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Published on April 10, 2008

According to a study published by the US National Bureau of Economic Research, the dollar is at risk of being surpassed by the euro as the world's leading reserve currency in the next seven years.

Realised and forecast increases in the number of countries using the euro, and the growth in the economies that have adopted it since 1999, make the 15-nation currency a stronger competitor than the deutschmark and yen were in the 1980s, economists Menzie Chinn and Jeffrey Frankel wrote in a working paper for the Massachusetts-based bureau. The institution is famous for determining when recessions have begun and ended.

The dollar's 35-year trend of depreciation combined with 25 years of twin deficits present an additional risk to the currency's stature, the economists wrote. The authors are economics professors, Chinn at the University of Wisconsin at Madison and Frankel at Harvard University's Kennedy School of Government.

"The dollar has not been a good investment over the last 20 years," Frankel said. For the dollar, "the biggest downside risk is if things just continue the way they've been".

The dollar was involved in 86 per cent of currency trades in 2007, down from 89 per cent in 2004, according to a 2007 report by the Bureau of International Settlements.