The spread of the coronavirus and the speed with which countries will emerge from the pandemic blockades, as well as the recent closure of US-Chinese embassies, say nothing about the long-term performance of the dollar and whether it will lose its status as the world’s preferred currency.
Central banks around the world have reserves of about 11 trillion dollars, according to data from the International Monetary Fund. More than 60 percent of them are in dollars – 6.8 trillion dollars, compared to about 20% in euros, 6% in yen and less than 5% in British pounds. In addition, a survey of 50 central banks published last week by Invesco reported an expected increase in appetite for dollars next year.
In its survey, Invesco asked whether central banks expected the dollar’s position as a global reserve currency to weaken over the next five years. Most responses predict that the status quo will be maintained.
The euro may continue to appreciate as long as the pandemic exists, largely as a result of the weakening dollar. However, as Invesco notes in its report, “the discussion about the collapse of the US dollar as the world’s reserve currency seems to be greatly exaggerated.” At least for now, the dollar’s leadership will continue, says Mark Gilbert.
Junior Trader Daniel Dimitrov