The International Role of the U.S. Dollar, Post-COVID Edition

the federal reserve released a Post Covid edition of their research on the role of the US Dollar this week.

Here is the summary of the report along with a link to the full report

The U.S. dollar has maintained its dominant role in the global economy due to the strength of the U.S. economy, stability, openness to trade and capital flows, and safe dollar-denominated assets. Despite potential challenges, the dollar’s international usage remains unchanged over the past five years. It is widely used in official foreign exchange reserves, with the dollar comprising 58% of global official foreign reserves in 2022. The bulk of these reserves are held in U.S. Treasury securities. The dollar is also the most frequently used currency in global trade, accounting for a significant share of trade invoicing in various regions. It dominates international banking, with about 60% of international and foreign currency claims and liabilities denominated in dollars. The dollar’s dominance is supported by swap lines and facilities provided by the Federal Reserve to ensure dollar funding availability during times of crisis. While challenges to the dollar’s dominance exist, such as geopolitical tensions and the growth of other currencies like the euro and the Chinese renminbi, the dollar is expected to remain the dominant international currency in the foreseeable future.

Relevant data points from the article:

1. The dollar comprised 58% of global official foreign reserves in 2022.
2. The dollar’s share of trade invoicing was 96% in the Americas, 74% in the Asia-Pacific region, and 79% in the rest of the world from 1999 to 2019.
3. About 60% of international and foreign currency claims and liabilities are denominated in dollars.
4. Over $1 trillion in U.S. dollar banknotes were held by foreigners at the end of 2022, roughly half of total U.S. dollar banknotes outstanding.
5. The dollar was bought or sold in about 88% of global foreign exchange transactions in April 2022.
6. The dollar’s index of international currency usage remained stable at a value of about 70 since 2010, well ahead of other currencies like the euro (23), Japanese yen (7), British pound (6), and Chinese renminbi (3).
7. The dollar’s dominance is supported by swap lines and a repo facility provided by the Federal Reserve, with outstanding totals of $585 billion and $450 billion, respectively, during the 2008-2009 financial crisis and the COVID-19 crisis.
8. Foreign currency debt is dominated by the U.S. dollar, with around 70% denominated in dollars since 2010.
9. The U.S. dollar’s status as the dominant global currency seems unlikely to diminish in the near term, but challenges could arise over a longer horizon, including geopolitical shifts, increased European integration, rapid growth of China, and changes in the payments landscape.

https://www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-us-dollar-post-covid-edition-20230623.html