Don’t Worry About the Dollar

Genevieve Signoret

(Hay una versión en español de este artículo aquí.)

A Long Overdue Debt

I can’t tell you how many times in the past six months someone has worriedly asked me about the fate of the dollar.

This is natural. The flow of alarming press coverage warning of its demise or demotion from its current ranking as the world’s preferred reserve and trade currency has been nonstop.

On every such occasion, I have answered, “Fear not for the dollar. And sit tight, I’m about to publish a piece explaining why I say that.”

So I have a long overdue debt to my audience that with today’s piece I pay off.

Three Reasons Why You Need Not Fret Over the Dollar

Don’t fret over the future of the dollar, because:

1. Periodically, as long as I have been monitoring the global financial system, rumors have sprung up that the dollar is about to be replaced as the currency of choice for central banks and global traders.While it is true that these scary stories have sparked flashes of fame for doomsday pundits and rashes of clicks for financial media outlets, not once have they come to pass.
2. Even if we assume that this time the rumors will prove true, any switchover to an alternative currency or basket of them will take decades. We’ll have plenty of time to make needed adjustments to strategy.
3. Finally, even if we’re wrong about that, too, and the whole thing happens quickly, who cares?What we like best about the dollar is that it’s a safe-haven currency: in times of market panic, it strengthens against nearly every other.  But not all. It’s not the only safe-haven currency out there.The Japanese yen is a safe haven. So is the Swiss franc, and so are certain Scandinavian currencies. And none of them comes close to the dollar in its ranking.So, you see, the attribute of safety is distinct from that of most popular reserve and trade currency.

   Hence, even if the dollar is replaced by an alternative currency or by a basket thereof, it need not cease to be safe.