National central banks hold foreign currency as reserve currency with which they can purchase their own currency to stabilize its exchange rate if need be and to increase trust in the national currency. The US dollar has been the dominant reserve currency for a very long time. Large US federal, state and local budget deficits have raised concern over the chance of the Fed having to prop up the federal government in particular by keeping monetary policy excessively loose and thus inflating the dollar. The European Central Bank is already directly purchasing the sovereign debt of certain euro countries. Should the US get into such trouble with its debt that the Fed have to directly purchase its debt, the situation would be far worse than in the euro zone where the near insolvent national governments are so small that they pose little acute systemic risk.
Central banks around the world have been looking into diversifying their basket of reserve currency for some time. But many central banks and national currencies are in similar trouble. It seems that, in the long run, governments just can't resist overspending and having to turn to the lender of last resort, the central bank, for help in maintaining liquidity and preventing total collapse. That poses a substantial risk for other central banks who hold foreign currency as reserve.
Perhaps it is time to consider a new cryptocurrency to replace national currencies as reserve currency. Such a multi-national decentralized currency should be price-stable by design. Its rates of issuance and de-issuance should be regulated at the protocol level. The regulation should be performed by a decentralized AI system designed to take into account very large amounts of price and other economic data with the goal of stabilizing its exchange rate in terms of, for example, a very wide array of globally traded commodities and other assets.
How a global cryptocurrency with its value pegged to an array of real world assets would be implemented is another question to think about.
