The global financial system is in large part anchored in US Treasuries. They serve not only as benchmark assets but also as global collateral. Trillions of dollars in global trade, lending and portfolio allocation decisions depend on the liquidity, safety and pricing of Treasuries. If the US stumbles into policy paralysis, via a debt ceiling crisis, runaway rates or market rebellion, the effects will not stop at its shores.

For the Global South, the risks are immediate and not inconsiderable. The upside is that there is a way forward.

As US bond yields rise or become volatile, capital flees emerging markets, currency pressures mount and balance of payments constraints return with vengeance. Countries that have borrowed in dollars, pegged to dollars, or trade primarily in dollars become hostage to a fiscal dynamic over which they have no influence. Central banks may be forced to raise rates, burn through reserves, or seek emergency swaps, all while inflation and unemployment spiral.

Much of the current institutional order is propped up by the belief that markets will “discipline” governments that overspend. But this assumes that interest rates reflect economic fundamentals, rather than herd dynamics, policy expectations, or geopolitics. In practice, market discipline is both selective and regressive. It rewards countries with deep financial markets and global currencies (like the US), and punishes those that depend on external financing. When the bond market punishes the US, the Fed can step in. When it punishes a Global South country, the IMF steps in, and with it comes austerity prescriptions and structural adjustment demands that strip nations of their public assets.

Source: Newsgctn