People's Bank of China governor Zhou Xiaochuan recently sparked a new round of debate regarding the international monetary regime with his call for a new international reserve currency. While the dollar was not specifically mentioned, it is clear that the proposed new international currency is meant to replace the role that the US currency currently plays. When a senior official of a government that holds about 10% of the US government's marketable debt makes such a statement, people take notice. There also appears to be some international support for governor Zhou's idea, although the U.S. is understandably less enthusiastic. So will we see the U.S. dollar lose its international preeminence anytime soon?
An evaluation of this question must begin with an understanding of why the U.S. dollar is so well regarded globally in the first place. There are four main reasons for this. One, it has, at least until now, been a reliable store of value. Two, it is the most widely accepted means of international payment for goods and services. Third, large, deep, and liquid dollar financial markets exist for savers to invest their money in. And finally, a long period of dominance has allowed the currency to become a part of the international financial trading infrastructure.