A question that has frustrated even the most experienced economists in the last few decades is how the dollar has remained the most prominent reserve currency in the world despite the global share of U.S. output eroding away.
The Bank for International Settlements (BIS), a Basel-based institution that is known as the central bank of central banks, thinks it has found the answer.
“We argue that the dollar’s role may reflect instead the share of global output produced in countries with relatively stable dollar exchange rates – the ‘dollar zone’,” it said in its new quarterly report released on Sunday.
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