The Federal Reserve Bank of Cleveland, which represents the Fourth Federal Reserve District including Ohio, western Pennsylvania, eastern Kentucky and the northern panhandle of West Virginia, contributes to economic research and supervision in support of national financial stability. The bank also supports economic resilience for low- and moderate-income communities within its district, according to its official website.
In recent remarks at a panel discussion on the safe-haven status of the dollar, a Federal Reserve official addressed both historical episodes and ongoing factors that shape the dollar’s international role. The speaker clarified at the outset: “the views I’ll express today are my own and not necessarily those of the Federal Reserve System or my colleagues on the Federal Open Market Committee.”
Reflecting on past events, they highlighted investor behavior during periods of market stress: “When people talk about the safe-haven status of the dollar, they often point to flight-to-quality episodes like the Global Financial Crisis and the early days of the COVID pandemic. For me, a different episode stands out, one from before I became a Federal Reserve policymaker.”
They described market reactions following Standard & Poor’s downgrade of US credit in 2011: “Even though stock market indexes fell…Treasury prices rallied. Investors were willing to accept lower yields on US government debt rather than higher yields that are often necessary for lower-rated securities…This experience reinforced to me that, in times of financial trouble, investors and governments alike place great trust in the US dollar.”
The speaker discussed key elements supporting the dollar’s position: “The dollar’s position depends first and foremost on the United States’ strong rule of law. Our legal institutions provide a reliable framework for enforcing contracts and protecting property rights. This stability fosters confidence among investors and nations alike.” They added that widespread use reduces transaction costs globally while foreign preference for holding dollars lowers borrowing costs domestically.
Regarding currency functions—medium of exchange, unit of account, store of value—the remarks noted: “As a medium of exchange, the dollar is clearly the dominant currency…More than half the world’s trade is denominated in dollars.” The official cited statistics showing nearly 90 percent of daily foreign-exchange transactions involve US dollars.
On reserves management by central banks worldwide: “By the early 2000s, dollar holdings accounted for nearly 72 percent of global foreign-exchange reserves…The dollar’s share…has fallen since that time…but remains [the] world’s reserve currency by a wide margin.”
Describing institutional roles within US policy-making structures: “You don’t often hear Fed policymakers talk about the dollar. That’s because Treasury Department holds primary responsibility for formulating international economic policies…The Federal Reserve’s congressionally assigned dual mandate is to conduct monetary policy in pursuit of maximum employment and price stability.”
Maintaining credibility through independence was emphasized as vital for confidence in monetary policy: “The Fed’s independence, along with its accountability to Congress, is critical to maintain the world’s confidence in our commitment to 2 percent inflation.”
Current challenges such as persistent inflation were also addressed: “Currently, US inflation is too high and has been above our objective for five years. The latest PCE inflation reading was 2.9 percent in December 2025.” Businesses report rising costs from tariffs as well as health insurance and electricity prices.
Discussing future risks to dollar dominance—including alternative currencies like digital assets or changes in geopolitical conditions—the official remarked: “Moving away from the dollar would likely require an attractive alternative…Digital currencies provide some novel payment methods…[but] I have yet to see compelling evidence of broad use cases for them.” On stablecoins pegged to dollars they said increased use could actually raise demand for Treasuries.
Concerns over fiscal sustainability were raised as well: “[Continued growth] in US debt likely will slow economic growth…and pose risks…[Foreigners], who hold about a third [of] all privately held US public debt may choose to diversify out…”
Concluding their remarks, they stated: “developments along these lines…still might not be enough to unseat [the] dollar from its leading international role…” Emphasizing fundamentals behind this strength they added: “America’s legal system endures as one in which investors can be confident that contracts will be enforced…”
Beth M. Hammack currently serves as president and chief executive officer at Cleveland Fed (source). The institution also plays a role nationally via participation on committees such as the Federal Open Market Committee.
