Global Finance Remains Anchored to the Dollar
- Metta Associates
- 6 days ago
- 8 min read
For over 80 years, the US dollar has reigned supreme as the world's dominant currency, unchallenged in its global influence. Yet in today's rapidly changing world, questions about the sustainability of this dominance are growing louder than ever before.
The story of the dollar's rise to monetary supremacy began in the ruins of World War II. Before that, the British pound had held this position for decades, backed by a vast empire and the stability of the gold standard that anchored the global financial system.
But war changed everything. Britain and Europe lay devastated, while the United States emerged as the only nation with intact infrastructure and a thriving economy. When leaders from 44 countries gathered at Bretton Woods in 1944, they laid the foundation for a new financial system with the dollar at its center.
This new framework pegged the dollar to gold, granting it the status of being "as good as gold," while all other currencies were tied to the dollar. This marked the beginning of the dollar's era of dominance.
Even when President Nixon severed the link to gold in 1971, ushering in the age of fiat money with no physical backing, the dollar maintained its leadership position. It was supported by other factors: the size of the US economy, the depth of its capital markets, political stability, and especially the Petrodollar system that linked global oil trade to the dollar.
How Other Currencies Are Competing with the Dollar Today, however, the landscape of international trade finance is shifting toward a more multipolar reality. The euro has already established itself as a formidable competitor, dominating trade settlements within Europe and increasingly used in transactions beyond the eurozone. Meanwhile, China's yuan is gaining ground in bilateral trade agreements across Asia and Africa, while regional currencies like the Singapore dollar and Canadian dollar are finding new roles in cross-border commerce. The BRICS nations are actively developing alternative payment systems, and digital financial technologies promise to make currency switching in international trade faster and more cost-effective than ever before.
Within the United States itself, mounting public debt and political polarization raise questions about fiscal sustainability, while the frequent use of financial sanctions has prompted many nations to seek alternatives for their international transactions.
Amid these changes, critical questions emerge: Will international trade continue to rely primarily on a single dominant currency, or are we witnessing the dawn of a truly multipolar monetary system? How will emerging payment technologies reshape the competitive landscape between major currencies? Can regional currencies carve out larger roles in global commerce? And what would a more distributed system of trade currencies mean for global economic stability?
The answers to these questions will shape the face of the global financial system for the next decade, affecting every country, every business, and every person on this planet.
Why Countries Are Moving Away from US Dollars
The numbers tell a story that America's policymakers can no longer ignore. The US dollar's share of global foreign exchange reserves has been in steady decline, falling from 71% in 2001 to just 58% by the fourth quarter of 2024—the steepest drop in the currency's modern history. Even more alarming is what's replacing it: gold purchases by central banks worldwide surged to over 1,000 tons in 2024, double the average annual volume of the past decade, pushing gold's share of global reserves to 20%—surpassing the euro's 16% for the first time since the European currency's creation. This represents a fundamental shift in how the world's financial guardians view monetary security, with global gold reserves approaching 36,000 tons, near the historical peak of 38,000 tons reached during the Bretton Woods era in 1965.
The catalyst for this unprecedented flight from dollar assets can be traced to a single moment: the overnight seizure of $300 billion in Russian reserves in 2022. This action sent shockwaves through central banking circles worldwide, with 85% of reserve managers from 84 central banks now believing that dollar weaponization will significantly impact their future reserve management strategies—a dramatic increase from just 30% who considered US sanctions a "significant" factor before 2022. The message was unmistakable: even the world's most trusted reserve currency could become a political weapon, transforming what was once considered the safest store of value into a potential liability.
Foreign appetite for US Treasury bonds—the bedrock of dollar dominance—has withered accordingly. International investors' share of the Treasury market has plummeted from nearly 50% in 2014 to just 30% at the beginning of 2025, representing a withdrawal of trillions of dollars in demand that once helped finance American spending at artificially low rates. Meanwhile, alternative payment systems are gaining serious traction: China's Cross-Border Interbank Payment System (CIPS) has exploded from processing $75 billion in settlements in Q4 2015 to $6 trillion by Q4 2024—an 80-fold increase that demonstrates the rapid construction of dollar-independent financial infrastructure.
Perhaps most telling is the rise of what economists call "non-traditional" reserve currencies—the Australian dollar, Canadian dollar, Swedish krona, and South Korean won—which have collectively surged to 9.6% of global reserves in Q4 2024, up 2.4% since Russia's invasion of Ukraine began. This fragmentation represents something unprecedented in the post-Bretton Woods era: the emergence of a truly multipolar reserve system where no single currency commands unquestioned dominance. As corporate treasurers at multinational firms quietly diversify their cash holdings and sovereign wealth funds explore dollar alternatives, the infrastructure that has underpinned American economic hegemony for eight decades appears to be crumbling in real-time, leaving policymakers scrambling to address a crisis that strikes at the very heart of US global power.
The Dollar's Role in Everyday Global Commerce
While much attention focuses on central bank reserves, the true dominance of the US dollar reveals itself in the daily flow of global financial transactions. The numbers paint a striking picture: despite growing concerns about "de-dollarization," the greenback maintains an iron grip on virtually every corner of international finance.
Global Currency Trading Flows Through Dollar Channels
The foundation of dollar dominance lies in the foreign exchange market, where 44% of all global currency transactions in 2022 involved the US dollar as one side of the trade. This figure, drawn from the Bank for International Settlements' triennial survey and adjusted to show single-currency participation rates, represents a remarkable consistency—the dollar's share in FX markets has remained virtually unchanged over two decades, hovering between 42-45% since the early 2000s.
