The Uncertain Future of the US Dollar as the Global Reserve Currency

Abstract

Oil payments made to OPEC in US dollar constitute a dual financial relationship. In other words, the oil acts like collateral value for the dollar, while the strength of the US economy acts like collateral value for OPEC countries.In other words, the favored position of the US dollar acting as the global reserve currency was contingent on two initial assumptions made by all other central bankers that the US economy would continue to grow and that the US Federal Reserve System would be circumspect in printing dollars.As long as the US economy had a high rate of growth, OPEC countries had confidence that the US dollar would remain stable in value long enough for the OPEC countries to engage in future transactions using their dollar reserves. And, as long as the US dollar was used for oil payments, the US dollar had the equivalent value of a barrel of oil. Similar in history, but not exactly like, when the dollar value was tied to the value of an ounce of gold.The world’s major central banks are fully aware that in order for the US dollar to remain as the global reserve currency in the international monetary system that the rate of US money creation in the US must be linked to the rate of economic growth in the US.