The switch from one reserve currency to another happens suddenly, not gradually

Many economists wonder whether the dollar may lose its dominant reserve currency status to the Chinese renminbi or the euro in the near future . But we should not forget that a switch to another reserve currency will happen suddenly, not gradually , because : It is unlikely that there will be several large reserve currencies simultaneously, because of the resulting conversion costs and exchange rate instability. The situation will therefore switch from one where the dollar is the only reserve currency to another where a single other currency is the dominant reserve currency; There are multiple equilibria: as long as the dollar inspires confidence (i.e. there is no concern about the United States’ external or fiscal solvency), the United States will be able to finance its deficits at very low interest rates and will remain solvent, and the dollar will remain the reserve currency. The day the United States no longer inspires confidence, its interest rates will rise sharply, it will lose its external and fiscal solvency and the dollar will lose its reserve currency status: this is clearly a self-fulfilling equilibrium.