The U.S. dollar as world currency

There is a lot of news about the U.S. dollar (USD) and how sustainable it is as the world currency in the future. While I don’t expect a major shift away from the dollar during my lifetime, we do see currencies and their use gradually changing over time.

• Currently the USD represents 58 percent of the world’s central bank reserves. is is down from 75 percent in 2000. is reserve currency is a magnet for foreign investment in the United States, according to William Greiner, CFA®

• Some of the reasons for the renewed interest in world currencies is due to Russia, China and India talking with Brazil and South America about creating a new currency to challenge the USD. ey want to trade directly with each other in their own currencies.

Let’s take a look at the current facts, according to JP Morgan.

• China’s currency the Renminbi (RMB) was the fth most traded currency in the world last year.

• e U.S. share of global trade is about twelve percent, and the U.S. share of global GDP is about 25 percent. Yet the dollar’s

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Financial Strategies

share of foreign exchange, trade, debt, and exchange reserve is much higher, which is why the dollar is known as the world’s reserve currency.

• About 35 percent of all Treasury bonds are owned by foreign investors.

• e dollar’s role in foreign exchange markets has been mostly unchanged over the last 20 years or more. In 2022, the dollar accounted for about 89 percent of all foreign exchange transactions. e dollar’s dominance in international nance is clear with the dollar used in about half of all trade invoicing—much higher than the twelve percent share in global trade.

• e dollar is still the dominant currency of choice for investment of foreign exchange reserves at about 60 percent.

• Some central banks are diversifying holdings away from the dollar and the euro,

SEE KUMMER, P13

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