The US dollar accounts for over 50% of reserves held and has unwaveringly remained the primary reserve currency since 1945, especially after it replaced gold as the most-held reserve asset after there was a move to a fiat monetary system. European currencies have remained steady at 20-25% since the late 1970s, the yen and sterling are around 5%, and the Chinese RMB is only 2%, which is far below its share of world trade and world economic size, for reasons we will delve into in the Chinese section of this book. As has been the case with the Dutch guilder and the British pound, the status of the US dollar has significantly lagged and is significantly greater than other measures of its power.
That means that if the US dollar were to lose its reserve status and significantly depreciate in value it would have a devastating effect on the finances of those countries holding those reserves as well as private-sector holders of dollar-debt assets. Who would be the winners? Those with dollar-debt liabilities and those with non-dollar assets would be the big winners. In the concluding chapter, “The Future,” we will explore what such a shift might look like.
The massive increase in the supply of currency since the end of the quantitative tightening regime last year is a headwind for the US Dollar. The fact the monetary and fiscal assistance programs deployed by the USA are much larger than in other countries is certainly a near-term headwind for the Dollar but the big question is whether this is a secular change?Click HERE to subscribe to Fuller Treacy Money Back to top