Dollar remains dominant despite growing demand for currency diversification

Since 2010, a period marked by economic, financial and geopolitical shocks, the dollar has steadily appreciated relative to most other currencies. The dollar’s real effective exchange rate has increased by nearly 40% from the end of the 2008 financial crisis and remains the ultimate safe haven for investors.

Most of the calls for a demise of the dollar as the dominant currency in the global financial architecture rest on the changed structure of the global economy, particularly the rise of China. Over the last few decades, the US economy’s share of global gross domestic product has declined, while China’s and other emerging markets’ have increased. The dollar’s share of global foreign reserves has declined – falling from a peak in the early 2000s of around 65% to well below 60% in the second quarter of 2023.

The euro remains the second-largest reserve currency with a stable share of around 20%. After the euro, the most obvious contender to dollar dominance is the renminbi. The renminbi’s share has increased to more than 3% since the middle of the last decade, but remains well below the share of other ‘secondary’ reserve currencies such as sterling or yen.

Συνέχεια  εδώ