A recent paper from the U.S. Federal Reserve explores the impact of a central bank digital currency (CBDC) on the dollar’s international role. It concludes that a CBDC would have no material impact on dollar dominance but adds a critical caveat “in the absence of large geopolitical changes separate from CBDC issuance.” The potential benefits of introducing a CBDC can be achieved by other payment system improvements that are already in progress.
It reiterates that the dollar’s appeal is based on factors unrelated to technology. These include a stable government, a strong judiciary, legal property protections, a healthy economy, liquid capital markets and the ample availability of Treasuries for investment.
This dominance is born out by published statistics from 20 years to 2019. Outside of the Americas, the only region where the dollar is not dominant for cross border invoicing is Europe. There the euro is used for 66% of transactions. The dollar is used for 74% of Asia-Pacific invoices and 79% in the rest of the world.
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