The US's borrowing is a threat to the dollar even though the debt-ceiling drama looks like it's coming to an end, Jim Grant says

The US dollar.

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• Unchecked US borrowing could end up threatening the dollar's long-term dominance, according to Jim Grant.
• Promises to cut spending will likely be "negated and forgotten," he told CNBC.
• Fears about the government defaulting on its debt repayments have weighed on demand for dollar-denominated Treasury bonds.

The dollar's dominance as a reserve currency could come under threat in the future if the US doesn't rein in its borrowing spree, according to markets expert Jim Grant.

"Our currency is the greatest export you could imagine – it costs nothing to produce, it is accepted worldwide," he told CNBC's "Squawk Box" Thursday. "But that acceptance of the currency and the debt denominated in those dollars, we must not take for granted."

Investors have been fretting about government borrowing in recent weeks with politicians struggling to solve Washington's debt-ceiling impasse.

The Biden administration is widely expected to agree to future spending cuts in exchange for the Republican-led House of Representatives voting to raise the $31.4 trillion debt ceiling.

The "Grant's Interest Rate Observer" author said he expects the standoff to end soon - but warned that it's unlikely the deficit will fall even if the Biden administration promises to cut future spending.

"I think it will be resolved, but not solved," Grant told CNBC. 

"There'll be a resolution as there was in 2011, but in 2011 we promised $2.2 trillion in savings over 10 years and the net result was an increase in cumulative deficits of $11.5 trillion," he added.

"On form, this imminent resolution will entail a lot of out-year promises, which based upon history will be negated and forgotten."

High long-term US borrowing levels pose a threat to the dollar because they fuel investors' fears that the government could default on repaying its debts.

That reduces demand for dollar-denominated Treasury bonds, which only pay out their yields if the government meets its debt obligations.

Read more: Wall Street is bracing for stock market chaos as the debt-ceiling face-off drags on

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