current issuesFEDERAL RESERVE BANK OF NEW YORKIN ECONOMICS AND FINANCEVolume 16, Number 1 ✦ January 2010 ✦ www.newyorkfed.org/research/current_issuesIs the International Role of the Dollar
Linda S. Goldberg
Recently the U.S. dollar’s preeminence as an international
currency has been questioned. The emergence of the euro, changes
in the dollar’s value, and the fi nancial market crisis have, in the
view of many commentators, posed a signifi cant challenge to the
currency’s long-standing position in world markets. However,
a study of the dollar across critical areas of international trade
and fi nance suggests that the dollar has retained its standing
in key roles. While changes in the global status of the dollar are
possible, factors such as inertia in currency use, the large size
and relative stability of the U.S. economy, and the dollar pricing
of oil and other commodities will help perpetuate the dollar’s role
as the dominant medium for international transactions.
By many measures, the U.S. dollar is the most important currency in the world.
It plays a central role in international trade and fi nance as both a store of value
and a medium of exchange. Many countries have adopted an exchange rate
regime that anchors the value of their home currency to that of the dollar. Dollar
holdings fi gure prominently in offi cial foreign exchange (FX) reserves—the foreign
currency deposits and bonds maintained by monetary authorities and governments.
And in international trade, the dollar is widely used for invoicing and settling import
and export transactions around the world.
Periodically, however, the dollar’s preeminence as a cross-national currency has
been questioned. The emergence of the euro in 1999 as a major currency and global
competitor fueled the debate over the dollar’s international role. More recently, the
global shortage of dollars during the fi nancial market crisis placed extraordinary
strains on international fi rms needing to support their dollar-denominated assets