With the weakening of the US dollar relative to a basket of other currencies so far in 2025, we have received questions about whether the US dollar is in jeopardy of losing its reserve currency status. 
   

First, let’s start by asking the question, “What does it mean to be a reserve currency?”  It means many things, including that the currency is held in large amounts by central banks worldwide.  Additionally, major transactions, including those involving commodities such as oil and gas, are typically priced in the reserve currency. Another important feature is that, for a currency to function as a reserve currency, it requires liquid and open capital markets, as well as widespread confidence in its stability among market participants.  

It is safe to say all these boxes can be checked for the US dollar, but contrast it against the Chinese yuan renminbi (or simply, the yuan), for example, which has been mentioned as a possible replacement; its markets are not fully open, and it does not have the full confidence of global investors.  Similarly, one could argue that Bitcoin, which has also been suggested as a replacement for the US dollar, does not meet the criteria mentioned above. 

Let’s remember that if the US were to lose its status as the reserve currency, another currency would need to take its place.  What currency would replace the US dollar as the reserve currency?  This is an important question that needs to be answered if there is serious consideration for the US dollar to lose its reserve status.  As of 2024, the USD comprised 58% of global foreign currency reserves with about 20% in euro, 6% in Japanese yen, 5% in British pound, and 2% in the Chinese renminbi.  In short, while it is plausible that it could happen in the future, there is no currency close to replacing the US Dollar as the global reserve currency in the imminent future.  

East Bay Investment Solutions, a Registered Investment Advisory firm, supplies investment research services under contract.

This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. This document is intended for the exclusive use of East Bay clients, and/or clients or prospective clients of the advisory firm for whom this analysis was prepared in conjunction with the EAST BAY TERMS OF USE, supplied under separate cover. Content is privileged and confidential. Information has been obtained by a variety of sources believed to be reliable though not independently verified. To the extent capital markets assumptions or projections are used, actual returns, volatility measures, correlation, and other statistics used will differ from assumptions. Historical and forecasted information does not include advisory fees, transaction fees, custody fees, taxes or any other expenses associated with investable products unless otherwise noted. Actual expenses will detract from performance. Past performance does not indicate future performance.

The sole purpose of this document is to inform, and it is not intended to be an offer or solicitation to purchase or sell any security, or investment or service. Investments mentioned in this document may not be suitable for investors. Before making any investment, each investor should carefully consider the risks associated with the investment and make a determination based on the investor’s own particular circumstances, that the investment is consistent with the investor’s investment objectives. Information in this document was prepared by East Bay Investment Solutions. Although information in this document has been obtained from sources believed to be reliable, East Bay Investment Solutions does not guarantee its accuracy, completeness, or reliability and are not responsible or liable for any direct, indirect or consequential losses from its use. Any such information may be incomplete or condensed and is subject to change without notice.

Visit eastbayis.com or more information regarding East Bay Investment Solutions.

The U.S. Federal Reserve System, known simply as “the Fed,” often dominates headlines. Whether it’s interest rate hikes, inflation concerns, or economic forecasts, the Fed is a central figure in shaping the financial environment we all live in.

But what exactly is the Fed, and why does it matter for investors like you?

How the Fed Came to Be

The Fed was created in 1913 by the Federal Reserve Act as a response to financial crises in the early 20th century. In the decades that followed, key legislation was introduced that strengthened the Fed’s authority and independence: the Federal Open Market Committee to centralize monetary policy decision-making (Glass-Steagall Act of 1933 & Banking Act of 1935) and gain political independence (Treasury-Federal Reserve Accord of 1951). The Fed’s role then — and now — is to help stabilize the U.S. financial system and prevent undue stress on the economy. Today, the Fed operates as the nation’s central bank with a clear mandate:

• Maximize employment
• Keep prices stable

Put simply, the Fed’s job is to support a healthy balance where Americans can find work and afford goods and services.

