World Bank research projects the United States would lose seigniorage benefits equivalent to approximately 1% of GDP annually if the dollar loses its reserve currency status due to collapsing foreign demand for dollar assets. Based on 2025 nominal GDP of $30.7697 trillion, this translates to roughly $300 billion in annual losses, according to findings published by New York University Stern School of Business Professor Robert Richmond and colleagues in a paper for the Centre for Economic Policy Research (CEPR). The research models an extreme scenario where foreign investors cease purchasing dollar-denominated assets entirely, forcing US investors to absorb debt equivalent to 50% of GDP. This analysis comes amid growing global investor concerns over the US fiscal deficit, which has reached levels many consider excessive even as the government continues issuing Treasury securities.
Research Identifies Convenience Yield as Key Dollar Advantage
The research team evaluated how market participants use the dollar for settlement, value storage, and collateral provision. Dollar-denominated Treasuries, government agency bonds, and high-grade private bonds command the world's highest "convenience yields," according to the study. When market volatility spikes, participant demand for dollar assets increases, driving convenience yields upward and creating premiums of approximately 20 basis points. The researchers noted this premium reflects the dollar's role as the world's primary reserve currency and safe-haven asset.
Foreign Treasury Holdings Decline from 45% to 30% Over Decade
Recent data indicates the dollar's privileged position is weakening, the researchers observed. Premiums on US Treasuries and government agency bonds have declined continuously since peaking in 2022. Foreign investor holdings of US Treasuries have fallen from 45% to approximately 30% over the past decade. Convenience yields on dollar assets have decreased correspondingly, according to the findings.
Dollar Reserve Status Loss Would Raise Borrowing Costs 87-90 Basis Points
The research projects that complete loss of reserve currency status would cause the real dollar value to fall 8.8% permanently. Real yields on US Treasuries would rise 87 basis points, while private debt rates would increase 72 basis points. The United States borrows from other countries at rates below foreign interest rates due to seigniorage privileges from dollar issuance, which compensates for the permanent US trade deficit, the researchers explained. Sustained declines in dollar demand would eliminate the reserve currency status that causes dollar overvaluation.
Researchers Reject Manufacturing Revival Argument
The study refuted claims by former Federal Reserve Board member Steven Miran that abandoning reserve currency status would revive US manufacturing by weakening the dollar. The research team found limited correlation between manufacturing weakness and exchange rate effects. While reserve currency status elevates dollar value by approximately 9%, relinquishing this position would not dramatically transform US trade competitiveness, according to the analysis. Instead, loss of reserve status would raise borrowing costs by roughly 90 basis points and reduce national assets by approximately $29 trillion, creating negative impacts through increased fiscal burdens and asset losses rather than manufacturing resurgence, the researchers concluded.
FAQ
What would happen to US borrowing costs if the dollar lost reserve currency status?
According to World Bank research by NYU Stern professors, real yields on US Treasuries would rise 87 basis points and private debt rates would increase 72 basis points if foreign investors stopped purchasing dollar assets entirely.
How much has foreign ownership of US Treasuries declined recently?
Foreign investor holdings of US Treasuries have fallen from 45% to approximately 30% over the past decade, according to data cited in the research published by the Centre for Economic Policy Research.
Would losing reserve currency status help revive US manufacturing?
The research team found limited correlation between manufacturing weakness and exchange rate effects, refuting claims that abandoning reserve status would dramatically improve trade competitiveness. Instead, the study projects increased fiscal burdens and asset losses of approximately $29 trillion.
