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Why does the US dollar dominate as the world's reserve currency?

A reserve currency is a foreign currency that central banks and governments hold in their official reserves, using it to settle international payments, back their own currency values, and stabilize foreign exchange markets. The US dollar is by far the dominant reserve currency globally, held by approximately 60% of official foreign exchange reserves (roughly $7 trillion out of $12 trillion total across all central banks). The dollar's reserve status provides enormous strategic, economic, and geopolitical advantages to the United States: countries need dollars for international trade (creating automatic demand for dollars), the U.S. can finance its budget deficits by issuing Treasury bonds that foreign central banks must hold, financial sanctions against foreign countries are more powerful because dollar access is essential for global commerce, and U.S. financial markets (stock markets, bond markets, derivatives exchanges) benefit from constant global demand for dollar-denominated assets. However, reserve currency status also creates responsibilities and constraints: the Federal Reserve's monetary policy decisions directly affect global financial conditions, other countries criticize the U.S. for "exporting" inflation or deflation through monetary policy choices, and the U.S. faces pressure to maintain currency stability while managing domestic policy objectives. Understanding reserve currency status requires grasping historical evolution (the British pound dominance pre-1945, the Bretton Woods system 1944–1971, the transition to floating rates and continued dollar dominance), the fundamental reasons for the dollar's persistence (network effects, financial market depth, political stability), competition from alternatives (the euro at 20% of reserves, the Chinese yuan attempting internationalization), and the long-term question of whether the dollar's hegemony will persist, erode gradually, or face sudden challenge from geopolitical change or financial innovation.

Quick definition: A reserve currency is a currency held by central banks in official reserves for international payments and currency stability. The US dollar dominates at 60% of official reserves, providing the U.S. enormous economic and geopolitical advantages. Reserve currency status is self-reinforcing: the more widely a currency is used, the more valuable it becomes.

Key takeaways​

  • The US dollar is overwhelmingly the dominant reserve currency, held by approximately 60% of global official foreign exchange reserves ($7 trillion), far exceeding all other currencies combined
  • Reserve currency status provides massive economic benefits to the U.S.: automatic demand for Treasury bonds, ability to finance deficits cheaply, geopolitical leverage through financial sanctions, and dominance in financial markets
  • The dollar's dominance is path-dependent and self-reinforcing: established under Bretton Woods post-WWII, it persisted after the system collapsed in 1971 because no alternative currency offered equal advantages
  • The euro is the second reserve currency, held by roughly 20% of official reserves ($2.4 trillion), and has grown over decades as the Eurozone integrated
  • The Chinese yuan is attempting to internationalize, though it remains only ~2% of reserves because China maintains capital controls, limits financial market openness, and operates less independent central banking
  • Reserve currency status requires confidence: countries must trust the currency will retain value, that they can access markets freely, and that the issuer won't politically weaponize currency access
  • Alternative systems are proposed (SDRs, cryptocurrency, multipolar currency baskets) but none have yet challenged the dollar's dominance or provided superior alternatives

Historical Evolution: From Sterling to Dollar Hegemony​

The dominance of reserve currencies has changed over centuries as global economic power shifted:

The British Pound Sterling Era (1800–1914):

Before the U.S. dollar, the British pound sterling was the world's dominant reserve currency, a reflection of Britain's status as the world's largest economy and trader. In the 19th century, Britain accounted for roughly 25% of global GDP (compared to roughly 25% for the U.S. today).

Global finance centered in London, the City being the world's premier financial center. Countries held pounds in reserves because Britain was economically dominant and because London's financial markets were deep and liquid. Merchants and traders preferred transacting in sterling—it was accepted everywhere.

Sterling's dominance lasted from roughly 1815 (after the Napoleonic Wars) through 1914 (the start of World War I). The system worked smoothly: the pound was backed by gold, countries could rely on British stability, and London's markets enabled efficient international commerce.

The Interwar Period (1918–1939): Transitional Chaos

World War I shattered European stability. Britain was weakened economically and financially. The U.S. emerged as the world's strongest economy (Europe was devastated, the U.S. was strengthened by war production).

However, there was no agreement on a new international monetary system. The pound remained significant but in secular decline. The dollar began rising, but hadn't yet achieved dominance. Meanwhile, different currencies competed without coordination.

