Status of US Dollar as Global Reserve Currency: Central Banks Diversify into Other Currencies and Gold

By Wolf Richter for WOLF STREET

The status of the US dollar as the dominant global reserve currency has helped the US fund its twin deficits, and thereby has enabled them: the huge fiscal deficit every year and the massive trade deficit every year. The reserve currency status comes from other central banks (not the Fed) having purchased trillions of USD-denominated assets such as Treasury securities, other government securities, corporate bonds, and even stocks. The dollar status as the dominant reserve currency has been crucial for the US, and as that dominance declines ever so slowly, risks pile up ever so slowly.