Summary of The US Dollar

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In the post-World War II era, global policy makers depended on the US dollar as the global reserve currency. However, with the frenetic expansion of globalization, currencies such as the euro, yen and now even the renminbi have staked a claim as a potential competitor to US dollar dominance. Investment expert Amar Reganti explores the US currency’s rivals and the obstacles to their displacing the dollar and achieving reserve currency status. getAbstract recommends this insightful and detailed report to policy makers, executives and investors interested in understanding the current and future global currency architecture. 

In this summary, you will learn

  • Why the US dollar remains the world’s global reserve currency,
  • What other currencies could mount a challenge to dollar dominance and
  • What reforms could accelerate this possibility.
 

About the Author

Amar Reganti is a member of GMO’s asset allocation team and former deputy director of the Office of Debt Management for the US Treasury. 

 

Summary

With the 2015 inclusion of the Chinese renminbi (RMB) into the basket of currencies that make up the IMF’s Special Drawing Rights (SDR), the RMB took another step toward global reserve currency status, potentially challenging the US dollar. However, the RMB has to jump considerable hurdles to attain that rank. The IMF defines the SDR as made up of “the currencies that are issued by members or monetary unions whose exports had the largest value over a five-year period and have been determined by the IMF to be ‘freely usable’.” The SDR consists of the US dollar, at 41.73%; the euro, 30.93%; the RMB, 10.92%; the yen, 8.33%; and the British pound, 8.09%. The euro is a contender as a possible alternative to the US dollar, but its lack of a “fiscal union” is problematic. The euro does not account for the individual countries’ unique governance styles, economic policies and debt holdings, and it is missing a central and “deep, liquid and fungible market for government securities.” The yen doesn’t have the purchasing power strength to usurp the dollar as a reserve currency. Japanese officials typically assume a weak yen posture in the global marketplace to fuel Japan’s export-driven economy.


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