This period saw:

  • Floating exchange rates (no fixed parities between currencies)
  • Competitive devaluations (countries devalued currencies to boost exports, others retaliated)
  • Capital flight (investors moved money between countries seeking safety)
  • Financial instability (the period leading to the Great Depression was partly due to monetary chaos)

The instability of the interwar period demonstrated that reserve currency systems require international coordination and trust. Without these, monetary chaos emerges.

Bretton Woods System (1944–1971): Engineered Dollar Dominance

At the end of World War II, policymakers designed a new international monetary system at a conference in Bretton Woods, New Hampshire. The system established:

The dollar's central role: The U.S. dollar would be fixed to gold at $35 per ounce. This required the U.S. to maintain sufficient gold reserves to back dollars in circulation. Initially, the U.S. held over $20 billion in gold (over 50% of world reserves), providing credibility.

Other currencies fixed to the dollar: Countries would peg their currencies to the dollar at specified rates, maintaining the fixed rates through central bank intervention. Britain's pound, for example, was fixed at £1 = $4.03. When exchange pressure threatened the rate, the Bank of England would buy pounds or sell dollars to defend the parity.

The International Monetary Fund (IMF): An international organization would supervise the system, providing liquidity to countries with temporary payment problems. The IMF could approve drawings (loans) to countries, allowing them to defend exchange rates without gold reserves.

The World Bank: A separate institution would finance post-war reconstruction and development in poor countries.

This system required confidence: other countries had to believe the U.S. would redeem dollars for gold at $35/ounce reliably. As long as that confidence held, the system functioned smoothly.

The System's Breakdown (1960–1971):

The Bretton Woods system became strained as the U.S. ran persistent budget deficits (financing both the Vietnam War and "Great Society" social programs). The deficits required massive spending, which expanded the money supply and inflated the dollar value relative to gold.

Additionally, other countries' economies recovered from WWII. U.S. dominance (which had been overwhelming in 1944) was eroding. European and Japanese industries competed with American firms.

As the U.S. ran deficits, foreign-held dollars accumulated. By the late 1960s, foreign central banks held roughly $80 billion in dollar reserves, but the U.S. gold reserve was only $20 billion. Mathematically, the U.S. couldn't redeem all dollars for gold at $35/ounce.

Other central banks began doubting whether the U.S. would honor its gold conversion commitment. France even requested gold conversion, attempting to reduce dollar holdings.

In response, the "London Gold Pool"—an arrangement where central banks agreed to support the gold price by intervening in markets—broke down in March 1968. Gold was trading above $35/ounce in private markets, contradicting the official price.

Nixon Shock (August 15, 1971):

President Richard Nixon announced the U.S. would no longer convert dollars to gold. The dollar-gold convertibility, the anchor of the Bretton Woods system, was suspended "temporarily." The suspension became permanent—the Bretton Woods system officially ended.

Exchange rates were allowed to float. The dollar no longer had explicit gold backing.

The Transition (1971–1973):

The floating rate system became the permanent arrangement. The dollar's value would be determined by supply and demand in currency markets, not fixed parities.

Remarkably—and this is crucial for understanding reserve currency economics—the dollar remained the dominant reserve currency despite losing gold backing. Why?

Because no alternative existed. The euro didn't exist. The pound was weak. The German mark was restricted by memory of hyperinflation. The Japanese yen was less widely used. No other country offered financial markets as deep, stable, or trusted as the U.S.

Additionally, switching from the dollar to a new reserve currency would be expensive for everyone: countries would have to revalue reserves (incurring gains or losses), renegotiate contracts, and adjust payment systems. The switching costs were enormous relative to the benefits.

The dollar's dominance persisted through path dependence: once established as the reserve currency, switching away requires overwhelming benefits. Since no alternative existed, the dollar remained dominant.

Why the Dollar Dominates: Network Effects and Path Dependence​

The dollar's dominance reflects economic and institutional factors:

Network Effects: The More Use a Currency Gets, the More Valuable It Becomes

Currency use exhibits powerful network effects—the more widely a currency is used, the more valuable it becomes for additional users:

  • More users reduce transaction costs: If everyone trades in dollars, there's no need to exchange into local currencies repeatedly. A merchant trading with 100 countries in dollars avoids 100 currency conversions; trading in local currencies requires 99 conversions. Dollar trading is cheaper.

