Will central banks dump the U.S. dollar?

The $11-trillion American economy accounts for nearly 30 percent of global economic output and the U.S. dollar has dominated global commerce and finance throughout the second half of the 20th century. The greenback is involved in more than 80 percent of foreign exchange transactions, and dollars account for more than 60 percent of central bank reserve holdings.

The dollar’s position has hardly been unassailable, though. Financial headlines warning of a potential dollar crisis because of escalating balance of payment deficits have become commonplace over the past six months. In February, however, the dollar was undermined by a new looming threat — central bank reserve diversification. Is it a real problem?