“So far, US business leaders have sided with Trump, who has showered them with corporate tax cuts and deregulation. Despite soaring budget deficits, the dollar remains strong in the short term, as the tax cuts have fueled US consumption and rising interest rates, which in turn pull in capital from abroad. Yet in a matter of several years, Trump’s profligate fiscal policies and reckless trade and sanctions policies will undermine America’s economy and the role of the dollar in global finance.” (Jeffrey D. Sachs Trump’s Policies Will Displace the Dollar, Sept.3. 2018)

There is little doubt that as the largest economy in the world, the U.S. has been slowly losing its edge to other important countries, particularly China and the Euro Zone block.

As a result, the euro and the renminbi have been growing in importance in terms of the international finance. From Jeffrey Sachs perspective, “U.S. President Donald Trump has probably accelerated the shifts that were already underway because of his misguided trade wars and anti-Iran sanctions. “

The U.S. dollar is still by far the closest currency which serves as a global medium of exchange and security. Indeed, the U.S. dollar is typically used as a reserve currency, both by governments and the private sector.

While many world' currencies are accepted for international transactions. the most popular currencies are the U.S. dollar, the euro, and the yen. The U.S. dollar is still extremely important in settling international transaction and the dollar accounts for about 64 percent of reported central bank foreign exchange reserves. That makes the dollar the de facto global currency, even though it doesn't hold an official global title.

As well, in effect, the U.S. Federal Reserve still acts as the world’s lender of last resort, a role that it played out in the financial crisis of 2008. Aside from official foreign exchange holding, U.S. dollar-denominated assets represent a hefty proportion of other countries holdings of foreign assets. The second chart traces the share of external debt assets denominated in dollars and euros for advanced economies and other countries (mainly emerging markets), including private external holdings.

As the chart illustrates, the U.S. dollar accounts for more than half of the external assets and its share has been stable for most of the past 25 years. The next closest rival to the U.S. dollar is the euro, which accounts for about 30% of foreign asset holdings.

In other words, the U.S. dollar punches far above America’s weight in the world economy. As Sachs points out, “the US currently produces around 22% of world output measured at market prices and around 15% in purchasing-power-parity terms. Yet the dollar accounts for half or more of cross-border invoicing, reserves, settlements, liquidity, and funding. The euro is the dollar’s main competitor, with the renminbi coming in a distant third.”

The U.S. dollar is widely used because it has been the most convenient, lowest-cost, and safest unit of account, medium of exchange, and store of value; nonetheless, as Sachs points out, it is not irreplaceable. “America’s monetary stewardship has stumbled badly over the years, and Trump’s misrule could hasten the end of the dollar’s predominance.”

There is little question that China would like its currency to replace the dollar as the primary global currency. As of the third quarter of 2017, the world's central banks held $108 billion worth of Chinese currency.