. Faulkender. Not in the short- to medium-timeframe, but 
that doesn't mean we don't need the long term to address some 
of these challenges.
    Ms. De La Cruz. And, Dr. Goodspeed, would you agree with 
Mr. Faulkender's remarks, and could you expand on them?
    Mr. Goodspeed. Sure. And I would just like to note that 
there are a couple of figures floating around in terms of how 
big a share foreign exchange transactions are accounted for by 
the dollar--45 percent or 90 percent. It depends on what you 
are looking at. I tend to think that the ranking member's 
number of 90 percent is more informative because it tells us 
what share of transactions the dollar is involved with on 
either side.
    I would echo Mr. Faulkender's remarks in terms of in the 
near-term, it is very hard to see a displacement of the U.S. 
dollar. You can't replace something with nothing, or you can't 
replace a reserve currency with the attributes of the U.S. 
dollar, with a reserve currency like the euro or RMB that 
doesn't share those attributes.
    Over the long-term, we do need to address the risk that 
investors no longer view the U.S. dollar and U.S. dollar-
denominated assets as the safest and most-liquid in the world.
    Ms. De La Cruz. Thank you, both. Switching gears, I would 
like to move to China and the yuan.
    Mr. Billingslea, during your time at the Treasury 
Department, you dealt extensively with Middle Eastern 
countries, particularly Saudi Arabia. What do you make of Saudi 
Arabia's off-again, on-again flirtations with Chinese officials 
as reported by The Wall Street Journal last year regarding 
dominating oil contracts in the yuan?
    Mr. Billingslea. I think it is a huge issue, but it is a 
huge issue because it actually reflects a massive 
miscalculation on the part of the Biden Administration when it 
comes to Saudis. You can't demonize the royal family and then 
go crawling back to them and asking them to increase oil 
production, and then demonize them again and ignore them.
    Of course, you are going to see the Chinese step into the 
gap. And that is precisely what they have done in brokering 
normalization in the diplomatic guise between the Saudis and 
the Iranians.
    The Chinese have one ambition here, which is to ensure that 
in the midst of a Taiwan invasion, their access to oil from 
Saudi Arabia will be unimpeded.
    Ms. De La Cruz. Thank you. With that, I yield back.
    Chairman Luetkemeyer. The gentlelady yields back. Our 
Members have all asked their questions. And with that, I would 
like to thank our witnesses for their testimony today. You all 
were fabulous. Thank you so much for your time and your 
attention and your ideas and the discussions that we have had 
with you.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    And with that, this hearing is adjourned.
    [Whereupon, at 11:55 a.m., the hearing was adjourned.]

                            A P P E N D I X


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