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Federal Reserve Governor Christopher Waller does not expect the U.S. dollar (DXY) to lose its status as the world’s dominant reserve currency “anytime soon, nor even see a significant decline in its primacy in trade and finance,” he said on Thursday.
“Recent developments that some have warned could threaten that status have, if anything, strengthened it, at least so far,” Waller said in a prepared speech titled “The Dollar’s International Role.”
Indeed, the U.S. dollar, backed by the government, is the most widely used currency for international trade, accounting for the majority of global reserves. Though recent media commentary has warned of a possible decline in the dominant USD status, from U.S. political dysfunction to the rise of digital assets, Waller noted that it continues to dominate in all three dimensions of a currency: store of value, medium of exchange and unit of account.
He did explain, however, that there has been a steady retreat in the share of foreign investors that hold Treasury securities outstanding. They currently hold about one-third of Treasuries outstanding, compared roughly 50% 10 years ago. That could be a negative over the longer-run as foreign demand for Treasuries helps to reduce the interest expense paid on Treasury debt, Waller said.
A key reason for the decline is that “over the past decade, the stock of global foreign exchange reserves has grown much more slowly than the stock of Treasury securities outstanding, so foreign official investors are accounting for a declining share,” Waller said.
