Join +750K new investors every month who copy stock picks from billionaire's portfoliosSign Up Free

US dollar dominance to persist for decades despite challenges - Moody's

Published 05/25/2023, 12:50 PM
Updated 05/25/2023, 12:57 PM
© Reuters. FILE PHOTO: U.S. dollar banknotes are seen in this illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration

By Saqib Iqbal Ahmed

NEW YORK (Reuters) - The U.S. dollar's dominance in international trade and finance will persist for decades despite new challenges and even when a more multipolar currency system emerges it will be led by the greenback, Moody's (NYSE:MCO) Investor Service said on Thursday.

While the multi-decade fall in the dollar's share of central bank reserves, simmering geopolitical tensions and growing brinkmanship in U.S. politics have boosted speculation about an end to the dollar's dominance, at present there are no viable alternatives, Moody's said in a note.

"The greatest near-term danger to the dollar's position stems from the risk of confidence-sapping policy mistakes by the U.S. authorities themselves, like a U.S. default on its debt for example," Moody's analysts wrote.

White House and Republican negotiators made some progress in late-night talks about raising the government's $31.4 trillion debt ceiling, top congressional Republican Kevin McCarthy told reporters on Thursday.

Negotiations are going to the last possible moment as the Treasury Department has warned the government could run short of funds to cover all its expenses as soon as June 1, which without a deal could trigger an economically catastrophic default.

The dollar's share of official FX reserves fell to a 20-year low of 58% in the fourth quarter of 2022, down from about 78% at the turn of the century, according to International Monetary Fund data.

© Reuters. FILE PHOTO: U.S. dollar banknotes are seen in this illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration

While Moody's expects the dollar's share of reserves to fall further, its current rivals, the euro and renminbi, will struggle to rapidly match its core traits, including the size and openness of the of the U.S. economy and the safety and depth of the U.S. treasury market, the analysts said.

On Thursday, the dollar index, which measures the strength of the U.S. currency against six rivals, was up 0.4% at a two-month high of 104.23. For the year, the index is up 0.7%.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.