The Federal Reserve System’s Board of Governors has issued a comprehensive report that mentions cryptocurrencies as a potential threat to the dollar’s dominance.
The Federal Reserve System of the United States and its Board of Governors published an extensive report on its website titled “The International Role of the United States Dollar,” which also addressed what could reduce the US dollar‘s dominance.
According to the report, the only time in modern history when the US dollar lost its status as an international and dominant currency was replaced by the British pound. However, the US dollar has reclaimed its dominance following the financial crisis associated with World War I, and there are currently only a few factors that could jeopardize it.
According to the authors of this article, several important factors support the use of other currencies in the long run, including increased European integration, the growth of the Chinese economy, and the changing payment environment led by cryptocurrencies.
A shifting payments landscape could also put the US dollar‘s dominance in jeopardy. For example, the rapid growth of digital currencies, both private and official, could reduce reliance on the US dollar.
In the context of digital currencies, the United States Federal Reserve System notes that changing consumer and investor preferences, combined with the ability to select new products, pose the greatest risk, as they may shift the balance of perceived costs and benefits enough at the margin to overcome some of the inertia that helps to maintain the dollar’s leading role.