Executive Summary

  • From its use in foreign exchange (FX) transactions, trade invoicing, cross-border loans, international debt and more, the U.S. dollar has long reigned supreme as the world’s top reserve currency.
  • The dollar’s position is supported by the significant size of the U.S. economy as well as its deep, liquid, integrated capital markets and well-established legal system.
  • We believe the dollar’s position comes with a catch for the U.S. economy: structural budget and trade deficits that exert downward pressure on growth.
  • While the euro and the yuan are the dollar’s stiffest competitors, we believe there are challenges that impede their progress in replacing the dollar.
  • In our view, the complex financial infrastructure built around the U.S. dollar and the political influence the U.S. continues to wield globally, all support the dollar’s position for the foreseeable future.

Does the Buck Stop Here?