US ratings agency Fitch out with a note 30 May
- the US dollar will almost certainly remain the world's most important reserve currency for the foreseeable future but the lack of a ready substitute does not mean the dollar's current position is entirely assured
- no other currency offers the same set of advantages to money managers, including central banks, or is as deeply embedded in the global financial system. Crucially, the dollar is underpinned by the fact that the US Treasury market is the world's largest and most liquid for risk-free assets, and the Federal Reserve operates independently of government with respect to the market, and in implementing policy more broadly
- perhaps the most plausible scenario for the dollar being meaningfully displaced does not begin with the emergence of a viable alternative, but rather it being undermined at home.
"Two pieces of legislation currently working their way through Congress are the Federal Reserve Transparency Act (FRTA) and the Financial Choice Act (FCA). The first would allow the Government Accountability Office to audit the monetary policy decisions of the Fed and make subsequent recommendations for administrative or legislative actions. The second would restrict the Fed's ability to provide financial sector support to avert or address a crisis, and empower a commission to review and recommend changes to the Fed's operations, as well as to consider a rules-based rather than discretionary monetary policy framework.
It is the unambiguous intention of these legislative initiatives to curtail the independence of the Fed and allow for greater congressional oversight of monetary policy as well as the Fed's regulatory decisions and interventions related to financial stability. If implemented, the proposals would diminish the appeal of the dollar as a reserve currency over time. Investors considering dollar assets and other dollar exposures would weigh the risk of political interference in monetary policy decisions and the possibility of the Fed's remit being broadened to include congressional priorities such as indirect funding of infrastructure investment."
Full report from Fitch here