(Bloomberg) — The dollar’s prime international status remains unchallenged, according a study by Federal Reserve Bank of New York staff, despite challenges from sources including geopolitics and technologies like digital currencies.
“The dollar’s international role, whether for trade, investment or use as a global reserve currency, remains quite strong, with nothing on the horizon likely to rival it,” authors Linda Goldberg, Robert Lerman, and Dan Reichgott wrote in a blog posted Tuesday.
Even so, the study cites some factors that could erode the international use of the dollar over time.
Financial sanctions on Russia following its invasion of Ukraine could encourage de-dollarization by other countries anxious to avoid similar moves against them. And that could fragment the U.S. currency’s global role, the authors wrote.
Cryptocurrencies and central bank digital currencies could eventually supplant the dollar’s cross-border role in payments and investments — though the authors raise several reasons why this may not happen.
Efforts to peg stablecoins to the dollar could actually reinforce its international status. Likewise, CBDCs so far have been aimed at domestic retail markets, something that doesn’t challenge the dollar’s international role. They are also not as attractive as the dollar as a store of value, being mostly backed by local currencies that lack the widespread global acceptance of the greenback.
“No currency replicates the characteristics of the US dollar as a store of value, unit of account and medium of exchange,” the authors wrote. “Moreover, US assets are viewed to be safe and liquid and have withstood the effects of global shocks.”
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