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The dollar remains the main international currency, according to a FED study

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A study prepared by experts from the United States Federal Reserve (FED) indicates that the dollar remains the main international currency. This, despite the challenges of a geopolitical nature and technologies, such as digital currencies, that the currency faces.

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“The international role of the dollar, whether for trade, investment, or use as a global reserve currency, remains quite strong, and there is nothing on the horizon that can compete with it,” wrote authors Linda Goldberg, Robert Lerman and Dan Reichgott in their article “The Global Roles of the US Dollar: Revisiting Where Things Stand” published Tuesday in Liberty Street Economics.

However, the authors mention some factors that could erode the international use of the dollar over time.

Among them, they point out that the financial sanctions imposed on Russia after its invasion of Ukraine could encourage de-dollarization by other countries anxious to avoid measures against them. That “could lead to further cumulative reductions and fragmentation in the dollar’s international roles.”

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They also indicate that cryptocurrencies and central bank digital currencies (MDBC) could end up supplanting the cross-border role of the dollar in payments and investments. However, they highlight that “CBDCs adopted and studied so far have tended to focus on domestic retail sectors and therefore would not affect the role of the US dollar as an international medium of exchange.”

Furthermore, the authors argue that efforts to peg stable currencies to the dollar could bolster their international status. “Some CBDCs may strengthen the international role of the dollar, especially if backed by US dollars, for example in small open economies,” they wrote.

“No currency reproduces the characteristics of the US dollar as a store of value, unit of account, and medium of exchange,” conclude Goldberg, Lerman, and Reichgott.

With information from Bloomberg

Source: Larepublica

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