Question

During the 1800s, the British pound was the reserve currency of the world’s monetary system—countries conducted their international transactions in pounds. By the 1900s, the pound was replaced by the U.S. dollar as the reserve currency. Do you think that the dollar will continue to serve as the world’s reserve currency? Will the dollar be replaced by some other currency? Form an argument to justify your position on this issue.

Answer 1

The U.S. dollar is is no immediate danger of losing its reserve currency status. Some state that Chinese currency Yuan might be the reserve currency in the near future. They state that continued budget deficit of the U.S. will lead to cheapening of dollar and it might lose its reserve currency status. The signs of Chinese currency being the reserve currency is very dim. This is because China unexpectedly devalued its currency in 2015.This caused largest losses and is in contradiction of Chinese currency being given the status of reserve currency status in this case.

However, on the other hand, it has been observed that the U.S. dollar has increased in value by around 10 per cent . Also issues with the European countries and other countries around the globe have made the U.S. a safe economic haven.It is also the currency of choice for foreign exchange transactions. More than 80 per cent of the foreign exchange transactions occur in dollar.Thus, it is incorrect to say that the U.S. dollar will lose its reserve currency status in the near future.