USD: Dominance questioned as rivals stay weak – Societe Generale

Finance

USD: Dominance questioned as rivals stay weak – Societe Generale

Societe Generale‘s Kit Juckes discusses whether the US Dollar’s global dominance is under threat as global imbalances widen and IMF meetings highlight systemic risks. He notes that while the Dollars share of global activity should gradually decline as the US share of GDP falls, neither the Euro nor the Chinese yuan currently offers a credible alternative reserve currency.

Dollar supremacy faces slow structural erosion

“”Is the US Dollars pre-eminence under threat？“ is a frequent question these days.”

“As the US share of global GDP falls, it makes sense for the dollar‘s share of FX transactions, FX reserves, denomination of bond and equity issuance to fall too, but there isn’t a viable competitor to threaten its position at the heart of the global financial system.”

“Suffice to say that dollar dominance has been phenomenal compared to the dominance even of the pound in the 19th century.”

“The Chinese yuan, with capital controls and policies which help it remain competitive, isnt a candidate to replace the dollar, and the euro will only be a competitor when it is the currency of a far more unified economic bloc.”

“Until then, the most likely outcome is for GBP to continue fading away and the JPY to do likewise.”