The US dollar continues to assert its supremacy in global currency markets, defying predictions of its weakness. Despite a staggering national debt of $38 trillion and international initiatives aimed at reducing reliance on the dollar, it remains irreplaceable, according to a report by Yardeni Research. Although the dollar has fallen by 12% against the euro this year, analysts view this as a correction rather than the start of a sustained decline.

This enduring dominance can be attributed to the structural weaknesses of its rivals. The euro, accounting for only 20% of global reserves, suffers from fragmentation. Twenty countries in the euro area have refused to establish a unified fiscal union, leaving Europe without a viable alternative to US Treasury securities. The Japanese yen hovers precariously close to a recession, further constrained by Prime Minister Fumio Kishida’s strategy to weaken the currency. The British pound has yet to recover fully from the repercussions of Brexit and the ongoing political turmoil. Meanwhile, the Chinese yuan remains only partially convertible, hampered by the lack of independence of the People's Bank of China.

Yardeni describes the situation as a “beauty contest,” in which the winner is not necessarily the most attractive, but rather, the one with the fewest flaws. The US dollar constitutes 60% of central bank reserves and is still the primary currency for international trade and corporate borrowing. Despite inherent risks, including inflation at 3%, a potential downgrade from AAA status, and uncertainties surrounding Trump’s trade policies, carry trades are wrapping up the year in favor of dollar strength. Global efforts towards de-dollarization have seen limited success, as moving away from the greenback would prove too costly and disruptive.