The Fed’s Many Roles

While setting interest rates gets the most attention, the Fed’s responsibilities extend further:

• Supervision & Regulation: Overseeing financial institutions to promote safety and soundness.
• Payment Systems: Ensuring the U.S. dollar can move securely and efficiently.
• Consumers & Communities: Researching how policies impact everyday households and communities.

Structure: More Than One Person

Although headlines often focus on the Fed Chair, the Fed is far from a one-person show.

• 12 Regional Reserve Banks each have a president who provides key insights and data.
• The Federal Reserve Board of Governors is made up of seven members nominated by the President and confirmed by the Senate.
• The Federal Open Market Committee (FOMC) — a 19-member group — sets interest rate policy.

At any given FOMC meeting, only 12 members vote: all seven governors, the New York Fed president, and four rotating regional bank presidents.

Voting, Consensus, and Dissent

Here’s what most people don’t realize: the Fed Chair — currently Jerome Powell — has just one vote out of twelve. No veto power. No special privileges.

The Chair’s job is to lead discussion and guide the group toward consensus. In fact, consensus is the preferred outcome, since it signals unity and confidence in the Fed’s outlook. Still, dissenting votes do occur, usually during periods of economic uncertainty. These disagreements remind us that the Fed isn’t immune to differing perspectives — a healthy sign of rigorous debate.

Why Independence Matters

Perhaps the Fed’s most important trait is its credibility. For more than 75 years, the Fed has operated with independence from both political and private pressures.

Without this autonomy, markets and the public could lose trust — with potentially severe consequences. Independence doesn’t mean a lack of accountability, though. The Fed’s layered structure, long terms, and built-in checks and balances are designed to keep it credible, transparent, and focused on its dual mandate: stable prices and maximum employment.

The Bottom Line on The Fed Now

The Fed is more than a single person making pronouncements on interest rates. It’s a complex system designed to promote stability, independence, and trust in the U.S. financial system.

And while news headlines may zero in on the Fed Chair, the real story is about consensus, credibility, and the ongoing effort to keep our economy healthy.

If you have questions about this or any other investment-related news, the Outsourced Chief Investment Officer (OCIO) team at East Bay Investment Solutions–an investment management solution for planning-focused advisors ready to scale with the support they need–are here to be your sounding board.

If you’d like to meet with our team about taking some weight off your plate and preparing your advisory firm to scale,  Let’s Talk!

Our East Bay Investment Solutions Outsourced Chief Investment Officer (OCIO) team is eager and ready to help.

East Bay Investment Solutions, a Registered Investment Advisory firm, supplies investment research services under contract.

This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. This document is intended for the exclusive use of East Bay clients, and/or clients or prospective clients of the advisory firm for whom this analysis was prepared in conjunction with the EAST BAY TERMS OF USE, supplied under separate cover. Content is privileged and confidential. Information has been obtained by a variety of sources believed to be reliable though not independently verified. To the extent capital markets assumptions or projections are used, actual returns, volatility measures, correlation, and other statistics used will differ from assumptions. Historical and forecasted information does not include advisory fees, transaction fees, custody fees, taxes or any other expenses associated with investable products unless otherwise noted. Actual expenses will detract from performance. Past performance does not indicate future performance.

The sole purpose of this document is to inform, and it is not intended to be an offer or solicitation to purchase or sell any security, or investment or service. Investments mentioned in this document may not be suitable for investors. Before making any investment, each investor should carefully consider the risks associated with the investment and make a determination based on the investor’s own particular circumstances, that the investment is consistent with the investor’s investment objectives. Information in this document was prepared by East Bay Investment Solutions. Although information in this document has been obtained from sources believed to be reliable, East Bay Investment Solutions does not guarantee its accuracy, completeness, or reliability and are not responsible or liable for any direct, indirect or consequential losses from its use. Any such information may be incomplete or condensed and is subject to change without notice.

Visit eastbayis.com or more information regarding East Bay Investment Solutions.