Home > Dynamic > Top economist: The U...

Top economist: The U.S. economy itself—the most serious threat to the U.S. dollar’s status as the world’s top reserve currency

2024-02-19

363

On Saturday (February 17), two economists said that the dominance of the US dollar will continue to exist, and the most serious threat to its status as the world's number one reserve currency is actually the US economy itself.

Steven Kamin, former director of the Federal Reserve's Department of International Finance, and Mark Sobel, a former Treasury economist, point out in a new paper that the U.S. dollar has long been the world's dominant currency.

Cumming and Sobel said the U.S. dollar is the world's most widely used currency for trade and central bank reserves, and is likely to stay that way because it is used far more than other currencies.

According to the latest survey by the Bank for International Settlements, the U.S. dollar accounts for 88% of total global daily trade. At the same time, IMF data shows that in the third quarter of 2023, it accounted for approximately 55% of all central bank reserves, far more than any other foreign currency.

Some commentators warn that a rival currency could soon replace the dollar. The BRICS countries are already working to phase out the dollar from trade, while countries such as Russia and Asian powers have proposed creating a new currency to challenge the greenback.

But Cumming and Sobel warned that these threats were actually quite modest compared with the threats to the dollar from the U.S. economy itself, citing the risk of a "serious deterioration" in U.S. financial and economic conditions.

Cumming and Sobel said of the dollar's potential dethronement: "It is almost unthinkable given the polarization of American politics, the dysfunction of Congress, and the disinterest of politicians of all stripes in curbing the expanding budget deficit."

“If the outcome is continued inflation, crowding out of private investment, increased financial volatility in other parts of the world, and diminished economic dynamism in the U.S., then the loss of the dollar’s dominance will be the least of our worries.”

Another risk stems from the fragmentation of the global economy into different blocs.

"In this case, global trade, productivity and economic growth may be suppressed, and international political and military stability will also be adversely affected."

Other economists have warned that the U.S.'s precarious fiscal position could jeopardize the dollar's dominance of global markets. The federal budget deficit is expected to reach $1.6 billion this year and $2.6 trillion in ten years, according to projections from the Congressional Budget Office.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

CM Trade

As a world leading financial trading platform, CMtrade Provides comprehensive one-stop trading services and opportunities for traders.

[Products]

The platform provides over 32 kinds of popular financial products such as forex, precious metals, crude oil, indices, cryptocurrencies and more.

[System]

2 top trading systems CM Trade MT4 / CM Trade APP, powerful and easy to operate

[Service]

Comprehensive market news, professional market analysis, 7*24 hours online customer service

[Advantage]

Low cost, high leverage, flexible one-stop all day two-way trading.

[Authority]

Licensed and strictly regulated by authorities. Traders deposits are independently kept by the bank. Fast deposit and withdrawal. Fair, efficient and transparent trading environment.

Free Access
Daily Trading Strategy Download Now

CM Trade Mobile Application

Economics Calendar

Top economist: The U.S. economy itself—the most serious threat to the U.S. dollar’s status as the world’s top reserve currency

Access to global trading markets anytime and anywhere