The backing the US dollar has is the strength of the world's only superpower. It doesn't matter if it's backed by gold or commodities, what matters is whether people believe there's an entity backstopping the currency that can guarantee its stability. That means an entity strong enough to be fully independent, and governed by the rule of law, so that if you're holding a bunch of that currency you can be confident it'll be worth as much tomorrow as it is today.
It doesn't matter if Russia or China peg their currencies to gold reserves, no one trusts them keep the currency market-stable, because they're autocracies. And if Canada pegged its currency to gold or commodities, it wouldn't matter because it's not strong enough to maintain its independence by force, if it came to war.
The EU and the Euro might be a replacement for USD in terms of a currency backed by a big enough, stable enough entity to make it that trustworthy, but that's a long way in the future. Though, as US Treasuries lose their preferred status, European instruments will likely gain from that.
So if the USA was to lose its status as the world's only superpower, or if the world loses faith in its ability to back the dollar, or if the world is unconvinced that the US is governed by the rule of law, then that wouldn't bode well for the US dollar's position as the world's reserve currency, right?
Presumably, for the dollar to be the world’s reserve currency the world needs to have sufficient excess reserves to be able to buy lots of US Treasuries.
If there were some event or events that causes a dramatic contraction in world trade and set off financial crises around the world, many countries may be unable to buy treasuries in the same quantity.
A potentially scary thought exercise may be to figure out what the collective reduction in treasury purchases needs to be before it all blows up. I have no clue what that number may be.
But I have a feeling that if the dollar ceases to be the reserve currency, it will not be because the world has decided on something else.
Your second and third options, absolutely. For the first, it's a matter of whether the sovereignty of US could be credibly threatened militarily, which would is hard to imagine without a long, long fall in its military power. It's not the superpower status, it's the absence of credible military threat against it. Canada or Mexico (or Finland, or Vietnam or North Korea) can't guarantee the absence of instability by their military heft alone.
> It doesn't matter if it's backed by gold or commodities, what matters is whether people believe there's an entity backstopping the currency that can guarantee its stability.
Commodity backing is a mechanism by which a country can ensure the stability of its currency across different political administrations. It's a kind of social technology like a constitution or super-majority requirement that creates stability. It's a plus that the US is stable power, but you can bet that the dollar will inflate year over year. That is its own form of instability.
It doesn't matter if Russia or China peg their currencies to gold reserves, no one trusts them keep the currency market-stable, because they're autocracies. And if Canada pegged its currency to gold or commodities, it wouldn't matter because it's not strong enough to maintain its independence by force, if it came to war.
The EU and the Euro might be a replacement for USD in terms of a currency backed by a big enough, stable enough entity to make it that trustworthy, but that's a long way in the future. Though, as US Treasuries lose their preferred status, European instruments will likely gain from that.