So the Fed is closely monitoring the risks of de-dollarization and how it could affect U.S. consumers and businesses.
“There has been commentary for some time predicting that the dollar is destined to disappear, and its imminent demise is a possibility,” Fed Director Christopher Waller said Monday in opening remarks at a conference on the international role of the U.S. dollar. ” he said.
For more than half a century, the dollar has been the world’s de facto “reserve currency”, the default currency held in central bank reserves, and the dominant currency in foreign exchange markets. The US dollar is used in over 90% of foreign exchange transactions. In the words of 1960s French President Valéry Giscard d’Estaing, the dollar’s global dominance is an “extraordinary privilege” for the United States.
However, if a growing number of recent commentaries are correct in claiming that the era of dollar dominance could soon be over, it would send a shockwave through the global economy and raise borrowing costs in the United States, while digital currencies would Posing a new threat to its privileged position However, the jury is still out on whether the dollar is truly destined to fall.
While Waller acknowledged the changes in global finance, he reaffirmed the role of the dollar in it.
“The United States’ role in the global economy is changing, and finance is always changing,” he said. “The dollar remains the most widely used currency by a variety of metrics.”
The dollar is currently valued in the foreign exchange market, and the dollar has more purchasing power than it has in about 20 years. But that strength has put a strain on foreign governments by increasing interest payments on dollar-denominated debt, leading some countries to look to the Fed for relief by cutting interest rates and considering other options.
And after the US imposed sanctions on Russia for its invasion of Ukraine, other governments realized that upsetting the US government could result in their dollar holdings being frozen.
Some people are pivoting to gold as a safe, long-term store of value. Central bank demand for gold is at an all-time high, led by China and Turkey. While China is also promoting the renminbi as a key currency for international payments and as a key currency, other countries are also pursuing digital currencies as legitimate alternatives to central banks (in 2017 they began piloting e-CNY, a digital version of their national currency). (including China). Holds dollars.
Waller said on Monday that geopolitical tensions, sanctions against Russia, China’s efforts to strengthen the yuan, and economic fragmentation could affect the dollar’s international use.
He added: “If these sanctions and policies persist, the changing landscape of cross-border payments, including the rapid growth of digital currencies, could challenge the dominant role of the US dollar.” added.
For his part, Waller has dismissed concerns about the dollar’s status. Speaking in February, he pointed to increased demand for the dollar during a period of global unrest and its ubiquity in foreign exchange and international lending markets.
Waller said at the time: “I don’t see the US dollar losing its status as the world’s reserve currency anytime soon, and I don’t even foresee its dominance in trade and finance diminishing significantly.” . “Recent developments that some have warned could threaten that position have, so far at least, instead strengthened it.”
