The U.S. Dollar’s Global Roles: Where Do Things Stand?
Liberty Street Economics
Linda S. Goldberg and Robert Lerman
Previous Liberty Street Economics analysis and New York Fed research addressed the potential implications for the United States if the dollar’s global role changed, noting that the currency might not retain its dominance forever. This post checks the status of the dollar, considering whether any erosion in the dollar’s international standing has occurred. The evidence to date is that the dollar remains the world’s dominant currency by broad margins. Alternatives have not gained extensive traction, albeit this does not rule out potential future pressures.
We consider a currency to be international based on its use in foreign countries as: a primary currency in official foreign exchange reserves; an anchor currency in exchange-rate regimes; a store of value and medium of exchange; and a unit of account, whether for transactions in foreign exchange and international capital markets, or for invoicing and settling in international trade. An assessment can also go beyond the traditional unit-of-account definitions and encompass the currency’s use in international clearing and settlements systems, financial markets infrastructure, and in reference rates in important financial contracts.
In sum, the period since the global financial crisis has not seen a widespread change in the international monetary architecture. While the dollar’s international status may have declined in some pockets, overall it remains dominant. Nevertheless, recent trends bear watching as history suggests that a currency’s dominant status is not immutable.
The full article is available at https://libertystreeteconomics.newyorkfed.org/2019/02/the-us-dollars-global-roles-where-do-things-stand.html