The economy is complex and the range of factors contributing to uncertainty has risen. Rather than shy away from uncertainty, monetary policymakers need to embrace it by incorporating uncertainty into their policymaking framework. In practice, this means policymakers should: prepare for different economic futures by incorporating plausible alternative scenarios into their policy analysis; ensure policy is more nimble, robust, and systematic; and be more transparent, not less, but communicate more effectively.
The dollar’s dominance is a product of economic weight, financial development, political institutions, and geopolitical power acquired by the United States. The U.S. has benefited enormously from the currency’s international role. While the rest of the world now has potential alternatives, actual and potential alternatives are not the same, and monetary dominance is not an all-or-nothing proposition. Countries whose currencies are held and used internationally tend to possess institutions that restrain arbitrary government behavior. Although erosion of dollar dominance so far has been limited, threats are rising on the fiscal and monetary policy sides, on the regulatory front, from trade policy, and from the increased use of financial sanctions. A loss of confidence in the dollar before alternatives have had time to develop could produce a shortage of the financial assets needed to sustain international trade and investment. The best outcome would be an orderly transition in which the dollar remains an important pillar of the international monetary and financial system while credible alternatives develop. But there is no guarantee.
The international role of the U.S. dollar is often summarized through whichever indicator is moving most visibly: the exchange rate, the dollar share of official reserves, central bank gold purchases, Treasury demand, SWIFT payment shares, stablecoin issuance, or the growth of alternative settlement systems. Each of these indicators contains information, but none of them can carry the whole argument because the dollar is a bundle of functions rather than a single object. It is a reserve asset, a vehicle currency, an invoicing unit, a funding currency, a collateral asset, a safe-haven instrument, and a settlement unit. This essay proposes a dashboard that separates slow-moving architecture from fast-moving price signals and distinguishes portfolio diversification from transaction use, balance sheet exposure, safe asset demand, and payment infrastructure. The evidence points to more pressure at the edges of the system, especially in official diversification, gold demand, and alternative rails, while also showing substantial persistence at the core, where the dollar remains embedded in FX turnover, trade invoicing, debt issuance, hedging, collateral, and crisis liquidity. The result is persistence with rising contestability. The dollar has long legs because replacing it would require coordinated movement across many layers of the global monetary and financial system at once.
The Federal Reserve deliberates over 25-basis-point adjustments, yet in identified estimates a 50-basis-point move sustained for a year shifts inflation 0.09–0.49 percentage points, against a 0.27–0.37 real-time measurement floor. In 2021, the fastest money growth in 6 decades was dismissed as uninformative, months before inflation surged to a 4-decade peak. Both reflect an inverted allocation of attention. The paper’s remedy: hold the funds rate fixed while core PCE inflation is between 1.5
Artificial intelligence (AI) is emerging as a general-purpose technology with far-reaching economic implications. Whilst its capabilities are already widely deployed across applications, such as text generation, coding, and forecasting, its aggregate impact on productivity and growth remains only partially visible—mirroring historical experiences with technologies like electricity. However, AI adoption is proceeding at unprecedented speed, suggesting potentially shorter diffusion lags and a more rapid translation into productivity gains. Estimates indicate that AI could significantly increase labor productivity growth in advanced economies, although outcomes remain uncertain and depend on the pace of adoption and complementary adjustments. The effects on inflation are ambiguous. On the one hand, efficiency gains and cost reductions may dampen price pressures; on the other, increased demand for investment, intermediate goods, and especially energy may exert upward pressure over time. At the same time, AI introduces new financial stability risks, including concentration amongst technology providers, more correlated decision-making, and heightened cyber threats. Europe’s position in the global AI landscape reflects both structural weaknesses—particularly in investment and infrastructure—and notable strengths in research and specialised industry. Fully harnessing AI’s potential requires not only innovation and capital but also effective institutional frameworks, reliable energy supply, and coordinated policy efforts.
