What Could the Next Reserve Currency Be?

Posted by Allison on 24 May 2013, 12:25

It is hard to imagine a world without the mighty US dollar playing its part. However as many people will no doubt be aware, there is a difference between playing the leading role and playing a mere bit part in the background.

In the years gone by, the US dollar was definitely in the leading role. While it is still the foremost reserve currency in the world today, it has however taken something of a back seat compared to the position it was in a few decades ago. America itself is not as powerful as it once was, and this alone could lead to a slide of its currency and a position in which it will no longer be the reserve currency of choice.

You don’t need to look too far online to find stories of what could happen if the dollar collapsed and relinquished its role as the main reserve currency the world has to offer. Many believe such a circumstance would push America into a major recession – and there is plenty of evidence to back this up. The act of importing and exporting would be affected as a result of such an instance, and business in America could lead to a prolonged recession. There is even evidence to suggest it could go as far as leading into a depression, which would undoubtedly be even worse.

But amid all this turmoil, there would be the question of the replacement reserve currency. Next in line would be the Euro, in terms of the amount of Euros held in reserve around the world. However, this is hardly a stable and confident currency. You only need to take a brief look at how the world is reacting to the Euro to see that there is a distinct chance it won’t be around for too much longer. This is speculation of course, but things are hardly settled in Europe.

So what would happen if the dollar dropped out of sight? The British pound is way down in third place, so it could lead to an interesting situation if there ever was a change at the top.