Goldman Sachs Group has indicated that US backing for Japan's efforts to boost the yen is unlikely to undermine the dollar's status as the world's premier reserve currency. Japan stands as the largest overseas investor in the $31 trillion US Treasury market.
The coordinated currency intervention last month sparked some concerns that Washington's support for the yen, potentially aimed at preventing unusual volatility in US Treasuries, might erode confidence in the dollar as a reserve asset. According to Goldman, the underlying logic of this view assumes that the US might obstruct other nations from selling Treasuries in the future.
"That inference is quite a stretch," strategists including Michael Cahill wrote in a research note. "We do not concur with the idea that this move constitutes a negative for the dollar's reserve currency status." The firm noted that Japan can utilize the Federal Reserve's Foreign and International Monetary Authorities (FIMA) repo facility. This tool allows foreign central banks to obtain US dollars by using their Treasury holdings as collateral, without needing to sell the bonds directly.
Goldman stated that this highlights a key strength of the dollar: the availability of deep capital markets for reserve allocation under normal conditions, coupled with access to liquidity support during market stress, as the addition of strategists elaborated: "We believe that the US Treasury's actions, together with the availability and utility of the FIMA repo facility, demonstrate that no other currency can currently rival the dollar in terms of usability, network effects, and supporting institutional infrastructure."
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