Can the Dollar be Replaced as the Dominant Reserve Currency?

Recent changes in US trade and fiscal policies represent a threat to the global trading order and the domestic financial stability of the US economy, and ultimately the dominant reserve currency status of the dollar. This paper considers two alternatives. One is the shift to a multipolar reserve currency system involving other currencies, such as the euro and renminbi. However, it will take considerable time for these two currencies to match the dollar's use in international transactions. The EU and China are also much weaker in their provision of “safe†assets that global investors look for. The other alternative involves a shift to a much wider use of the multilateral reserve asset issued by the IMF (i.e., the SDR). The SDR played an important role in the international response to the global financial crisis of 2008-09 and the COVID-19 crisis of 2020-21. Major changes and time would be required to make the SDR a substitute for the dollar. Such changes are only likely to be considered by the global community in the wake of a major financial crisis.