  • More liquidity emerges: The more dollars are traded, the deeper and more liquid dollar markets become. A trader wanting to sell $100 million quickly finds ready buyers in deep dollar markets; fewer buyers exist for many other currencies.

  • More infrastructure builds around the currency: Payment systems, banking networks, derivatives exchanges, and financial systems develop around the most-used currency. Traders adapt to use it.

These network effects are self-reinforcing: the dollar's current dominance creates incentives for additional dollar use, which increases dominance further.

Path Dependence: Historical Dominance Creates Persistent Advantages

Path dependence means history matters—the current state depends on past choices. The dollar is dominant partly because it became dominant post-WWII. Were a completely new international monetary system being designed today, might a different currency be chosen? Possibly. But changing from the current system to an alternative requires coordination costs that exceed benefits, so the dollar persists despite theoretically superior alternatives potentially existing.

Financial Market Depth: The U.S. Has the World's Deepest Capital Markets

The U.S. has unparalleled financial market depth:

  • Treasury bonds: The U.S. Treasury has issued over $30 trillion in outstanding debt. U.S. Treasury markets are by far the world's largest and most liquid bond markets. A trader wanting to buy or sell $10 billion in Treasury bonds finds immediate counterparties; similar-sized trades in other currencies are difficult.

  • Stock markets: U.S. stock markets (NYSE, NASDAQ) are the world's largest. More shares are traded in dollar terms than any other currency.

  • Derivative markets: U.S. derivatives exchanges (CME, CBOT) are the world's largest. Most global hedging of currency, interest rate, and commodity risk happens through dollar derivatives.

  • Corporate bond markets: U.S. corporate debt is issued in enormous quantities. Many global corporations issue dollar bonds, creating deep markets.

The depth of U.S. financial markets makes the dollar attractive. Traders prefer currencies with deep, liquid markets because they can move large quantities quickly without market impact.

Political Stability and Property Rights Protection

Countries hold reserves in currencies they trust. U.S. political institutions, despite contemporary polarization, have remained relatively stable:

  • Rule of law is enforced
  • Property rights are protected
  • Capital can move freely (convertibility)
  • Political transitions occur peacefully
  • Central bank independence is respected (the Fed is not subject to month-to-month political pressure)

China has a larger economy (by PPP measures) than the U.S. in recent years, but the yuan is only ~2% of reserves because China:

  • Maintains capital controls (residents can't freely buy foreign assets)
  • Lacks independent central banking (the PBOC is ultimately accountable to the Communist Party)
  • Restricts financial market access to foreigners
  • Has demonstrated willingness to politically weaponize currency access (freezing assets, restricting conversions)

These institutional weaknesses make the yuan less attractive as a reserve currency despite China's economic strength.

The Euro: The Second Reserve Currency and Its Challenges​

The euro, introduced in 1999 (physical circulation in 2002), is the world's second reserve currency, held by roughly 20% of official reserves ($2.4 trillion) and growing.

The Euro's Advantages:

  • The Eurozone represents a major economic bloc: 20 countries, 375+ million people, ~15% of global GDP
  • The European Central Bank (ECB) is independent and inflation-focused, similar to the Federal Reserve
  • European financial markets are reasonably deep (though less deep than U.S. markets)
  • The euro is fully convertible; capital can move freely in and out of Eurozone assets

The Euro's Structural Disadvantages:

  • Political fragmentation: The Eurozone comprises 20 separate countries with independent fiscal policies. This fragmentation creates uncertainty about whether the monetary union will hold together. During the 2010–2015 sovereign debt crisis, some worried the euro would break apart.

  • Fiscal policy weakness: The U.S. federal government exercises centralized fiscal authority. The Eurozone lacks equivalent centralization—each country maintains its own budget, making coordination difficult. This is less reassuring to reserve currency holders.

  • Financial integration incompleteness: Unlike the U.S., where capital and labor move freely across states, the Eurozone has partial labor mobility (citizens can move but language barriers and different regulations limit movement). Financial integration is incomplete.

  • Debt concerns: Some Eurozone members (Italy, Greece, Spain) have high public debt relative to GDP, creating concern about fiscal sustainability and potential defaults.

These structural challenges limit the euro's growth as a reserve currency. The euro has grown from near-zero reserves in 1999 to ~20% by 2023—substantial growth but slower than the euro's economic importance would suggest.

