BOE’s Carney sees the U.S. dollar eventually losing its reserve-currency status

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January 10, 2019 1:32pm NYSE:UUP

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From Anneken Tappe: The U.S. dollar remains the world’s reserve currency–for now. However, a number of central banks lately are contemplating a world in which the almighty buck isn’t the pre-eminent global medium of exchange.

On Wednesday, Bank of England Gov. Mark Carney underlined that view, saying “ultimately we will have reserve currencies other than the U.S. dollar.”

“I think it is likely that we will ultimately have reserve currencies other than the U.S. dollar.”

Mark Carney, Bank of England

His comments emerged during a Q&A session, where the Canada-born U.K. central banker said “the evolution of the global financial system is currently lagging behind that of the global economy,” explaining that “for example, emerging-market economies’ share of global activity is now 60%, but their share of global financial assets lags behind at around one-third.”

Half of international trade was meanwhile invoiced in U.S. dollars, even though the U.S. share of international trade was only some 10%, Carney added.

“As the world re-orders, the disconnect between the real and financial is likely to reduce, and in the process other reserve currencies may emerge.”

Mark Carney, Bank of England

The central banker said the Chinese yuan USDCNY, -0.4327%USDCNH, -0.3273% could be an alternative. However, he cautioned that such transitions wouldn’t happen overnight.

“The U.S. economy overtook Britain’s in the second half of the 19th century, but it took until the 1902s before it became a dominant currency in international trade,” Carney added.

Elsewhere, Russian news service RT on Thursday reported that Moscow shifted $100 billion of its reserves into Chinese yuan, Japanese yen and euros to diversify away from the U.S. dollar. This follows comments by Russian President Vladimir Putin in late November when he said that it wasn’t Russia that wanted to move away from the dollar, but that the dollar was moving away from Russia, in relation to U.S.-imposed sanctions.

The Invesco DB US Dollar Index Bullish Fund (UUP) was trading at $25.32 per share on Thursday afternoon, up $0.13 (+0.52%). Year-to-date, UUP has gained 5.37%, versus a -2.90% rise in the benchmark S&P 500 index during the same period.

UUP currently has an ETF Daily News SMART Grade of A (Strong Buy) and is ranked #1 of 17 ETFs in the Currency ETFs category.

This article is brought to you courtesy of MarketWatch.

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