Source: Fortune
Summary
The US dollar has been subject to “obituaries” due to its declining valuation, but this is not a new phenomenon. Despite its flaws, the dollar remains the world’s reserve currency. The author argues that reserve currency status is a competition that requires a large economy, deep and open markets, capital mobility, and geopolitical clout. The dollar’s valuation is not a good indicator of its strategic standing, and its ability to maintain reserve currency status is not solely dependent on its value.
Our Reading
The numbers tell one story. The dollar’s valuation has fluctuated over the years, but its reserve currency status remains intact. The euro and Chinese renminbi are potential competitors, but they have their own limitations. The euro lacks a deep pool of reserve assets, while China’s capital account is not fully open. The dollar’s imperfections are not unique, and its ability to outshine others will determine its continued supremacy.
The dollar’s “exorbitant privilege” is not a birthright, but a privilege that must be earned and maintained. The author notes that the transition from the British pound to the US dollar as the reserve currency was a slow decline over decades, rather than a sudden event. The dollar’s value will continue to fluctuate, but its reserve currency status is not solely dependent on its value.
Author: Evan Null
