Tracy Shuchart, CEO and chief market strategist at Hilltower Resource Advisors, discusses in Making Money whether gold or cryptocurrencies could replace the US dollar as the world's reserve currency.
A new report from J.P. Morgan states: The status of the US dollar The rise of competing alternative currencies is bringing about the end of the dominant currency in the global financial system.
China's rapid growth in recent decades and its emergence as the world's second largest economy, coupled with sanctions against Russia, Dispersion from dollars In the global market, JPMorgan
But he added that the dollar's dominance as the world's main reserve currency is “well entrenched and structural in nature.”
“The dollar's role in global finance and its impact on economic and financial stability are underpinned by deep and liquid capital markets, the rule of law and a predictable legal system, a commitment to freely floating exchange rates, and a smooth functioning financial system for dollar liquidity and institutional transparency,” JPMorgan analysts wrote.
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According to a report from JP Morgan, the US dollar's status as one of the world's major currencies is not expected to change anytime soon. (Photo: Mark Wilson/Getty Images/Getty Images)
“There is no doubt that the private sector has wholehearted faith in the dollar as a store of value, and the dollar remains the most widely used currency by a range of measures,” the company wrote.
According to a JP Morgan report, the share of the dollar Foreign exchange reserves According to IMF COFER data, it rose from 59% in 1996 to a peak of 73% in 2001, before declining to 58.4% as of the end of 2023. However, it notes that it has remained relatively stable since 2021.
The firm's analysts also see foreign exchange reserves as an “imperfect indicator of overseas asset accumulation” and say they are comparable to other government agencies, such as sovereign wealth funds and state-owned banks. Emerging Markets In recent years, dollar-denominated deposits have been increasing.
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JPMorgan noted that while China has reduced its holdings of U.S. Treasuries, it has also increased its holdings of other dollar-denominated assets. (Karen Breiter/AFP via Getty Images/Getty Images)
The report also looked at the dollar's share of global debt. It noted that the Federal Reserve estimates that about 60% of international and foreign currency-denominated claims (mainly loans) and liabilities (mainly deposits) are denominated in U.S. dollars. This share has remained stable since 2000 and remains well above the euro's 20%, JPMorgan noted.
JP Morgan also has a Chinese-owned U.S. TreasuryPurchases of U.S. stocks, corporate bonds and government agency debt increased. The People's Bank of China's holdings of U.S. Treasuries fell by 11.4 percentage points, partially offset by a 5.8 percentage point increase in other U.S. securities.
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The JPMorgan report said it would probably take decades for the dollar's dominance to decline significantly. (Photographer: Andrew Haller/Bloomberg via Getty Images/Getty Images)
The report said the most “underestimated risk” to the dollar's status is the possible fragmentation of the international payments system created by Russia, China, Iran and North Korea. Avoiding Western sanctions – As well as China’s important role in e-commerce.
“It may take decades for the dollar's dominance to meaningfully decline, and the decline in the dollar's share of global trade and overall [foreign exchange] “Reserve holdings should not be confused with a weaker dollar,” the investment bank analysts wrote.
Ted Jenkin, co-founder and CEO of Oxygen Financial, told FOX Business that the dollar remains the “world's dominant and trusted currency” and that despite the rapid growth of the U.S. national debt in recent years, dollars accounted for 58% of published foreign exchange reserves in 2022.
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“When you look at global trade, which is another indicator of the dollar's role as a medium of exchange, outside of Europe, the dollar is by far the most widely used currency around the world,” Jenkin added.
Reuters contributed to this report.
