- [Mans voice] The US dollar.
- US dollar.
- USA dollar.
- [Narrator] Economists have been predicting
the decline of the US dollar for years.
- We knew the dollar is about to become dethroned.
- Can the US dollar remain the global reserve currency?
- Absolutely not.
- So there's a very, very strong motivation
for a lot of countries to move away from the dollar.
- [Narrator] Though, the dollars value
has been slipping recently,
the coronavirus pandemic has proven
it's as powerful as it's ever been.
Nearly 90% of all global foreign exchange trading
involves US dollars,
and more than half of the world's reserve currency holdings
are in US dollars.
No other currency even comes close.
When the pandemic hit,
there was a rush for cash.
- Crises are by definition, times of great volatility,
great uncertainty.
And there is a sense that the US
is one of the safest places to be.
- [Narrator] This isn't the first crisis
where people around the world have turned to the dollar.
To understand how we got here,
let's go back to New Hampshire in 1944.
It was towards the end of world war II,
and the US got together its allies
to work on an international monetary system.
More than 700 representatives decided to make the US dollar
the world's official reserve currency.
- And this basically cemented the dollar
as kind of the central global currency
from that point forward.
- [Narrator] Other countries linked their currencies
to the US dollar.
Even after the official system broke down in the 70s,
the dollar retained its influence.
It's so widely used around the world today,
that even if the US economy suffers,
the value of the dollar typically, won't take a massive hit.
- There's what's called network effects
that the value of the dollar
as kind of a key global benchmark
for the pricing of goods, the pricing of commodities,
for lending.
The more people that use it,
the more useful it is.
- [Narrator] That's important
for people in countries where the local currency
is almost entirely dependent on a fragile economy.
Take Lebanon.
The value of its local currency
has plummeted in recent years along with its economy.
Now US dollars are in such high demand,
it's almost impossible to get them from ATMs,
which has created a black market for the American currency.
Today, more than 60% of all foreign central bank reserves,
and nearly 50% of the world's debt is in US dollars.
For companies and investors,
holding assets in dollars,
such as treasury bonds is seen as safe
because the US is the world's biggest economy.
And the US central bank
is seen as a trustworthy institution.
Just look at what happened during the 2008 financial crisis.
The fed lent out US dollars to other countries
through one of the tools on it's kit called swap lines.
Essentially, the fed gives another country central bank,
say Japan a loan in US dollars.
The Japanese central bank gives the US some yen in exchange.
When the loan period's over,
the two countries swap their currencies back,
and the US collect some interest.
By April, the fed had lent nearly 1/2 trillion dollars
to central banks around the world.
That number has come back down,
but at its peak,
the fed's most recent currency swaps
almost rivaled those of the great recession.
The dollar's dominance gives the US
a lot of political power,
like through sanctions.
Since everybody uses dollars,
the US can apply pressure on companies or banks
from working with anyone who's a sanctioned entity,
like a company from Iran or Russia.
- With great power comes great responsibility.
If you overly abuse the privilege of holding,
you know, the dominant global currency,
eventually the world will have to find alternatives.
And there is some evidence
that the world is trying to look for alternatives.
- [Narrator] One threat to the dollar's dominance is China.
The country's share of the global economy has soared,
and Beijing is keen to promote its own currency.
- The long arc of history says that
the dollar's dominance won't last forever,
and the speed at which the world eventually
transitions away from that
will in part be determined by
how well the US manages its responsibility
at the holder and the printer
of the world's dominant currency.
- [Narrator] As panic gripped global markets in March,
the dollar spiked higher.
It's since eased off and investors have gotten more relaxed,
and financial markets have stabilized.
Maybe the next crisis will be different,
but this year has shown that for now,
the dollar remains a safe haven for the world.