Dollar’s role as the dominant global currency looks secure – Charles Schwab

Investors are concerned that the Federal Reserve’s easy monetary policy, combined with rising budget deficits, will undermine confidence in the dollar. The recent drop in the dollar over the past year has heightened these concerns. While economists at Charles Schwab agree that there can be unforeseen consequences from the current policy mix, the dollar’s role as the dominant global currency looks secure.

Key quotes

“Over the years, the euro’s usage in global transactions has grown, the Japanese yen’s usage has been largely stable, and there has been a slight increase in the renminbi’s role. However, none of these currencies seem likely to supplant the dollar any time soon.”

“While we believe the dollar’s role as the world’s reserve currency will remain intact for the foreseeable future, its value will rise and fall with changes in the economic fundamentals.” 

“We don’t see a concerted effort by the Fed to undermine the dollar’s value. In fact, a weaker dollar is generally seen as a positive for global growth because it eases financing conditions for borrowers – especially in emerging-market countries.”

“The dollar remains a safe-haven asset. During times of global stress, the dollar generally moves up as investors seek a large, liquid, and reliable place to put their money. When the pandemic struck in early 2020, the dollar soared to its highest level in decades compared to a wide range of other currencies due to global demand.”