Question

Discuss the reasons for your expectation of whether the US$ will maintain its position as dominant currency in the foreign-exchange market or will it be supplanted by the Euro or the Yuan (China).

Answer 1

The US dollar will continue to remain the dominant currency. The US dollar will remain the dominant currency for one reason that the US government holds trust and confidence of countries across the globe about the it's ability to pay back obligations.

The Chinese government has been trying to replace Yuan as the global currency. But before that it needs to establish itself as a reserve currency which will itself take another ten years. Similarly, Euro is next in place after the US dollar as most widely held currency so it can be a challenge to the US dollar. These are only possibilities and neither of the currencies can single handedly replace the US dollar.

However it should be noted that over the next few years, with the change in globalisation trends, the share of US market as a global currency may come down but only Yuan or Euro will not be able to take the place. The global currency would be diversified to hold a bundle of currencies. This means that US dollar will continue to be dominant currency as no single currency can replace it.