Why the US Dollar Still Rules the World of Money

The US dollar's enduring dominance in global forex markets remains robust despite ongoing geopolitical and economic shifts. As the world’s primary reserve currency, the dollar continues to be the backbone of international trade and finance. Central banks and financial institutions globally hold substantial US dollar reserves, enabling seamless cross-border transactions and facilitating global debt management. This status is underpinned by the depth, liquidity, and stability of US financial markets, which remain unmatched by other major currencies.

The dollar’s supremacy traces its roots to the 1944 Bretton Woods Conference, where the US dollar was pegged to gold at $35 per ounce and became the anchor for global exchange rates. Although this system collapsed in 1971 when President Richard Nixon ended dollar convertibility to gold, the dollar’s role as the de facto reserve currency persisted, evolving into a floating rate system that allowed for more flexible international trade and capital flows. Over time, the US’s ability to issue large quantities of highly liquid government securities, backed by a stable credit profile, further reinforced the dollar’s appeal to global investors and governments.

Despite the rise of alternative global powerhouses and emerging financial systems, the US dollar remains unchallenged. While the euro and the Chinese yuan have been cited as potential contenders, both face structural and systemic limitations. The euro, though the second most held reserve currency, struggles with fragmented governance and uneven economic integration across the eurozone. The Chinese yuan, meanwhile, is restricted by capital controls and limited openness in China’s financial markets. These constraints prevent either from replicating the dollar’s global reach and liquidity. Additionally, the yuan’s use in oil trading—known as “petroyuan”—remains a niche compared to the entrenched petrodollar system established in the 1970s.

Economic sanctions, inflationary pressures, and shifting global trade patterns could pose long-term risks to the dollar’s dominance, yet these factors have not led to a significant erosion of the dollar’s role in international finance. Recent data on US producer prices, which showed a 0.1% dip in August 2025, suggests that inflationary pressures are easing, potentially supporting the dollar’s resilience in global markets. Additionally, the Federal Reserve’s anticipated rate cuts later in the year may influence the dollar’s performance against other major currencies, though the underlying demand for dollar assets remains strong.

Experts suggest that while no single currency appears poised to replace the dollar in the near future, the global financial system is evolving. The rise of digital currencies and the gradual shift in economic power from the West to the East could introduce new dynamics over time. However, the US dollar’s entrenched role in global trade, its low borrowing costs, and the depth of US capital markets ensure it remains the currency of choice for international transactions and reserves.