The US greenback has lengthy reigned because the world’s major reserve foreign money and the default selection for world commerce and worldwide transactions. However its dominance is now dealing with rising scrutiny as shifting geopolitical and financial forces—and issues over the potential weaponization of the dollar—push extra international locations to speed up efforts to loosen their dependence on the greenback.
By virtually each measure, the US greenback’s command of the worldwide economic system is staggering. Though the nation accounts for roughly 25% of worldwide GDP, its foreign money reigns over almost 60% of worldwide overseas change reserves—far outpacing its nearest rival, the euro.
However this dominance is more and more beneath strain, with the strategic use of financial sanctions prior to now main some international locations to hunt options, at the same time as US President Donald Trump usually threatens 100% tariffs on international locations that actively search to substitute the dollar.
In Russia, whose entry to the SWIFT fee platform is crippled by sanctions, corporations have been utilizing cryptocurrencies as a method to skirt restrictions, turning to Bitcoin and different digital belongings to conduct cross-border enterprise. Whereas crypto was barred as unlawful by the nation´s central financial institution years in the past, current adjustments to the regulation have paved the best way for firms to embrace cryptocurrencies since late final 12 months.
The nation permitted using cryptocurrencies in overseas commerce and has taken steps to make it authorized to mine cryptocurrencies, together with Bitcoin.
Bitcoin, sanctions and the push for dedollarization
Since Bitcoin’s inception, crypto advocates have been fixated on “dedollarization,” usually described because the push to scale back the US greenback’s dominance as the worldwide reserve foreign money. The time period broadly refers to transferring away from the greenback in key monetary and commerce actions, together with oil and commodity transactions (the petrodollar system), overseas change reserves, bilateral commerce agreements, and investments in dollar-denominated belongings.
A 2024 paper by Morgan Stanley’s head of Digital Asset Markets, Andrew Peel, steered that the rise of digital currencies presents “alternatives to each erode and reinforce” the US greenback’s dominance, with the potential to considerably alter the worldwide foreign money panorama.
Nonetheless, whereas digital belongings—most notably stablecoins— are more and more gaining traction, the crypto market’s dedollarization expectations look untimely.
Whereas Bitcoin is more and more seen as a strategic reserve asset, specialists warning that it’s nonetheless too quickly to name it a real various to the US greenback. International locations like El Salvador have embraced Bitcoin aggressively, with the asset now making up about 15% to twenty% of the nation’s complete reserves. The US has reportedly thought-about comparable strikes, however widespread adoption stays restricted, and questions persist about whether or not such steps would undermine the greenback reasonably than help it.
In response to Bitcoin Depot CEO Brandon Mintz,
“For Bitcoin to turn out to be a real various to the USD, it will require broader mainstream adoption, clearer regulatory frameworks, and extra scalable infrastructure.”
At present, Bitcoin acts extra like a hedge and a retailer of worth than a greenback substitute, however its position might shift as world monetary dynamics evolve. Components like inflation and geopolitical tensions, Mintz mentioned, might drive extra curiosity.
Whereas institutional adoption and cross-border use are on the rise, Mintz mentioned that it stays to be seen “whether or not Bitcoin can genuinely problem the dominance of the greenback as it will rely on how these traits develop over time.”
Related: 3 reasons why Bitcoin sells off on Trump tariff news
Regardless of its rising attraction, Bitcoin’s volatility stays a big problem. In response to the World Gold Council, Bitcoin displays significantly larger volatility than gold and exhibits a larger correlation with Nasdaq tech shares than with conventional safe-haven belongings.
Gold and main asset 5-year common day by day volatility – annualized. Supply: World Gold Council.
Eswar Prasad, a commerce professor at Cornell College, advised Cointelegraph,
“Decentralized cryptocurrencies resembling Bitcoin nonetheless have extremely risky values, rendering them unsuitable as mediums of change or as reserve currencies.”
US greenback world overseas reserves decline
Because the finish of World Struggle II, the US greenback has reigned because the world’s dominant foreign money, powering round 88% of worldwide commerce transactions in 2024.
The greenback’s standing because the main worldwide foreign money is well-established. In response to the International Monetary Fund, as of the third quarter of 2024, central banks held about 58 p.c of their allotted reserves in US {dollars}—a lot of it in money and US bonds. That is considerably larger than the euro, second within the race, which accounts for as a lot as 20%
Allotted overseas change reserves by central banks. Supply: Worldwide Financial Fund
Whereas the US greenback stays the dominant world foreign money attributable to its stability, widespread acceptance in worldwide commerce and finance, and standing as a key reserve asset for central banks, there are indicators that its reign could also be waning. The percentage of global foreign reserves held in {dollars} has diminished from over 70% within the early 2000s to under 60%.
Share of worldwide FX reserves held in US {dollars}. Supply: Worldwide Financial Fund
The turning level got here after February 2022 when the US froze $300 billion of Russia’s liquid overseas change reserves held within the US and NATO international locations. Whereas many US allies backed the transfer, it additionally despatched shockwaves by means of world markets, highlighting the danger that Washington might weaponize the greenback towards not simply adversaries however doubtlessly allies whose insurance policies conflict with American pursuits.
Citing using sanctions and the way sanctioned international locations react, an Worldwide Financial Fund blog post in 2024 mentioned,
“We’ve discovered that monetary sanctions when imposed prior to now, induced central banks to shift their reserve portfolios modestly away from currencies, that are susceptible to being frozen and redeployed, in favor of gold, which could be warehoused within the nation and thus is freed from sanctions threat.”
Do stablecoins really reinforce dollarization?
Regardless of efforts by BRICS+ nations to counteract US greenback dominance, the greenback’s worth has remained robust in recent times. The US Greenback Index is up roughly 8% over the previous 5 years.
Within the crypto sector, stablecoins have emerged as a number of the fastest-growing digital belongings, usually cited as a possible resolution for cross-border transactions. Nonetheless, most stablecoins are nonetheless pegged to the US greenback.
At present, the stablecoin market cap stands at $233 billion, with US-pegged stablecoins resembling Tether’s USDT dominating 97% of the sector, in line with CoinGecko knowledge.
This overwhelming reliance on USD-backed stablecoins means that reasonably than undermining greenback dominance, digital belongings may very well reinforce it. “With USD-linked stablecoins on the core of this digital ecosystem, now we have a novel likelihood to increase US monetary affect globally—if policymakers act now,” Cody Carbone, president of Digital Chamber, a US-based blockchain advocacy affiliation, said on X.
The emergence and widespread adoption of central financial institution digital currencies (CBDCs) might disrupt some cryptocurrencies, notably stablecoins, by offering environment friendly and low-cost digital fee options.
“A broadly accessible digital greenback would undercut the case for privately issued stablecoins, although stablecoins issued by main firms might nonetheless have traction,” mentioned Prasad.
Nonetheless, Prasad emphasised that no viable various is poised to displace the US greenback because the dominant world reserve foreign money.
“The greenback’s strengths lie not simply within the depth and liquidity of US monetary markets but additionally within the institutional framework that underpins its standing as a protected haven.”
This text is for basic data functions and isn’t meant to be and shouldn’t be taken as authorized or funding recommendation. The views, ideas, and opinions expressed listed below are the creator’s alone and don’t essentially mirror or symbolize the views and opinions of Cointelegraph.
