Too many dollars in reserve?

Too many dollars in reserve? Risks to US currency’s global desirability are America’s high inflation & high government debt

By Neelkanth Mishra:

Sanctions following the Russia-Ukraine conflict have triggered much discussion on the impact on how other countries would manage their foreign currency (FX) reserves going forward. These reserves are a country’s insurance against economic shocks, like households or companies keeping some assets in ‘liquid’ form, which means easily convertible to cash, or in cash.

A country’s FX reserves need to be similarly liquid and stable in value at times of crisis: Imagine holding an asset as insurance which becomes inaccessible during a crisis, or whose value drops sharply! The ‘safety’ of reserve assets is thus paramount, which depends on the type of assets held and the currency in which they are denominated.

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