Reports of the dollar's demise greatly exaggerated

Abstract

▀ Speculation that the dollar could lose its status as the world's main reserve currency “sooner rather than later”i looks, in our view, wide of the mark. Across a range of international uses, the dollar accounts for 40–60% of transactions – a share that has been stable or even increasing in recent years. Potential rivals are far behind, especially the Chinese renminbi, which accounts for just 1–2% of transactions. As a result, the dollar's pre‐eminence looks unlikely to be seriously threatened for many years to come. The US's gains from the dollar's global role may also be more modest than often thought. ▀ The dollar's position is supported by factors including its widespread use as a trading and commodity‐pricing currency, the size and liquidity of US financial markets, and the continued lack of a credible rival. None of these is likely to be significantly eroded in the near term, even with some moves afoot to shift away from dollar payments in oil and other areas. Historical evidence suggests that a world of multiple reserve currencies is possible but also shows it can take decades for reserve currencies to lose their dominant status.