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With a slowing economy and elevated inflation, concerns have emerged around the stability of the U.S. dollar. There have also been headlines around the BRIC economies (Brazil, Russia, India, China) seeking to create a competing currency and calling for de-dollarization, particularly in oil and commodity trading.
While headlines around the collapse of the dollar emerge every so often, we continue to see the U.S. dollar maintaining its role as the preeminent reserve currency to the world. Some marginal declines in dollar trade could occur. But an outright demise of the dollar does not seem credible for three key reasons:
The U.S. dollar still accounts for the majority of global reserves.
The U.S. dollar dominates foreign exchange reserves, or assets held by global central banks in foreign currencies. These reserves are often used for trade payments or to support a currency if needed.
The percent of reserves held in U.S. dollars has moderated over the past few decades, as the U.S. economy accounts for a somewhat smaller share of global activity. However, the dollar remains the most held currency by far, comprising nearly 60% of global reserves. The euro, which is the next largest currency held in reserves, makes up about 20% of reserves. Beyond these two currencies, the remaining currency reserves are relatively small in comparison.