The Dollar May Be Down, But It's Far From Out

The most recent data from the International Monetary Fund on the composition of global foreign-exchange reserves paints a dour picture of the dollar. After a brief respite in the wake of the global financial crisis, the greenback’s share of reserves is back on the decline, falling to 62.7 percent as of the end of 2017, the least since 2013. At the peak in 2001, the dollar accounted for 72.7 percent of worldwide reserves. On top of that, the value of America’s currency has been depreciating fairly rapidly, with the Bloomberg Dollar Spot Index tumbling 11.3 percent over the past five quarters.

So, given the outlook for worsening U.S. debt and deficits, is it time to throw in the towel on the dollar? That would be premature. Despite the recent rough patch, the dollar’s preeminent status should remain intact because it continues to meet my six long-run criteria for a dominant international currency, revealed by our study of exchange rates since ancient times.