Challenges To The Us Dollar As The World's Key Reserve Currency

The chronic and mounting US double deficits (trade and budget), and foreign debts are bringing into question the sustainability of the US dollar's role as an international key reserve currency. The issue is further complicated by some related developments in this regard such as the emergence of a formidable rival—the Euro, the revival of SDR, an increasingly multi-polar world, and the on-going financial crisis that major economies in the West have experienced in the past few years. The thesis presented hereby aims to provide a tentative analysis of the challenges faced by the US dollar for its status quo as the world's key reserve currency. In addition, the thesis is written in an attempt to explore whether the US dollar will retain its reserve currency status and whether there will be an alternative to replace it in the near future.Based on the theories on reserve currency, as well as the facts and figures collected and assessed thus far in this regard, the thesis arrives at a conclusion that US dollar is more likely than otherwise to continue its role as an international key reserve currency for a pretty long time to come on the condition that no dramatic and unexpected events should occur to American economy as a whole. However, there is no denying that the role of the US dollar in its current status has been weakened at least to some extent. Many factors are emerging that are not advantageous to the maintenance of the status quo of US dollar in international financial pattern. If such trend continues to grow unabated or in case there appears a ready and workable alternative in the foreseeable future as the whole international economic climate changes, there may be a tipping point when major economies, institutional investors and private investors begin to synchronize the selling off of their dollar reserves and adopt a new reserve currency system. Such prospect is possible though there is little sign that it is going to happen soon. The world economy at large is still in a transitional period, and the same is true of US dollar despite the fact that such transition may take a long time to make its effect felt worldwide.