US dollar Photo: Xinhua

US Congress has reportedly reached a deal on how much the US government will spend in 2024 in a significant move toward avoiding a shutdown, but it doesn't necessarily defuse the threat altogether, Chinese observers said.

The US government shutdown risk reflects Washington's "declining fiscal management and governance ability," which may negatively impact US economy and the financial market, they said
.
The deal would establish an overall spending level of $1.59 trillion in fiscal 2024, US media outlet NBC News reported on Monday, noting that the threat of a potential US government shutdown isn't completely ruled out yet, as Congress still needs to allocate the money, write the bills and approve them.

During the last five decades, there have been 21 US federal government shutdowns. A government shutdown would lead to the suspension of nonessential federal functions and result in millions of federal employees not receiving pay.

The repeated US federal government shutdowns and lingering threats reflect that the US government's relatively weak governance and fiscal management ability, although for many times, the US government is able to solve crises at the last minute, Huo Jianguo, vice chairman of the China Society for World Trade Organization Studies, told the Global Times on Monday.

The continuous increase in US government debt will produce negative effect on the US economy in the long run, as Washington needs to pay more interest on its huge debt, Dong Yun, director of the Research Center for International Political Economics of the National Institution for Finance and Development, told the Global Times on Monday.

"The US' fiscal sustainability will continue to weaken, which may increase US financial sector instability and spill over to impact global markets," Dong said.
Dong said it's a general trend that many countries are diversifying their foreign assets and increasing holdings of gold, but only by promoting reforms to the international monetary system and boosting the development of emerging market economies can there be "more choices for a country's holdings of foreign assets."

Aside from shocks to the US itself, repeated government shutdowns will impact the US' influence in global affairs and accelerate the decline of US dollar hegemony in the world, Huo said.

Huo said that the continuous issuance of US Treasuries will make it difficult for the US government to repay its debts, which will reduce the reliability and credibility of US dollar-denominated assets.

The US' aggressive interest rate hikes to tame inflation has brought spillover effects to other countries, especially developing countries, making many economies rush to diversify payment using local currencies and increasing holdings of gold in 2023.

China's gold reserves reached 71.87 million ounces at the end of December, marking the 14th consecutive month of increase, latest data from the People's Bank of China showed.