De-dollarization describes a process of moving away from the world’s reliance on the U.S. dollar (USD) as the chief reserve currency. The dollar has remained the primary 澳洲幸运5官方开奖结果体彩网:reserve currency and conduit for international business ever since the United Stat🌌es emerged as the world’s top economic power following World War II. But questions often emerge about whether the dollar can sustain its leadership.

Although the 澳洲幸运5官方开奖结果体彩网:greenback is unlikely to lose its relevance in the near term, it’s worth looking at the potential trend of de-dollarization and consider what a decline in the dollar’s dominance might mean for the 澳洲幸运5官方开奖结果体彩网:global financial system.

What Is De-Dollarization?

For the better part of a century, the U.S. dollar has enjoyed an advantage as the world’s top reserve currency, held by 澳洲幸运5官方开奖结果体彩网:central banks around the world to store value and conduct international business. According to the most recent data available from the 澳洲幸运5官方开奖结果体彩网:International Monetary Fund (IMF), the USD accounted for 57% of allocated currency reserves as of the third quarter of 2024, well ahead of the euro at 20% and the 澳洲幸运5官方开奖结果体彩网:Japanese yen at almost 6%.

Although there’s no doubt that it remains on top, the dollar’s share of allocated currency reserves has fallen over the past few decades, down from more than 70% in 2001. This decrease has led some experts to question whether we may be experiencing de-dollarization—a reduction in the world’s reliance on the dollar as its primary 澳洲幸运5官方开奖结果体彩网:reserve currency.

How De-Dollarization Works

Countries that aim to reduce the influence of the dollar over their economy may adopt various approaches. To escape the꧂ shadow of the dollar, central banks need an alternative reserve currency that still allows them to shore up their local financial system and participate in international trade.

The key question then becomes: Which other currencies, if any, are suitable for central banks to hold as official reserves? The traditional alternatives to the dollar include the euro, the yen, and the 澳洲幸运5官方开奖结果体彩网:British pound sterling. However, as the IMF notes, these currencies haven’t increased their share of reserve allocations in proportion to the dollar’s decline.

China has stepped in as a driver of de-dollarization, aiming to position its renminbi as a reserve currency. Although central banks have increased their renminbi holdings, the currency’s share of global reserves remains at just under 2.2% as of the third quarter of 2024. The increase in renminbi reserves accounts for around a quarter of the decline in the dollar’s allocation, and Russia currently holds roughly a third of all reserves in the Chinese currency.

Amid doubts about the viability of the renminbi as a reserve currency—including China’s closed capital accounts and 澳洲幸运5官方开奖结果体彩网:control over exchange rates—countries have been allocating reserves to currencies from smaller economies. Around three-quarters of the shift in reserves away from the U.S. dollar has gone toward nontraditional reserve currencies, including the 澳洲幸运5官方开奖结果体彩网:Australian dollar, 澳洲幸运5官方开奖结果体彩网:Canadian dollar, 澳洲幸运5官方开奖结果体彩网:Swedish krona, and 澳洲幸运5官方开奖结果体彩网:South Korean won.

Another alternative is for central banks to hold their reserves in gold, and countries around the world have been 澳洲幸运5官方开奖结果体彩网:doing just that. According to the World Gold Council, central bank demand for gold in 2024 exceeded 1,000 metric tons for the third consecutive year.

The Effects of De-Dollarization

Despite the decline in its share of overall central bank holdings, the U.S. dollar remains the 澳洲幸运5官方开奖结果体彩网:preeminent reserve currency. It i🏅s difficult to quantify what a more sustained move away from the dollar might mean for the global financial system.

Perhaps more significantly, the U.S. has long depended on the dollar’s role as a reserve currency to support running large deficits in government spending and international trade. If central banks around the world no longer felt the need to stuff their coffers with dollars, then the U.S. would likely lose this flexibility.

Is De-Dollarization Happening Currently? 

At least for now, the U.S. dollar retains its central role in the global financial system, but the trend of de-dollarization appears to be gathering steam. Discussion of de-dollarization intensified because of the war in Ukraine. As the U.S. aimed to inflict financial pain on Russia during former President Joe Biden’s administration, with sanctions and by freezing Russia’s currency reserves, the punitive power of the dollar was on display. This may have motivated other 🃏countries to look for ways around the U.S. currency.

Beyond shifting their reserves to gold or other currencies, countries are reducing their dollar dependency by sidestepping the U.S. currency in their international transactions. For instance, China has been paying for its massive 澳洲幸运5官方开奖结果体彩网:commodities purchases from Russia using the renminbi rather than the dollar, and it also has signed deals to use its own currency in trade with Saudi Arabia and Brazil.

Speculation has emerged that the 澳洲幸运5官方开奖结果体彩网:BRICS countries might even create a currency that could rival the dollar for world dominance, although it appears that the group has no immediate plans for a common currency. However, Brazil is pushing reforms within BRICS to ease international payments in local currencies, which would pave the way for less dependence on the dollar in 澳洲幸运5官方开奖结果体彩网:global trade.

Even without a common BRICS currency, the specter of de-dollarization could be growing as more countries question their dependence on the U.S. currency.🎶

The Bottom Line

De-dollarization, which involves reducing the sway that the dollar holds over the global economy, has some notable proponents, including the presidents of China and Brazil. Although the dollar remains entrenched as the world’s top reserve currency and a necessary ingredient for almost any type of international business, history gives us a reason (just ask the British pound) to believe that while the dollar is expected to remain strong in 2025, its dominance won’t last forever.