U.S. Dollar Still Strong While Declining

By Raulin Cadet | Published Oct. 2, 2023 | Updated Oct. 2, 2023 | Topics: USA, Exchange reserves, US dollar

How does the U.S. dollar's dominance in foreign exchange reserves compare to that of its competitors in the world's financial system? Trying to answer this question, this article provides information about the stability and faith that other economies have in the American financial system, monetary system, and general strength of the dollar. As you might expect, the core concept(s) of this post is: foreign exchange reserve.

Concept: As stated in a previous article, a country's foreign exchange reserve can be thought of as its savings in a currency other than its own. In fact, central banks typically maintain reserves in a variety of foreign currencies.  

In theory, central banks tend to hold more reserves in a specific foreign currency in which they have trust in its value.The US dollar is a good example of this. The graph in this article does indeed show that, despite the fact that the trend in U.S. dollar exchange reserves has been declining for more than 5 years, there is still a significant gap between its share and that of other currencies, including the Euro, which has a share of 19.8% compared to the U.S. dollar's 59%.

In a world of shifting financial dynamics, the US dollar still stands as a strong pillar for foreign exchange reserves, reflecting trust and tenacity despite changing trends.