Have you heard recent dire predictions for the US Dollar?  

Lately, it seems there are many calling for its demise. With all the rhetoric, some might believe the US Dollar has dropped precipitously relative to other currencies. While the value of the currency has fluctuated quite significantly over time, the dollar is actually trading slightly higher now than it was 25 years ago. More specifically, the US Dollar has risen by nearly 2% cumulatively over the last 25 years, vis-a-vis a basket of other currencies, per First Trust.  

We think the US Dollar is, and will likely remain, the fiat currency of the world for the foreseeable future. 

According to a recent IMF report, the US Dollar represented over 58% of Central Banks’ currency reserves around the world, as of Q4, 2022. The next largest was the Euro at less than 20.5%, followed by the Japanese  Yen at 5.5%. Incidentally, the Chinese currency represented less than 2.7%. Furthermore, commodities around the world, such as oil and gold, are traded in US Dollars, making it the quintessential currency for global traders.  And, the US Dollar serves as a refuge during geopolitical turmoil. 

Possible Fluctuations Ahead  

Currency movements still occur and are extremely difficult to predict. One potential factor could be Fed policy relative to other Central Banks around the world. Last week, the latest Dot Plots from the FOMC suggested  another 50 basis points of rate increases are in store by year-end. If true, and if other Central Banks continue to increase rates after the Fed eventually concludes its hiking cycle, the US Dollar might adjust accordingly.  

Although there are almost always plenty of issues for worry concerning the economy and markets, the collapse of the US Dollar should not be one of them.  

History suggests ongoing exchange rate fluctuations are expected unless a currency is pegged to the Dollar.  Even so, we’re not seeing any other currency that would have an opportunity to replace the greenback – at  least at this juncture.  

Simply put: Fluctuation, yes. Replacement or demise, no.