But the potential downgrade would not be unprecedented if realized. Standard & Poor’s downgraded Washington’s rating in 2011 amid the debt ceiling crisis at the time, and that may have limited impact on the largest economy in the world given the strong demand for the United States. Treasury bills on the markets.
What does an “AAA” rating mean?
AAA is the highest rating given by credit rating agencies for government and corporate debt.
The three main rating agencies – Standard & Poorzo, Fitch and Moody’s – use a rating system ranging from AAA to D (for default), passing through B and C.
Ratings are an indication to investors of the ability of entities to repay their debts. When issuing a credit score, the agency considers factors such as the country’s economic growth rate, debt levels, spending and tax revenue, and political stability.
The lower a country’s rating, the more likely investors are to obtain a higher interest rate to buy its debt, to compensate for the higher risk.
Which countries have a AAA rating?
A small number of countries are rated AAA by the three main agencies: Australia, Denmark, Germany, Netherlands, Norway, Singapore, Switzerland and Luxembourg.
Several other countries have a AAA rating from one or more agencies, such as the United States and Canada, as well as the European Union.
What are the implications of a AAA rating downgrade?
The move to AAA sends a signal to investors, and the impact varies by country and context.
France lost that rating along with many other countries following the 2008 global financial crisis. That drove up borrowing costs, but it didn’t alienate lenders.
Borrowing costs in the US also rose after Standard & Poorzo’s decision in 2011 – but the US has a significant advantage.
In this regard, Fitch said on Thursday when it put the US rating on review for possible downgrade: “The US dollar is the world’s most important reserve currency, and we believe that currency risks and currency controls capital is minimal.
The US currency’s role as the most widely used currency in global affairs could be compromised by a default, but in the short term demand for the dollar could increase as it is seen as a safe haven in times of global turmoil.
The need to hold dollars for trade means that demand for US bonds will remain, although Washington may have to pay higher interest rates.
Fitch has said since 2013 that the US credit rating is likely to be downgraded, but it hasn’t cut it yet.
The United States has been rated by Fitch since 1994 and Moody’s since 1949, and they have never lowered their credit rating.
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