Citigroup - Reserve Currencies, the USD - Premature Rumours

The USD’s role as the world’s pre-eminent reserve currency is unlikely to be threatened in the short term. But the Euro’s ascendancy in global reserve holdings is likely to expand further, eventually leading to a more multi-polar – and thus more stable – FX world.

The Renminbi’s role is unlikely to extend beyond that of a regional trading vehicle, even in the medium term. Further expansion would at a minimum require greater financial development and the establishment of a widely accepted institutional framework.

Increased use of SDRs represents an alluring supplement to existing reserve currencies. However, such a set-up is not without challenges and represents a long term prospect at best. But while establishing a new monetary order will be highly useful in time, it is not critical to overcome the current financial crisis.