Reserve currency

A reserve currency is a widely accepted currency held by central banks and financial institutions for international transactions, investments, and to stabilize their own currencies.

A financial crash triggered by a loss of confidence in the US dollar as the world's reserve currency would lead to a collapse of the US Treasury market. Higher Treasury yields would raise US government borrowing costs, worsening fiscal sustainability concerns and feeding back into confidence loss. Reserve managers and private investors would diversify into gold, euro, yuan, and potentially digital currencies. Global trade and foreign exchange settlement invoicing would shift toward euro, yuan, or regional currencies. Long-standing network effects of dollar dominance begin to erode, making international financial transactions more inefficient.