The Chinese Yuan: Internationalization Attempts and Obstacles​

China has systematically attempted to internationalize the Chinese yuan (CNY) as a reserve currency:

Steps Toward Internationalization:

  • Shanghai Free Trade Zone (2013): Allowed limited offshore trading in yuan ("dim sum" bonds), enabling limited currency circulation outside China
  • Bilateral swap agreements: Established yuan swap lines with central banks in 70+ countries, facilitating bilateral trade in yuan
  • CNY-denominated bond issuance: Governments and corporations can now issue bonds in yuan, creating alternative assets
  • Cross-border Interbank Payments system (CIPS): Created as an alternative to SWIFT, enabling international payments in yuan without dollar intermediation
  • Regional trade agreements: ASEAN countries, Russia, and others increasingly settle bilateral trade in yuan

Progress and Limitations:

The yuan remains only ~2% of official reserves—far behind the dollar and euro. Why such limited growth despite China's economic strength?

  • Capital controls: Chinese residents cannot freely buy foreign assets. The government restricts currency conversions and capital outflows. This limits confidence—if you can't freely exit yuan holdings, you're reluctant to hold them.

  • Financial market access: China restricts foreign access to Chinese financial markets. Overseas investors can't freely buy Chinese stocks or bonds. This creates asymmetry: Chinese can't access global markets freely, and foreigners can't access Chinese markets freely.

  • Central bank independence: The PBOC is ultimately accountable to the Communist Party, not an independent institution. This creates concern about whether currency access might be politically weaponized (which China has demonstrated, freezing some foreign assets as sanctions).

  • Capital flight concerns: Historically, Chinese residents have wanted to move money out of China (capital flight), creating persistent pressure to restrict conversions. This suggests limited confidence in the yuan's long-term value.

  • Convertibility uncertainty: While the yuan is technically convertible, conversion limits exist. Large conversions can face restrictions or delays. This lack of reliable convertibility discourages reserve holding.

Absent reforms (opening capital markets, granting PBOC independence, allowing free conversions), the yuan will likely remain a minor reserve currency for decades despite China's economic strength.

Benefits and Costs of Reserve Currency Status​

Benefits to the Issuing Country (the United States):

1. Automatic demand for Treasury bonds and currency Countries need dollars for trade and reserves. This creates automatic demand for U.S. Treasury bonds (the primary reserve asset), enabling the U.S. to borrow cheaply. Treasury yields are lower than they would be otherwise because of this constant foreign demand.

2. Ability to finance deficits The U.S. can run persistent budget deficits financed by issuing Treasury bonds to foreign central banks. Other countries lacking reserve currency status must balance budgets or face exchange rate crises. The U.S. has more fiscal flexibility.

3. Lower borrowing costs Because of strong demand for Treasury bonds, U.S. government borrowing costs are low relative to other countries. The U.S. borrows at 4–5% while countries like Italy or Spain face 6–8% borrowing costs.

4. Financial market dominance Dollar assets (stocks, bonds, derivatives) benefit from global demand. U.S. financial markets attract capital globally, creating deep, liquid markets and advantages for U.S. financial institutions.

5. Geopolitical leverage Sanctions and financial pressure work because dollar access is essential for global commerce. The U.S. can freeze assets, restrict dollar access, or exclude countries from dollar payment systems—powerful tools no other country possesses.

Costs to the Issuing Country (the United States):

1. Currency strength and export competitiveness Reserve currency status strengthens the dollar, making U.S. exports expensive. Foreign buyers face high dollar prices, reducing demand for U.S. goods. This hurts U.S. exporters and manufacturing. Economists call this the "Dutch Disease"—resource-rich countries experience currency appreciation that hurts manufacturing.

2. External deficits Countries needing dollars for trade must buy dollars from U.S. exporters or borrow from U.S. lenders. This creates automatic demand for imports from the U.S., resulting in persistent U.S. trade deficits.

3. Policy constraints The Fed's monetary policy affects global financial conditions. When the Fed raises rates, capital flees emerging markets, causing crises. Other countries criticize the U.S. for "exporting" monetary tightening. The Fed must consider global impacts of domestic policy, constraining flexibility.

4. Responsibility for stability Reserve currency issuers must maintain currency stability and credibility. The U.S. must avoid hyperinflation, default, or political instability that would undermine dollar confidence.