To put this in perspective, the euro, despite being the world's second-most important currency, appeared in only 15.5% of FX transactions, while the Japanese yen accounted for just 8.5%. The mathematical reality is stark: the dollar's 44% share means it appears on one side of nearly half of all global currency trades, demonstrating its unparalleled dominance in international finance.
Global Payment Networks Center Around the Dollar
Beyond currency trading, the dollar's dominance extends to the actual movement of money across borders. Data from SWIFT, the global messaging system that facilitates international payments, shows that 50% of all international payment messages involve the US dollar. When intra-euro area payments are excluded from the calculation, this figure jumps to approximately 60%.
The trend has remained remarkably stable since 2010, with the dollar's share fluctuating only marginally between 45-50%. Even more telling is the comparison with other major currencies: the euro accounts for roughly 35% of international payments, while the Chinese renminbi, despite China's massive trade volumes, represents less than 3% of global payment flows.
US Dollar Captures 60% of Global International Debt Market
Perhaps nowhere is dollar dominance more pronounced than in international debt markets. Approximately 60% of all foreign currency debt issued globally is denominated in US dollars, a figure that has remained stable since 2010. This creates a structural dependence on dollar funding that extends far beyond US borders.
The euro, despite the European Union's economic size, accounts for only 26% of foreign currency debt issuance. All other currencies combined—including the yen, pound, and renminbi—make up the remaining 14%. This concentration means that companies and governments worldwide must regularly access dollar funding markets, regardless of their home currency.
Regional Trade Networks Still Invoice in Dollars
The dollar's role as the world's primary invoicing currency reveals stark regional variations that illuminate global economic power structures. In the Americas, 96% of trade invoices are denominated in dollars—a near-monopoly that reflects both proximity to the US market and historical trading relationships.
The Asia-Pacific region shows the dollar's reach into markets thousands of miles from American shores: 74% of trade invoicing uses dollars, compared to just 6% for the region's own currencies combined. Even in Europe, where the euro dominates with 66% of trade invoicing, the dollar still accounts for 23% of transactions—a significant presence in the eurozone's backyard.
Most remarkably, in the rest of the world—encompassing Africa, the Middle East, and other regions—79% of trade invoicing occurs in dollars, demonstrating the currency's truly global reach.
Key Takeaways:
Dollar Dominance Pervades Every Layer of Global Finance: From 44% of currency trading to 96% of Americas trade invoicing, the US dollar maintains commanding market shares across all critical dimensions of international finance—FX, payments, debt, and trade settlement.
Practical Usage Remains Dollar-Centric Despite Strategic Concerns: While reserve managers diversify holdings amid geopolitical tensions, the daily mechanics of global commerce still flow through dollar-denominated systems due to deep structural advantages and high switching costs.
The Persistence of Dominance
These numbers collectively reveal a financial system where the US dollar operates as a global utility, embedded in the infrastructure of international commerce and finance. Unlike central bank reserves, which can be deliberately diversified over time, the dollar's role in daily transactions reflects deep structural realities: established trading relationships, legal frameworks, and the simple network effects of liquidity.
The data suggests that while reserve managers may gradually reduce their dollar holdings in favor of gold or alternative currencies, the practical mechanics of global finance remain overwhelmingly dollar-centric. From the foreign exchange trader in Singapore to the commodity exporter in Nigeria, the paths of least resistance in international finance run through New York.
This entrenchment in the plumbing of global finance may explain why, despite two decades of discussion about currency alternatives and the rise of new economic powers, the dollar's dominance in actual transactions has proven remarkably resilient. The numbers don't lie: when the world needs to move money, trade goods, or access credit across borders, it still speaks in dollars.
Key Takeaways:
Dollar Remains King Despite Growing Concerns: While central banks diversify reserves and buy more gold, businesses worldwide still rely heavily on dollars for daily transactions—from currency trading (44%) to international payments (50%) to debt financing (60%). Strategic worries don't translate to operational changes.
Switching Costs Keep Dollar Dominant: The dollar is deeply embedded in global financial infrastructure. Moving away requires rebuilding payment systems, legal frameworks, and trading relationships—a process that takes decades, not years. Most businesses stick with what works.
Gradual Change, Not Revolution: Rather than one currency replacing the dollar, we're seeing slow growth of alternatives like regional currencies and BRICS payment systems. The future will likely feature a multipolar system where the dollar remains first among many, not the only option.
Sources: FEDS, Atlantic Council, Investopedia, GCSP, European Central Bank, J.P. Morgan, BIS, IMF, Central Bank of the Republic of China, Boz et al., SWIFT, Bloomberg, LSEG
Metta Associates's Strategic Reflection
While news about de-dollarization creates investor anxiety, the data reveals that the world still heavily relies on the dollar—from 44% of foreign exchange trading to 60% of international debt markets. This shift isn't happening easily because it requires building entirely new financial systems.
Changing the world's primary currency is extremely difficult. It requires creating new payment systems, legal frameworks, and trade relationships from scratch—a process that takes decades, not just a few years. The cost and complexity of such changes keep most businesses continuing to use the dollar.
At Metta Associates, we use this reality in our investment planning. We build portfolios that benefit from current dollar strength while preparing for gradual future changes. Instead of panicking over headlines, we create long-term plans that account for both present and future scenarios. The slow pace of change becomes an opportunity for those with patience and disciplined planning.
Always with You.
Disclaimer
This content is intended for general informational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any financial instruments. It does not consider your specific investment objectives, financial situation, or needs. You are encouraged to consult a licensed financial advisor before making any financial decisions.
The information presented is based on sources believed to be reliable; however, its accuracy or completeness cannot be guaranteed. This material does not represent a forecast and should not be interpreted as a guarantee of future outcomes. It has been prepared with care and objectivity to support long-term, planning-focused financial decisions.
Comments