EC The Dollar And Its Rivals

When Paraboni wrote his book, it was common to believe that there was a natural monopoly on the numeraire, the vehicle, invoicing and reserve currency.  After a period of bouncing from one alternative to another (euro, yuan, SDR, Bitcoin--yes it was not that long ago that analysts at money center banks were recommending central banks hold Bitcoins in reserves), the new intellectual fad is to consider a multi-currency reserve regime. Ironically, this is very much what exists today. Given some limited fluctuation, the dollar's share of global reserves is a little more than 60%, and the euro is around 20% (the whole is roughly the same size as the sum of its parts-legacy currencies). A handful of other currencies jockey for the remaining 20% or so and that includes sterling, yen, Canadian dollar, Australian dollar, and Chinese yuan.  

We all use the QWERTY keyboard, though superior ones and better ergonomic designs exist. Few people have learned Esperanto. The dollar might not be loved, but it is widely used and missed when taken away. It is not a tyranny, as Business Week claimed a couple months ago.  Central banks, businesses, and investors can make other choices but chose the dollar. The dollar's role as the numeraire is backed by the US Treasury market.  There cannot be a compelling alternative to the dollar until there is a compelling alternative to the US Treasury market. Europe may fiddle around the edges, but it is not anywhere close to a bond market that can rival the US. Russia and China are even further behind. 

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Read more by Marc on his site Marc to Market.

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Harry Goldstein 1 year ago Member's comment

Very impressive.