Challenges to Dollar Hegemony: Could the Dollar Lose Reserve Status?​

Several long-term trends could erode the dollar's dominance:

1. Chinese Yuan Growth (If Reforms Occur)

If China opens capital markets, grants central bank independence, and allows free conversions, the yuan could grow as a reserve currency. Combined with China's economic scale, the yuan could challenge dollar dominance over 20–30 years.

However, current trajectory suggests limited progress. China appears to prefer capital controls and state dominance of financial systems, limiting yuan internationalization.

2. Cryptocurrency and Digital Assets

Digital assets like Bitcoin could theoretically serve as international payment media and stores of value. However, cryptocurrencies face obstacles:

  • Volatility: Bitcoin's value fluctuates 20–50% annually, making it unsuitable for reserve holdings
  • Regulatory uncertainty: Central banks resist digital assets outside government control
  • Technical limitations: Cryptocurrencies lack the settlement finality and instant payments that dollar systems provide
  • Political resistance: Governments resist systems that reduce their control over monetary policy and capital flows

Reserve status requires stability—cryptocurrencies are far too volatile for this role currently.

3. Special Drawing Rights (SDRs) and Multipolar Currency Baskets

The IMF's Special Drawing Rights (SDRs) are a basket of currencies (dollar, euro, pound, yen, yuan) designed as a universal unit. Some economists propose that SDRs could replace the dollar as the reserve asset.

However, SDRs have fundamental limitations:

  • No market: SDRs don't trade in real-time. Central banks can't convert SDRs quickly to dollars or euros; conversions require IMF intermediation.
  • Cumbersome: Using SDRs requires IMF infrastructure; dollars are immediately usable in any market.
  • Political control: The IMF is seen as politically influenced (by the U.S. and Europe). Countries resist SDR dominance because it means IMF control.

SDRs remain a niche asset, unlikely to displace the dollar.

4. Regional Currencies and Bilateral Trade Settlement

Some countries attempt to reduce dollar dependence through bilateral trade settlement in local currencies. Russia and China, for example, agree to settle bilateral trade in rubles and yuan rather than dollars.

However, these efforts face limits: not all bilateral pairs want to reduce dollar use, and moving to local currency settlement increases currency risk (the importing country faces exchange rate fluctuation).

The dollar's dominance is likely to persist because alternatives are either unavailable, more cumbersome, or riskier.

Real-World Examples: Reserve Currency Status in Practice​

Bretton Woods: The Engineered Dollar System (1944–1971)

The U.S. deliberately engineered reserve currency status for the dollar at Bretton Woods. This was not a natural market outcome—it was negotiated among allied powers at the end of WWII. The dollar was backed by gold at $35/ounce, providing confidence.

The system worked until the U.S. ran persistent deficits, exhausting gold supplies relative to dollar liabilities. When the U.S. suspended gold convertibility (Nixon Shock, 1971), many expected the dollar to collapse. It didn't, because no alternative existed.

The Pound's Decline (1914–1950s)

The British pound dominated until WWI weakened Britain. The pound's share of reserves fell from 70%+ pre-1914 to ~20% by 1950. The decline was gradual, not sudden, reflecting the slow erosion of British economic dominance.

The pound's decline shows that reserve currency dominance can shift, but slowly—over 40+ years rather than years.

The Euro's Rise (1999–2010s)

The euro was introduced with essentially zero reserve holdings. Over 15+ years, the euro's share of reserves grew from 0% to ~20%, the second-largest reserve currency. This growth reflects the Eurozone's economic integration and the euro's credibility.

However, the 2010–2015 sovereign debt crisis threatened euro dominance. When Greece, Portugal, and Ireland faced crises, doubts emerged about whether the monetary union would hold. Reserve growth slowed temporarily.

Common Mistakes About Reserve Currency Status​

Mistake 1: Confusing Reserve Currency with Strongest Economy

The strongest economy doesn't necessarily issue the reserve currency. During the 1950s–1970s, the U.S. was the world's largest economy (by far), but the pound remained a significant reserve currency for decades after Britain had become a second-rank economic power.

Similarly, today, China's economy may rival or exceed the U.S. (by PPP), yet the yuan is only ~2% of reserves.

Reserve currency status is about market confidence and network effects, not pure economic size.

