While the US dollar has historically been a safe asset, I do not believe this will continue to be the case given the geopolitical changes taking place.
Over the years the United States might no longer be a trustworthy ally, because its leaders are willing to exert economic pressure on weaker nations through the power of the US dollar. This will impact the composition of assets that their central banks hold, including their reserves of US dollars.
If central banks significantly reduce their holdings of US currency reserves, it will definitely affect the value of the dollar, the US inflation rate, the federal
budget, and, ultimately, the influence of the US
government.
But how does the dollar compare to other reserves assets like Gold, Bitcoin, and other Fiat currencies (€ ¥ £). According to a world bank report major central banks only care about Three things in reserve assets which are
- Safety
- liquidity
- Return
Therefore when it comes to returns the dollar clearly edges other currencies or reserve assets due to interest that can be gotten from holding it and its interest is higher than other Fiat currencies.
Gold and bitcoin can appreciate in the long run but
also buying US bonds can also counter that as it gives high returns and it's one of the safest investments on earth.
The major use of reserve by a central bank is defending it's currency and to do that it needs an asset with high liquidity so that buying and selling does not heavily impact the market. Gold and Bitcoin lags behind seriously because any huge injection or withdrawal can seriously impact prices. Making It highly volatile.
The US dollar is also the most liquid reserve currency in the world making it easy for anyone to obtain dollars by simply exporting goods to the United States, Gold and Bitcoin has limited supply and other Fiat currencies can't match the United States when it comes to volume