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IPFS News Link • Dollar Meltdown The

Is The US Dollar Fading As The World's Dominant Currency?

• by Timothy Taylor

Eswar Prasad offers some evidence on this question in "Has the dollar lost ground as thedominant internationalcurrency?" (Brookings Institution, September 2019). Prasad writes: 

Currencies that are prominent in international financial markets play several related but distinct roles—as mediums of exchange, units of account, and stores of value. Oil and other commodity contracts are mostly denominated in U.S. dollars, making it an important unit of account. The dollar is the dominant invoicing currency in international trade transactions, especially if one excludes trade within Europe and European countries' trade with the rest of the world, a significant fraction of which is invoiced in euros. The dollar and euro together account for about three-quarters of international payments made to settle cross-border trade and financial transactions, making them the leading mediums of exchange.

The store-of-value function is related to reserve currency status. Reserve currencies are typically hard currencies, which are easily available and can be traded freely in global currency markets, that are seen as safe stores of value.