Fading of the Dollar’s Dominance

A number of experts believe the US dollar is unlikely to retain its title as the world’s reserve currency due to structural changes in the global economy and the mounting US deficit. For instance, China appears to be taking a stronger stance on the yuan’s global role, though the currency remains relatively unusable in large international transactions. Meanwhile the International Monetary Fund is increasing the supply of its Special Drawing Rights, currency-like assets based on the value of a group of currencies, of which the US dollar is one. If the mighty dollar loses its status as the world’s reserve currency, the consequences for the US are many: a loss of purchasing power for Americans traveling abroad, a rise in the competitiveness of some businesses due to cheaper US exports, and a higher borrowing rate for the US government and companies. But at present, the dollar’s position remains unchallenged partly because the US is faring better than other large economies, and partly because countries with large dollar reserves, such as China, fear that a precipitous flight from the dollar could reduce the value of their holdings. In the end, this feels like a show we’ve seen before. The loss of US hegemony – whether of power or the dollar – leaves open the question, who or what will take the its place?– Yale Global