Who wins from US debt default? China.

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• As the US stumbles toward a possible debt default, the economic risks are clear.

• In the worst case, it could set off a global financial conflagration, given the role of US Treasury bonds as the risk-free anchor of a vast network of global financial transactions. Even a last-minute avoidance of default could result in a downgrading of US debt and upward pressure on US interest rates, further stressing an already fragile banking system.

• But an additional, and possibly underappreciated, reason to avoid default would be its deleterious impact on the US dollar's key currency role and America's standing in the world broadly and vis-à-vis China.

• The US dollar is the dominant global currency.

• is used most widely for trade invoicing and financial transactions, though the dominance has been declining.

• The currency in which a country's trade is invoiced influences the funding structure in its banking system and in turn the currency composition in its central bank reserves. So, expanded use of the RMB in trade should induce greater use in these other areas as well.

• Loss of relative status would be felt in other dimensions as well. US influence within international financial institutions such as the World Bank and the International Monetary Fund (IMF) would be reduced.

• would be attenuated.

• The US ability to use financial sanctions to achieve foreign policy aims

• disputes between the US

• and the EU or eurozone could be relatively manageable.

• Not so with China, which represents a non-Western, nondemocratic challenge to the status quo.

• If the US again falters and reveals itself to be an unreliable hegemon, China will not stand idly by

• Although it faces internal constraints to taking a more proactive role in international finance

• hen presented the opportunity, China would put itself forward as a benign, reliable leader.