Will the dollar keep its clout?

The world has changed dramatically in recent decades. In particular, the U.S. economy is not as dominant as it once was. Some say this may eventually mean the U.S. dollar will lose its elevated position in world finance. NC State University economist Mike Walden considers whether such a change is inevitable.

“Well, some perspective is first good. The U.S., of course, was predominant in the world after World War II. Most of the rest of the world was destroyed, and there was a monetary system set up that purposely made the dollar as the reserve currency.

“What that meant was that the dollar would be accepted for payment virtually everywhere in the world. A lot of currencies, their value was pegged against the dollar. And in practical terms it meant that the U.S. interest rates would be slightly lower.

“Now, of course, the world has changed since World War II. The U.S. no longer has the big dominance it had after the war. We are still the largest economy. And so I think this has caused some to say, ‘Well, will the dollar always have its elevated position?’

“And, of course, opinion here can be given with either side. But most economists think right now that there’s no imminent change in the world monetary system where another currency like the Chinese yuan would take the place of the dollar.

“This doesn’t mean that down the road interest rates on the U.S. dollar might go up somewhat because it’s not considered as much as a reserve currency. But no one really sees this happening around the corner, so I do think we will continue to have the benefits as U.S. citizens of this elevated position of the U.S. dollar for some decades to come.”