Understanding Dollar Dominance

The U.S. dollar plays a critical role in the international economy, serving as the primary currency for global trade and finance. Approximately 60% of central bank reserves are held in dollars, and more than 70% of international bond issuances are denominated in dollars. Although the euro and Chinese yuan are discussed as potential competitors, the dollar maintains its dominance due to the U.S.'s vast economy, deep capital markets, and historical reliability in macroeconomic management. As a result, many investors are hesitant to abandon the dollar, considering it the least risky asset in the current economic climate.