World reacts to U.S. credit downgrade
International reaction to agency Standard and Poor’s decision to downgrade the U.S. credit rating for the first time has been mixed.
The move followed a week in which anxieties over Europe’s debt crisis and the faltering U.S. recovery had spooked investors and made for volatile trading Friday, despite the release of stronger-than expected U.S. jobs figures for July.
Asia took a lead Saturday in expressing its concern over the potential impact of S&P’s action on the global economy.
In China — which holds large amounts of U.S. debt — a commentary published by the official Xinhua news agency was critical of the U.S. government and questioned whether the U.S. dollar should continue to be the global reserve currency.
“China, the largest creditor of the world’s sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China’s dollar assets,” the commentary said.
S&P’s move served “as another warning shot about the long-term sustainability of the U.S. government finances,” it added.
“International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country.”
Washington must stop its practice of “letting its domestic electoral politics take the global economy hostage and rely on the deep pockets of major surplus countries to make up for its perennial deficits,” it said.
South Korea’s government said it would concentrate on limiting the spread of market uncertainty in the wake of the downgrade, semi-official news agency Yonhap reported.
“The news is bad and Seoul plans to keep very close tabs on how the market reacts,” Yoon Jong-won, head of the finance ministry’s economic policy bureau, was quoted as saying.
Vice Finance Minister Yim Jong-yong will meet Sunday with senior policymakers from the Bank of Korea and other financial bodies to discuss what actions should be taken by Seoul, Yonhap reported.
Still, Australian Prime Minister Julia Gillard urged calm over the U.S. downgrade, pointing out that only one of the three major ratings agencies had taken that decision.
S&P had been signalling they wanted to see a certain reduction in the U.S. deficit for some time, she said Saturday, but “the other two major ratings agencies, Moody’s and Fitch, continue to have the American economy rated at AAA. So I think people just need to look at all of the facts.”