Weekly review calendar week 42 – 2022

The dollar remains the world’s dominant FIAT currency. Apart from the fact that the most important commodities are traded in dollars, half of all outstanding global debt outside the US is denominated in this currency. The Greenback has retained its status as the world’s reserve currency despite an diminishing dominance over the years. According to the IMF, the dollar is still more heavily used than all other currencies combined, accounting for almost 60% of global foreign exchange reserves. As global payments enter the digital age, the structure of international capital markets is also expected to change. Central banks are gaining greater control over money flows through the issuance of digital central bank currencies (CBDCs) and, with programmable money, are gaining a set of tools for targeted fiscal policy that should not be underestimated. CBDCs in fact have the potential to influence geopolitical hegemonies, but the issuance of a digital currency also carries risks. As a result, the U.S. wants to weigh potential adoption very carefully. The first discussion paper appeared in January, contrasting the many benefits with the downsides. Fed Governor Christopher A. Waller took a contrary view at a recent security symposium at Harvard University. The economist argued that any threat from a foreign CBDC would only endanger the dollar’s dominance as a means of exchange, not as a store of value. Waller argues that the United States does not need to give in to the pressure of China’s already introduced CBDC, citing privately issued stablecoins as a proven alternative.