The role of the dollar as the dominant world currency seems certain – Charles Schwab

Investors are concerned that the Fed’s expansionary monetary policy, combined with the increase in the budget deficit, will undermine confidence in the dollar. The recent fall in the dollar over the past year has increased these concerns. While Charles Schwab’s economists agree that there may be unforeseen consequences of the current policy mix, they see that the dollar’s role as the dominant world currency appears secure.

Key statements:

“Over the years, the use of the euro in global transactions has grown, the use of the Japanese yen has remained largely stable, and there has been a slight increase in the role of the renminbi. However, none of these currencies seem to be able to supplant the dollar in the short term ”.

“While we believe that 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 economic fundamentals“.

“We do not see a concerted effort by the Fed to undermine the value of the dollar. In fact, a weaker dollar is generally viewed as 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 rises as investors look for 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 basket of other currencies due to global demand. “

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