This is how the worlds reserve currencies has looked historically. My personal guess is that the Yuan will be the next bar in the graph.
http://azizonomics.com/2012/01/04/a-history-of-reserve-curre...
Those might pass for European reserve currencies in a pre-Industrial Era, but they certainly do not reflect the world economy of the time period by any means.
In addition to all of that, the USD is the only currency on that graph that was not on a gold standard at the time. That's a huge difference.
Yeah, it does. The more I think about it, the less sense that graph makes.
It's not entirely meaningless because there are still benefits to being the reserve currency in a gold-backed world (e.g. cheaper cross-border transactions from not having to do any forex). But the biggest impact of being the reserve currency today is on monetary policy, which only makes sense in the context of fiat money.
But if the amount of currency issued can float relative to the gold reserves held, then the values of currencies relative to each other could still flow significantly.
Put another way, it's an issue of trust. If currency X and currency Y are both theoretically backed by gold, but it's far easier or more reliable to convert X into gold than Y, then X as a reserve would be more valuable than Y.
Holding assets in dollar makes little sense for most people on the planet, and when these people become richer, it makes sense they will use their own currencies. With them, their companies. With those, their governments.
The EUR, despite current instability, and the Chinese Y have good chances.
You have a lot of misplaced faith in foreign central banks. A lot of foreigners absolutely do not trust their central banks, some even to the point of using the US dollar in their day-to-day transactions (Cambodia, various African nations, etc.)
If you're in the position where you don't trust your own central bank, why would you trust the Bank of China instead of the Federal Reserve? It's been around a lot less time and does not have the political independence the Fed does.
The dollar is going to be dominant for the rest of our lives IMO.
No matter what happens, I can pay my taxes and get food at the bakery in Euro. Even if the Euro crashes.
But if I hold Dollar, my government and bakery won’t take Dollar, so I’d have to convert – and lose or make money based on the exchange rate every time.
It’s the same reason why bitcoin isn’t effectively used: If you have to exchange currencies every time you try to buy something, the currency is worthless to you.
And for a billion chinese people, the Yuan is going to be the currency of choice. For 500 million europeans, the Euro is the currency of choice.
But only the US and a handful of instable african or island nations use the Dollar, all combined still less people.
For private holdings, the Dollar is going to lose power. (In fact, it has lost the majority of private holdings long ago)
Origin
"The gold specie standard arose from the widespread acceptance of gold as currency.[7] Various commodities have been used as money; typically, the one that loses the least value over time becomes the accepted form.[8] The use of gold as money began thousands of years ago in Asia Minor."