Yellen says a US default could cause global financial crisis

DAKAR/WASHINGTON: US Treasury Secretary Janet Yellen said on Friday that a potential US default could cause a global financial crisis and undermine the role of the dollar as a reserve currency.

The US government hit its $31.4 trillion borrowing limit on Thursday, a figure that reflects money already spent by the government. Yellen has informed congressional leaders that her department had begun using extraordinary cash management measures that could stave off default until June 5.

“It (default) could cause a global financial crisis. It would certainly undermine the role of the dollar as a reserve currency that is used in transactions all over the world,” Yellen said in an interview with CNN, adding that in such a scenario many people would lose their jobs and see their borrowing costs rise.

The White House is refusing to negotiate with hardline Republicans on raising the debt ceiling because it believes enough of them will eventually back off their demands, as a growing chorus of investors, business groups and moderate conservatives warn of the dangers of edging towards a default. Republicans in the US House of Representatives want cuts to some government programs.

Yellen said the debt ceiling was for spending that was already authorized by Congress and did not seek any additional expenditure.