US dollar status as world’s single reserve currency will end by 2025
The United States dollar status as the world’s single reserve currency will end by 2025, according to a new report by the World Bank.
“By 2025, six major emerging economies—Brazil, China, India, Indonesia, South Korea, and Russia—will account for more than half of all global growth, and the international monetary system will likely no longer be dominated by a single currency. As economic power shifts, these successful economies will help drive growth in lower income countries through cross-border commercial and financial transactions.” the report noted.
Mansoor Dailami, lead author of the report and manager of emerging trends at the World Bank, commented that “Over the next decade or so, China’s size and the rapid globalization of its corporations and banks will likely mean a more important role for the Yuan. The most likely global currency scenario in 2025 will be a multi-currency one centered round the dollar, the euro, and the Yuan.”
The report Global Development Horizons 2011 states that global growth over the next 15 years is likely to mirror the current recovery, with emerging and developing countries growing faster than more advanced counterparts. The bank projects emerging economies to grow an average of 4.7% a year through 2025, more than double the 2.3% forecast for advanced economies.
The distribution of global growth will become more diffuse, with no single country dominating the global economic scene, the report said. By 2025, the economies of Brazil, China, India, Indonesia, South Korea and Russia will represent more than half of all global growth, the bank forecasts.
The growing clout of emerging economies could foster significant changes to the international monetary system, the report said, most notably in which currency nations and multinational corporations use to do business. The bank noted that currency use remains dominated by the US dollar despite the growing importance of emerging markets, a situation that could begin to see change over the next 15 years.
The dollar now faces several potential rivals for the role of international currency, the report said.
In the near term, the bank said the euro remains the biggest challenger to the dollar. The single currency of a host of European countries is poised to expand its status as a currency of choice, though the appetite for the euro will depend in large part on whether officials can successfully navigate the sovereign debt and banking crises the region currently faces.
Longer term, the report said that China's Yuan could take on an ever-increasing role in the international monetary system. This could help resolve massive imbalances that have Beijing holding the largest stock of foreign exchange reserves while the country also serves as the world's largest exporter. Changes undertaken by Chinese officials to modernize their country's financial systems are beginning to have an effect in laying the foundation for the Yuan taking on a more important global role.
Still, any change is unlikely to happen overnight even if bank officials do see the international monetary system become more diverse.
I think it is still quite possible that this will only be a very gradual process ... it's very likely that the dollar will still be very dominant, Hans Timmer, director of development prospects at the bank, said during a conference call with reporters.