US Dollar Dominance May Gradually Decline

A new book by economist Barry Eichengreen explores the history of international currencies and the US dollar's dominance in the global financial system.

Eichengreen, a professor at the University of California, notes that since the Second World War, the US dollar has been the primary currency used for international transactions. This is due to the US central bank being established in 1913, followed by the country's economic growth and the UK's weakening after the First World War.

The Allied powers met at Bretton Woods in 1944 to plan the post-WWII financial system. They agreed on an indirect gold standard, where the gold price would be fixed in US dollars, and other currencies would be pegged to it. This reinforced the dollar's role as a dominant currency.

Today, around 90% of foreign exchange market transactions involve the US dollar, and US dollar assets make up the majority of international reserves held by central banks. The dollar is also used for invoicing about 40% of global trade.