There Can Be Only One (Reserve Currency)

Ramirez: The Kurgan. He is the strongest of all the immortals. He’s the *perfect* warrior. If he wins the Prize, mortal man would suffer an eternity of darkness.
Connor MacLeod: How do you fight such a savage?
Ramirez: With heart, faith and steel. In the end there can be only one.
 – Highlander (1986)

There is a stubborn meme out there that there can be only one reserve currency. To that way of thinking, the U.S. dollar is in a winner-take-all (loser lose-all) battle to maintain its current status as the currency of choice for foreign reserves worldwide. If it loses that status — whether to the yuan, euro or something else — then that’s it for the currency.
Is it true? While there are many reasons why we don’t have hundreds of reserve currencies — liquidity, simplicity, confidence, transparency, ease of transactions, etc. — it is not so clear that there must always and everywhere be only one. 
For some interesting data on the question, consider this graph from a new paper by Barry Eichengreen on the rise of the dollar against the sterling over the last hundred years. It shows that back in 1929 there were quite clearly two global reserve currencies, the sterling and the dollar, with the world split fairly evenly among them. It would be nice to see how that changed over time, but it’s still an interesting snapshot of a bipolar reserve currency world.
reserve-currency.png
Source: BARRY EICHENGREEN and MARC FLANDREAU, “The Rise and Fall of the Dollar (or When Did the Dollar Replace Sterling as the Leading Reserve Currency?),” European Review of Economic History 13, no. Special Issue 03 (2009): 377-411.  

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