The dollar will be saved not by by its strength but continue to hold sway as a reserve currency, and its sheer dominance as a global currency should prevent it falling dramatically, according to research by UBS Wealth Management.

The US currency faces problems on several fronts: rising government debt and a large current account deficit, as well as US dependence on external financing for its fiscal deficit and the prospect of rising inflation.

Worse still for the dollar is its comparative weakness to the commodity-driven currencies of Australia, Canada, New Zealand and Norway, and the burgeoning economies of China and emerging markets, UBS said.

Yet while the dollar may be suffering from internal problems, the fact that so many countries have their savings in the greenback - 65 per cent of all currency reserves - means there would be universal resistance to its collapse. The dollar is so entrenched as the world’s trade and reserve currency that, according to UBS, it would be impossible to drop the dollar in the short or even medium term.

While many currencies can claim to be in the ascendant - such as the euro, because of its stable macro-economic stability, and the currencies of emerging markets, enhanced by increased stability and improved governance - the cumulative benefits to the global economy of using one single, dominant reserve currency cannot be underestimated.

As a reserve, only the currencies of the very biggest geological powers could rival the dollar. Yet the euro suffers from the European Union's political divisions, and China’s currency - the renminbi - is difficult to convert.

Moreover, over the past 20 years, the US has deployed vast amounts of dollar-denominated assets around the globe. Hence UBS believes that any shifts in foreign exchange reserve holdings must be very gradual to avoid a dollar collapse.

Then come the sheer logistical problems of orchestrating a global change in the composition of foreign exchange reserves, making the most likely outcome a gradual shift from the dollar to a multi-currency reserve structure. According to UBS's research, China, which holds over $2 trillion in US assets, will be looking at a more multi-currency approach to investing from now on.

Since such changes would have to be very deliberate to avoid a dollar collapse, says the wealth manager, the fact that the US remains the world’s largest currency area means the dollar will continue to dominate international trade for the foreseeable future.