DOLLAR DOMINANCE IS GOING TO STICK AROUND IN GLOBAL MARKETS AS THERE’S NOTHING ON THE HORIZON TO RIVAL THE GREENBACK, FED STUDY SAYS
Business Insider - July 6, 2022
- The New York Fed said nothing on the horizon will rival the dollar as a reserve currency.
- "The dollar's international role, whether for trade, investment or use as a global reserve currency, remains quite strong."
- While crypto and central bank digital currencies could stem the dollar's influence, its unlikely, the authors wrote.
The US dollar's dominance will remain unchallenged even with the rise of digital assets and other geopolitical factors, according to a new study by the Federal Reserve Bank of New York.
"The dollar's international role, whether for trade, investment or use as a global reserve currency, remains quite strong, with nothing on the horizon likely to rival it," Federal Reserve researchers wrote in a Tuesday blog.
The greenback's role as an international currency has been bolstered in recent years by a reduced emphasis on unilateralism and protectionism, according to the authors.
Additionally, the dollar's role as a reserve currency means other nations hold it as a reserve currency — even if its dominant position has slipped over the last two decades — and it is sometimes used as an anchor currency against local exchange rates.
The wartime sanctions against Moscow, which the US has spearheaded, could encourage some de-dollarization by other countries nervous about the US's financial influence, which could stem the dollar's role.
At the same time, the rise of central bank digital currencies and cryptocurrencies could eventually reduce the traditional dollar's sway as a cross-border asset and investment, the authors noted, though this remains far off.
Meanwhile, the Chinese yuan, which China has continued to try and push onto the world stage, still only accounts for about 2.9% of global reserves and analysts say it's unlikely to pose a true threat to the greenback for a long time.
