Nobel economist Paul Krugman says there's no real risk to the dollar - unless the US defaults on its debt

• The dominance of the US dollar in global markets isn't at risk, according to Paul Krugman.
• In an op-ed for the NYT, Krugman pointed to three reasons why dollar dominance was secure.
• But that assumes the US doesn't default on its debt, an event that would dent confidence in the greenback. 

The US dollar's status isn't at risk, and dire warnings of its waning status as a global reserve currency are overblown, but a US debt default is a big wild card that would likely hurt confidence in the greenback, according to Nobel economist Paul Krugman. 

In an op-ed for the New York Times on Friday, Krugman pointed to growing fears that the dominance of the dollar could soon be challenged by rival currencies – particularly China's yuan, as the nation rises as a competing economic superpower.

But there are three reasons why the greenback's place as one of the most widely held reserve currencies across the globe is secure, Krugman said:

1. The dollar has incumbency on its side, and is already a widely held reserve currency that was involved in 90% of all global transactions over the past decade, according to an estimate from the Bank of International Settlements. That means there would need to be "exceptional circumstances" for the dollar to be replaced as one of the world's top currencies, Krugman said.
2. US Financial markets are open, though China's yuan is often restricted by the nation's tight capital controls. In practice, that makes the dollar more liquid than the yuan, and therefore more desired.
3. The US legal system offers more protection for holders of the dollar, Krugman said. "Unless you're a dictator planning to commit major war crimes, you needn't fear that the US government will impound your assets; in China, your assets may be at risk if you say something the strongman in charge doesn't like," he added. 

Krugman speculated that many of the fears about the US dollar's status stemmed from the fact that dollar dominance is naturally prone to "conspiracy theories and catastrophic thinking."

But even if dollar dominance wanes, it would hardly be a disaster for the US economy, he said, pointing to Britain's economic growth despite the sterling's decline as a reserve currency in the years after World War II. 

"In sum, there's no reason to be terrified of the consequences if the dollar should lose its special international status. But that said, it's really hard to see that happening in the first place," Krugman said.

However, there is one event that could have a major impact on confidence in the dollar: a US debt default.

Policymakers are still at a stalemate over raising the debt ceiling, and the US could default on its debt as soon as this summer if a deal isn't reached, according to a projection from the Congressional Budget Office. That is an event experts have warned could lead to cataclysmic consequences for the economy.

"Who will trust the currency of  nation that appears to have politically lost its mind?" Krugman said of a possible debt default. "But if that happens, the threat to the dollar's reserve-currency status will be the least of our problems"