Mistake 2: Believing Reserve Currency Status Is Permanent

Reserve currency dominance can erode, as sterling's did. The dollar's dominance isn't guaranteed forever. However, change is slow because switching costs are high. The dollar's dominance will likely persist for decades even if the U.S. economy declines moderately.

But profound U.S. political or institutional deterioration could eventually trigger a shift.

Mistake 3: Assuming Reserve Currency Status Guarantees Prosperity

Reserve currency status provides benefits but also costs. Britain enjoyed reserve currency benefits, but pound dominance didn't prevent relative economic decline. The costs (strong currency, trade deficits) eventually hurt Britain more than benefits helped.

Similarly, U.S. reserve currency dominance provides geopolitical leverage and financing benefits, but it also strengthens the dollar, hurting exporters and creating trade deficits.

FAQ: Reserve Currency Status Explained​

Q: Why do central banks hold reserve currencies at all?

A: Central banks hold foreign reserves to settle international payments, back their own currency values, and manage exchange rates. When a country's exports surge (creating demand for its currency), the central bank can buy foreign reserves to prevent currency appreciation. When exports fall, the central bank can sell reserves to support the currency. Reserve currencies are ideal for this because they're easily tradable and trusted.

Q: Could the world move to a completely different reserve currency system?

A: Theoretically, yes. A coordinated transition to a new reserve currency (perhaps SDRs or a new currency backed by a basket of countries) is possible but would be politically difficult and economically costly. Switching would require:

  • Agreement among major central banks
  • Coordination on new reserve asset definition
  • Revaluation of existing reserves (some countries would gain, others lose)
  • Rebuilding trust in the new system

In practice, such a transition would take 20+ years minimum.

Q: Does the dollar's reserve status hurt or help the U.S. economy?

A: Mixed. Reserve status helps by:

  • Enabling cheap government borrowing
  • Supporting financial market dominance
  • Providing geopolitical leverage

But hurts by:

  • Strengthening the dollar (reducing export competitiveness)
  • Creating persistent trade deficits
  • Constraining Fed policy independence

Economic assessment depends on which effects dominate. Most economists believe benefits slightly outweigh costs, but this is debatable.

Q: Could cryptocurrency replace the dollar as reserve currency?

A: Not in the foreseeable future. Cryptocurrencies face fundamental obstacles: extreme volatility, lack of government backing, regulatory uncertainty, and technical limitations. Reserve currencies must be stable and trusted; cryptocurrencies currently satisfy neither criterion.

A highly stable, government-backed digital currency might eventually emerge, but that wouldn't be traditional cryptocurrency—it would be a central bank digital currency (CBDC).

Q: Will China's yuan eventually replace the dollar?

A: Unlikely in the next 10–20 years. The yuan could grow from 2% to 5–10% of reserves, but displacing the dollar requires:

  • Capital market opening
  • Central bank independence
  • Free convertibility
  • Institutional trust comparable to the U.S.

China's current trajectory suggests limited progress on these fronts.

Q: What happens if the dollar loses reserve status suddenly?

A: A sudden loss of reserve status would be catastrophic: the dollar would devalue sharply, U.S. borrowing costs would spike, and inflation would surge. However, a sudden loss is unlikely because switching costs are too high and no alternative exists. Any shift would be gradual over 20+ years.

Summary​

Reserve currency status is the dominance of one country's currency in international commerce and central bank reserves. The US dollar overwhelmingly dominates at ~60% of global reserves, far exceeding alternatives.

The dollar's dominance reflects:

  • Historical path dependence: Established post-WWII under Bretton Woods, it persisted despite that system's collapse due to lack of alternatives
  • Network effects: The more widely the dollar is used, the more valuable it becomes for additional users
  • Financial market depth: The U.S. has unparalleled depth in Treasury, stock, and derivatives markets
  • Political stability: U.S. institutions are trusted globally

The dollar provides massive benefits to the U.S.: cheap borrowing, financial dominance, geopolitical leverage. However, it also creates costs: currency strength that hurts exporters, required trade deficits, and policy constraints.

The euro is the second reserve currency at ~20% of reserves, growing but facing structural Eurozone challenges. The Chinese yuan is attempting internationalization but remains <2% of reserves due to capital controls and political constraints.

Reserve currency status could eventually shift if the U.S. experiences institutional deterioration or if a superior alternative emerges (unlikely soon). However, switching costs are high and no current alternative is clearly superior, so the dollar's dominance will likely persist for decades.

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