Investing.com — UBS Global Research maintains a bullish view on the currency’s continued dominance as the world’s top reserve currency. Despite growing concerns about its sustainability, analysts say several factors will support the dollar’s preeminence in the coming years.
While pointing to the potential for a more diversified currency landscape, UBS highlights the deep liquidity, stability and tenacity of the dollar’s global currency regimes. Gold is seen as a key diversifier, with central bank purchases and other factors expected to boost its price.
According to UBS Global Research, the US dollar will remain the cornerstone of the global monetary system for the foreseeable future. This claim is based on several key factors:
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Fixed global currency regimes: Historical precedence suggests that shifts in dominant currencies occur gradually. Despite economic and political changes, the US dollar has retained its status as a reserve currency.
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Unparalleled Liquidity: The dollar’s dominance in global trading, payments and derivatives markets provides it with an unparalleled level of liquidity, a crucial attribute for reserve managers.
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Stability and safety: While acknowledging the US’s domestic challenges, analysts say the country still ranks high on institutional strength indicators such as the rule of law and market openness. The US’s position as a leading technological innovator further strengthens its appeal.
While the US dollar’s dominance is expected to continue, UBS points to increasing pressure for a more diversified currency system. The rise of geopolitical tensions, coupled with attempts by countries such as China to internationalize the yuan, are contributing to this trend.
“Overall, we think the dollar’s reign will continue. At the same time, it will likely free up some space for competitors along the way,” the analysts said.
However, the brokerage believes that these initiatives are still in their early stages and are unlikely to pose a significant challenge to the dollar’s supremacy in the near term.
UBS highlights gold as a key asset for investors looking to diversify beyond the US dollar. Factors such as increased central bank purchases, lower US interest rates and recovering demand for ETFs are expected to drive gold prices to $2,600/oz by the end of the year. The brokerage also emphasizes gold’s role as a hedge against geopolitical risks, fiscal problems and inflation.
additional considerations
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Swiss Franc: UBS recommends the Swiss franc as an alternative to the US dollar, citing the Swiss National Bank’s restrictive monetary policy and the currency’s appeal as a safe haven.
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Geopolitical risks: While the dollar’s dominance is not immediately threatened, rising geopolitical tensions could accelerate the shift toward a multipolar currency system.
