For decades the U.S. dollar has been the most dominant of the reserve currencies in the world. The liquidity and transparency of the dollar versus other world currencies have made it the primary reserve currency for foreign governments and international trading entities.
Dollar supremacy has recently become more challenged as the U.S. struggles with a growing budget deficit and expanding Treasury debt, which can put downward pressure on a country’s currency. A weakening dollar may also become inflationary for U.S. consumers by limiting purchasing power as well as increased borrowing costs for the U.S. government.
The most recent data compiled by the International Monetary Fund (IMF) show the U.S. dollar representing 59% of global exchange reserves, down from 65% in 2016 and the lowest in 25 years. Other expanding economies, such as China’s, have seen their currency gradually increase as a reserve currency status over the past few years.
Sources: IMF Currency Composition of Foreign Exchange Reserves, Federal Reserve
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