The Dollar's Depreciation Over Six Months Draws Market Attention
On July 1st (Tuesday), at the annual Central Bank Forum held in Sintra, Portugal, several central bank governors expressed their views on the recent depreciation of the dollar and its future status. The unpredictability of U.S. President Trump's economic, trade, and security policies has raised market concerns, with the dollar index falling by more than 10% in the first half of the year, marking the largest decline for the same period since 1973.
Nonetheless, the dollar's dominant position in the global monetary system remains solid, currently accounting for 58% of global foreign exchange reserves, far exceeding the second-ranked euro (20%). It continues to play a core role in international payments, commodity pricing, and safe-haven transactions.
Lagarde: Euro May Become a Long-Term Alternative but Hard to Displace the Dollar in the Short Term
European Central Bank President Lagarde suggested that if the eurozone can implement necessary reforms, the euro could gradually become an alternative to the dollar. She noted that 2025 might be seen as a "key milestone" in the euro's path to internationalization, as current uncertainty and demand for safe assets drive more investors to consider the euro as a reserve asset.
"This change won't happen overnight, it never has in history," Lagarde stated. "But some mechanisms have been broken, and whether they can be fixed in the future remains uncertain." She also emphasized that achieving significant change requires massive efforts by the eurozone and prolonged periods of sustained reform.
Ueda Kazuo: Structural Reforms are Key
Bank of Japan Governor Ueda Kazuo believes that whether the dollar's status can be replaced depends on the progress of structural reforms in other economies. Citing examples such as the integration of European capital markets and China's push to internationalize the renminbi, he stated that only breakthroughs in enhancing the efficiency and convenience of domestic currencies could substantially challenge the dollar's status.
Ueda added that the demand for liquidity and safe assets in global markets continues to support the dollar's leading role in the global payment and reserve systems.
Bailey: A Change in Dollar's Status is "Far Off"
Bank of England Governor Bailey argued that although there is market discussion about a potential change in the dollar's status, there is currently no sign of any significant transformation. He said, "I have not seen evidence of fundamental changes to the dollar's dominance."
Bailey stressed that any global reserve currency must provide adequate safe assets to meet market needs for collateral and hedging, which is a core reason for the dollar's long-standing dominant position.
Rhee Changyong: De-dollarization Discussions Have Begun but Dollar Still Held
Bank of Korea Governor Rhee Changyong pointed out at the meeting that although the dollar's share in global reserves has fallen to its lowest in decades, it still holds 58%, far surpassing other currencies. He mentioned that the market has started discussions on de-dollarization and potential changes to the dollar's long-term dominant position, but "investors currently still hold dollars, only increasing their hedging ratios."
Rhee believes that the dollar's status will remain stable in the short term, but the global monetary system is in dynamic change, and the long-term trend needs continuous observation of structural changes and the monetary policy directions of various economies.
Dollar's Short-term Dominance Difficult to Displace
Despite the dollar's significant depreciation of over 10% in the first half of the year, central bank governors worldwide generally believe that the dollar will continue to maintain its dominant position as a global reserve and trading currency in the short term. Due to the unique advantages of the dollar in market size, liquidity, and the supply of safe assets, other currencies find it difficult to replace its role in the short term.
Whether the global monetary system can change in the future will depend on whether the eurozone and renminbi can achieve structural reforms and continuously enhance internationalization levels, as well as changes in global investors' risk preferences and the evolution of the political and economic landscape.
