Dutch Central Bank Chief Klaas Knot stated that some major world currencies are trying to compete with the US dollar on the global stage, and may even attract some investors to flow in, but the US dollar is expected to remain the dominant world currency in the foreseeable future, with its dominance showing no signs of waning.
In recent months, some investors have reduced their exposure to the US dollar out of concerns over trade tensions and US policy uncertainties, which they fear could ultimately weaken the US dollar’s status as the global reserve currency, according to a report by Reuters.
However, some argue that there is currently no alternative, as the US dollar market size far exceeds any other competitors, and the Eurozone, as the largest potential challenger, is too fragmented.
“There will be competition among currencies,” said Knot, Chairman of the Financial Stability Board, at a meeting on Tuesday (May 13), “but I believe that there is currently no alternative to the role played by the US dollar.”
Knot, the longest-serving member of the European Central Bank’s Governing Council, believes that investors may reduce their exposure to the US dollar, but that in itself will not replace the dollar’s status.
“Firstly, due to the returns of the US dollar over the past decade, most international investors have increased their holdings in the US dollar,” Knot said. “Perhaps you may see them adopting a more neutral holding strategy.”
He mentioned that the Eurozone can make its currency a more attractive financial instrument, but it requires significant internal structural work to restart the long-stalled integration process.
“The daily trading volume of US 10-year Treasury bonds is around 900 billion euros, while the daily trading volume of German 10-year government bonds is 30 billion euros,” Knot stated, “This reflects the market liquidity and risk-hedging capabilities.”
In February of this year, US Treasury Secretary Scott Bessent, in an interview with Bloomberg, said, “Under President Trump’s leadership, the strong dollar policy remains unchanged.”
“We want a strong dollar,” he added. “We also do not want to see other countries manipulating trade by devaluing their own currencies.”
Bessent pointed out that many countries have accumulated significant trade surpluses through unfair trading practices with the US, and have not established a transparent trading system.
President Trump has vowed to maintain the US dollar’s global dominance and supports policies that economists and strategists believe can boost the value of the US dollar.