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What goes up … But many investors expect this trend to go into reverse in 2023 as inflation falls faster than originally expected , meaning the Federal Reserve may be forced to slow down or even reverse its programme of interest rate hikes . Inflation is proving stickier in countries and regions that are more reliant on energy imports , and they may be forced to tighten monetary policy at the point of what is known as the “ Fed pivot ”. As international money chases higher yields and an improving global economy results in lower demand for safe havens , dollar strength could quickly dissipate . However , Pictet ’ s strategists warn against betting the bank on this trend . “ Contrary to 1985 , there is no international agreement to drive down the US dollar ,” they said in a recent note , adding that economic conditions remain poor and interest rates in the US remain well ahead of those in most other developed markets . But what about the longer term ? Will everyone always rush to the dollar in times of trouble ? And could it ever lose its status as the world ’ s reserve currency ?
The Chinese renminbi was the
40th most used global currency in 1998 . In 2022 , it was the
5th
Weakening grip Ed Smith , co-chief investment officer at Rathbones , says this is certainly a possibility . “ Over the last 2,000 years , we ’ ve had the Roman denarius , the solidus and dinar of the Byzantine Empire and Islamic caliphates during the Middle Ages , the Venetian ducato , the Dutch guilder , sterling and then the US dollar ,” he explains . “ No reserve currency has lasted forever .”
What is a reserve currency ? Reserve currencies rely on network effects . Whether a country ’ s currency can achieve reserve status depends on the relative size of its economy and importance in global trade and
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