Will the USD retain its world currency reserve status?

America’s currency has always been the benchmark for financial measure, but the changes to currencies in the recent years have left people wondering whether it is still as powerful as it once was. Even a currency as weak as the RMB is slowly climbing up the ranks and solidifying itself as the next currency reserve.

While China isn’t ready just yet to displace the dollar as the world’s dominant currency, predictions imply that the rise of the Chinese market and economic growth will pose the yuan as a strong contender in the coming years. In fact, Barry Eichengreen of University of California Berkeley and Camille Macaire of France explained that the yuan will become more powerful as the financial world becomes increasingly multipolar, as reported by Bloomberg. 

However, according to other experts, the USD will remain the world’s dominant currency for the foreseeable future. According to the data from the IMF, the U.S. dollar still holds over 60% of the world’s currency reserve, sharing the remaining 40% with the Euro, Japanese yen, British pound, the Swiss franc, Australian dollar, and of course, Chinese yuan. 

In order to hold on to their dominant reserve status, the USD will have to continue to retain its financial stability, be freely convertible, have a large liquidity reserve, and dominate the trade industry. At the moment, the American dollar is still used in over 40% of global commodities trade such as oil, agricultural, and copper. 

Reports continue to perpetuate the fact that other currencies do not hold the same sway as the USD. While Euros are being used in many more markets and the Japanese yen has stabilized in recent years, the dollar still holds supreme, though the Euro may be much more likely to precede USD as the global currency rather than China’s yuan as it isn’t as flexible as other potential currencies and are not freely convertible. 

Furthermore, when hit with a global pandemic, where many currencies fell, many investors bought USDs in order to access a safe-haven asset, asserting the fact that American currency is by far the most reliable. In early 2020, when the pandemic hit, the dollar soared higher than ever when compared to other currencies and their performances in previous decades. 

There is definitely no reason to convert USDs to other currencies for the time being, as it is still holding strong. Americans are even encouraged to travel in the current financial landscape and take advantage of the strong dollar. Capitalizing on USDs for travel now essentially means that Americans will be traveling at a discounted rate when the exchange rate is taken into consideration. One popular tour is the glacier excursion in Iceland as well as other nature-based excursions and tours. With the opening of borders and the boom of travel influencers that have regained the glory of pre-pandemic days, posting travel guides and inspirational pictures from what to do in Iceland down to what street food travelers shouldn’t miss if they are in Thailand.