The dollar will live to die another day

There isn't an imminent crisis on the horizon for the US currency

There's far too much talk around these parts about how the dollar will be vanishing from global trade imminently, but the reality is this is a process that takes decades. First, the greenback makes up nearly 60% of global foreign exchange reserves. That's pretty massive!

In terms of currency composition of global foreign exchange reserves over time, yes the dollar has been steadily eroding. Nothing dramatic here. About a drop of 12% over 22 years. No need to panic. Countries can and do still trade outside of the US dollar!

As of 2019 the dollar was an extremely popular currency issue foreign debt in, and that remains the case now, which is why the Fed worked with other central banks to open forex swap lines to stabilize exchange rates during times of high demand.

When Russia's invasion of Ukraine occurred, we saw a flood into US dollars, as they remain seen as the 'safe haven currency'. That is because by buying dollars, one can also buy US government bonds, which are also seen as a safe haven. They caught a bid then as well.

The trade weighted US dollar index also remains quite strong relative to other trading partners' currency exchange rates. That's not suggesting that there's some sort of imminent reckoning happening by any stretch of the imagination. Quite the opposite, in fact.

US assets are also very popular globally, and foreigners hold a substantial portion of those same assets. That creates demand for the US dollar, as well as a much longer unwinding process should it ever be replaced by another currency or mechanism of settlement.

While the foreign appetite for US sovereign debt has diminished, it hasn't fallen to a point that warrants concern in the near to intermediate term. And with rates having risen significantly, I suspect that appetite may begin to return.

Most global exports are invoiced in, you guessed it, US dollars outside of Europe. These trade relationships, some of which are countries trading with each other (and not the US) in US dollars, are not likely to end abruptly.

Global claims and liabilities are much more likely to be settled in US dollars than other currencies (unlabeled charts above and below were sourced from the Federal Reserve)Claims by currency:

In terms of overall international currency usage, the dollar remains rather robustly in demand, with the Euro the second most used, and a distant second. The Chinese renminbi is barely visible on the chart.

The reality is that more countries want to settle transactions and also finance debt using dollars rather than Euros, and the difference is rather significant. This all suggests that any unraveling of dollar supremacy would take a very, very long time should it ever happen.

Conclusion: The dollar's role as the global reserve currency isn't changing anytime soon. There have been rumors about this situation for over two decades now, and we've seen numerous headlines taken out of context to mean things they do not.

There's no need to panic about the US dollar.