The U.S. Dollar remains the world’s reserve currency for three reasons

With inflation steadily increasing and a reduced speed of the economy, there has been a great concern over the long-lasting stability of the U.S. dollar. Rumors of competing currencies emerging, such as the Brazil, Russia, China, and India economies calling for de-dollarization, have caused individuals to question if the U.S. dollar will stay on top. While we may experience a slight decline in dollar trade, the demise of the U.S. dollar is not a credible theory for these reasons:

Global reserves are still dominated by the U.S. dollar.

The U.S. dollar controls the foreign exchange reserves held by global central banks in foreign currencies. These foreign reserves were originated to use for trade payments or if needed, to help support a currency. The U.S. dollar has lessened in the percentage of reserves it holds within the past few decades, but it still remains as the most held currency. As of 2022, about 60% of global reserves are held in U.S. dollar. The next largest reserve is the euro which makes up about 20% of reserves. The other currencies just do not compare, even the Chinese renminbi only makes up 2.7% of global reserves. These statistics just show the powerful hold that the U.S dollar still has.

Global trade is in majority conducted with U.S. dollars.

Oil trade, which accounts for about 6% of all global trading, is still predominantly conducted with the dollar. While we may see a slight decline in this sector overall, the dollar will still be used for a long time with this trade. In fact, the Federal Reserve has estimated between 1999 and 2019, the dollar had been used for 96% of overall trading conducted in North America, 74% in the Asia-Pacific areas, and 79% for the rest of the world. The only region not included in this is Europe, which is where the euro remained the primary currency for trading.

There are deep, liquid, and regulated financial markets backing the U.S. dollar.

The United States holds the largest stock and bonds market in the world. This alone has assisted the U.S. economy with obtaining strength and stability which in turn, has led to the dollar becoming a global dominant currency. These deep and liquid U.S. financial markets are highly regulated which assists the U.S. overall to have the world’s largest economy with increasingly deep capital markets.

At this time, there are no comparable alternatives to the U.S. dollar. Possible alternatives such as the euro would not be a good fit due to the political risk in the past, and the renminbi has always had restricted capital flow in the Chinese government. Since these hurtles remain constant, the dollar will likely keep its dominant hold in global trade and finance for the foreseeable future.

So, what are the next steps for investors who are concerned with safeguarding their savings?

There are many headlines circling around about the U.S. dollar and it may raise some concerns for today’s investors. There may continue to be fluctuations in the dollar’s value but that will be completely normal due to factors such as inflation, economic growth, and central bank interest rate policies. Unfortunately, due to events like the Great Recession of 2008 and the 2020 pandemic shutdown, financial market volatility has become a norm. The primary thing investors can do is to remain diversified within their portfolio and follow the Rule of 100 when exposing your funds to the market.

The Rule of 100 is when you take your age and subtract it by 100, this gives you the ratio of how much of your money should be at risk in the market and how much should be in a safe place where you can’t lose any of your principal or gains. For instance, if you are aged 60 then no more than 40% of your portfolio should be at risk. Many financial professionals use this rule to help guide consumers during times of economic turmoil.



At Summerlin Benefits Consulting, we are “Safe Money Experts” and can help you review your portfolio to ensure you are on the right side of the Rule of 100. This will help you not only remain diversified but also to ensure you have a retirement nest egg to lean on in the future when you need it. We specialize in products that have benefits such as Safety, Long Term Care, and Lifetime income which contractually protect every dollar in your nest egg, if you choose to.  If you want to learn more about our safe money strategies, contact our office today.