The Resilience of the US Dollar in a Multipolar Currency World

The U.S. dollar’s position as the world’s dominant reserve currency has faced persistent scrutiny in recent years, yet its resilience remains striking. Despite a gradual decline in its share of global foreign exchange reserves—from a peak of 72% in 2001 to 57.74% in the first quarter of 2025 [1]—the dollar continues to outpace all competitors. This persistence, even amid geopolitical turbulence and the rise of alternative currencies, underscores the structural advantages that underpin its global role.

Structural Foundations of Dollar Dominance

The dollar’s endurance stems from its entrenched role in global trade and finance. It accounts for 54% of foreign trade invoices and 64% of world debt [2], while U.S. Treasury securities remain the bedrock of international capital markets. Central banks hold 58% of global reserves in dollars [1], a figure that has stabilized since 2022 despite concerns over U.S. fiscal policy and geopolitical tensions. The depth and liquidity of U.S. financial markets, coupled with the dollar’s role as a de facto monetary anchor, create a self-reinforcing cycle of demand [3].

Geopolitical Shocks and the Myth of De-Dollarization

The invasion of Ukraine in 2022 and subsequent U.S. sanctions on Russia initially raised fears of a “de-dollarization” trend. Sanctions included restrictions on dollar transactions and exports of U.S. currency to Russia [4], yet the dollar’s share in reserves has remained largely unchanged. Empirical studies confirm no significant reallocation of reserves away from the dollar following these measures [1]. While some central banks have increased gold holdings—particularly in emerging markets—this diversification has not translated into a systemic shift away from the dollar [3].

The Chinese yuan’s internationalization efforts, meanwhile, have plateaued. Despite Beijing’s push for the yuan’s use in cross-border trade and the digital yuan’s rapid transaction growth, its share in global reserves has stagnated at around 2% [1]. This highlights the challenge of displacing a currency with the dollar’s network effects and institutional trust.

Multipolar Trends and the Rise of Alternatives

The global monetary system is undeniably evolving. Non-traditional currencies like the Canadian and Australian dollars have gained traction in reserve portfolios [1], while central bank digital currencies (CBDCs) are reshaping cross-border payments. China’s digital yuan pilot, with 7 trillion e-CNY in transactions in 2024, and India’s e-rupee, now supporting offline functionality, exemplify this shift [5]. However, these innovations have not yet eroded the dollar’s dominance. The U.S. has focused on wholesale CBDC research rather than a retail digital dollar, prioritizing stability in its financial system [5].

The Future of Dollar Dominance

While the dollar’s share in reserves has declined, its structural advantages—such as the scale of U.S. debt markets and its role in trade invoicing—remain unmatched. Most economists argue that the dollar’s dominance will persist for the foreseeable future, even as the world moves toward a more multipolar currency system [2]. The rise of CBDCs and gold diversification reflects a desire for resilience, not a rejection of the dollar.

For investors, the dollar’s resilience suggests continued demand for U.S. Treasuries and dollar-denominated assets. However, the growing influence of non-traditional currencies and digital innovations warrants attention. A diversified portfolio that balances dollar exposure with emerging opportunities in gold and CBDC-linked instruments may offer a hedge against long-term shifts in the global monetary order.

Source:

[1] The International Role of the U.S. Dollar – 2025 Edition [https://www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-u-s-dollar-2025-edition-20250718.html]
[2] Dollar demise, or a storm in a trade tea-cup? [https://www.lseg.com/en/insights/ftse-russell/us-dollar-and-treasuries-reports-of-their-death-may-be-exaggerated]
[3] Dollar Dominance in the International Reserve System [https://www.imf.org/en/Blogs/Articles/2024/06/11/dollar-dominance-in-the-international-reserve-system-an-update]
[4] U.S. Prohibits Exports of U.S. Dollar Banknotes to Russia and Luxury Goods to Russia and Belarus and Imports of Additional Types of Russian-Origin Products into the United States [https://www.cov.com/en/news-and-insights/insights/2022/03/us-prohibits-exports-of-us-dollar-banknotes-to-russia-and-luxury-goods-to-russia-and-belarus-and-imports-of-additional-types-of-russian-origin-products-into-the-united-states]
[5] Central Bank Digital Currency Tracker [https://www.atlanticcouncil.org/cbdctracker/]