De-dollarization

Extracted Attributes

• Approaches

  Market-driven (organic) and policy-driven (interventionist) strategies.

• Definition

  Process where nations significantly decrease reliance on the U.S. dollar for international functions, including foreign currency reserves, medium of exchange, and unit of account.

• Key Mechanisms

  Diversification of reserves, alternative payment systems, bilateral currency swap lines, use of Central Bank Digital Currencies (CBDCs), and direct commodity transactions in local currencies.

• Primary Drivers

  Desire for greater economic independence, avoidance of economic sanctions and weaponization of financial systems (e.g., SWIFT), U.S. domestic political polarization, destabilizing U.S. economic policies, and economic/political growth of other nations (e.g., China, India).

• Current Status (as of 2025)

  U.S. dollar is still dominant in foreign exchange market (88%), trade invoicing (40%), cross-border liabilities (48%), and foreign currency debt issuance (70%).

• Areas of Declining Dominance

  Foreign currency reserves (from 90% in 1960 to 45% in 2023), bond market (from earlier 50% to 30% in 2024), and commodity markets (especially energy).

• Challenges to De-dollarization

  No single alternative currency currently meets the criteria for being the world's leading reserve currency, a store of value, and a medium/means of payment.

• Impact on Global Balance of Power

  Altering the global balance of power, with potential broad depreciation and underperformance of U.S. financial assets relative to the rest of the world.

• Historical Origin of Dollar Dominance

  Ascended after World War I (displacing pound sterling from 1920s) and solidified after World War II with the Bretton Woods Agreement of 1944.

Timeline

• The U.S. dollar began to displace the pound sterling as the international reserve currency after World War I. (Source: Wikipedia)

  1920s

• The Bretton Woods Agreement established the U.S. dollar as the world's primary reserve currency for international trade, linked to gold at $35 per troy ounce. (Source: Wikipedia)

  1944-07-22

• The U.S. dollar's share in foreign currency reserves was approximately 90%. (Source: Wikipedia)

  1960

• The dollar share in FX reserves was lower in the early 1990s than its recent decline to just under 60%. (Source: J.P. Morgan)

  1990s

• The U.S. dollar's share in foreign currency reserves declined to 45%. (Source: Wikipedia)

  2023

• IMF Managing Director Kristalina Georgieva stated that a rapid shift in dollar reserves is not expected due to the strength of the U.S. economy and depth of its capital markets. (Source: Wikipedia (web search snippet))

  2023-05-24

• J.P. Morgan stated that de-dollarization is evident in FX reserves where the USD share has declined to a record, but is still emerging in commodities. (Source: Wikipedia (web search snippet))

  2023-06-06

• The U.S. dollar's share in the bond market declined to 30%. (Source: Wikipedia)

  2024

• An article titled 'The Dollar Still Dominates, but De-dollarization Is Unstoppable' was published by International Banker, discussing the ongoing trend. (Source: internationalbanker.com)

  2024-01-02

Dedollarisation

Dedollarisation is the process where other nations significantly decrease their reliance on the U.S. dollar for international functions— including as a foreign currency reserves, medium of exchange (use of dollar in world trade or for converting currencies), and unit of account (measuring the market value of goods or services in US dollar) — often to gain greater economic independence and avoid the economic sanctions-based weaponisation of Western World-controlled financial systems like SWIFT financial transfers network for the international trade and payments which could be economically weaponised by the United States and its Western allies against other nations, resulting in the decreasing national, institutional and corporate demand and importance for the American dollar. Since the establishment of the Bretton Woods system, the US dollar has been used as the medium for international trade. The United States Department of the Treasury exercises considerable oversight over the SWIFT financial transfers network, and consequently has a huge sway on the global financial transactions systems, with the ability to impose economic sanctions on foreign entities and individuals. Many entities, such as BRICS, are working on creating an alternative to the SWIFT for a more balanced world. The erosion of the U.S. dollar's global status is driven by two primary factors: adverse events within the U.S. and positive developments abroad. First cause is that domestically, the dollar's stability and safety as a global safe haven is being undermined by increased political polarization jeopardizing governance or by destabilizing economic policies like ongoing U.S. tariffs, which cause investors to lose confidence in American assets and the country's overall standing. Second factor is growth of other nations, such as economic and political reforms in countries like China and India, that boost the credibility and viability of alternative currencies as safe, stable, and liquid reserves. Hence, a shift toward dedollarisation is altering the global balance of power, with the most severe adverse impact felt in the U.S., likely leading to a broad depreciation and underperformance of its financial assets relative to the rest of the world. While as of 2025 US Dollar is still dominant in foreign exchange market (88%), trade invoicing (40%), cross-border liabilities (48%), and foreign currency debt issuance (70%), it's dominance is declining in the foreign currency reserves (from 90% in 1960 to 45% in 2023), bond market (from earlier 50% to 30% in 2024), commodity market (especially in energy where nations like India, China, Brazil, Thailand and Indonesia buy discounted oil and gas discounted price by bypassing the SWIFT sanctions against Russia or Brazil and pay in own local currencies). Earlier, the U.S. dollar began to displace the pound sterling as the international reserve currency from the 1920s since it emerged from the First World War relatively unscathed and since the United States was a significant recipient of wartime gold inflows. After the U.S. emerged as an even stronger superpower during the Second World War, the Bretton Woods Agreement of 1944 established the post-war international monetary system, with the U.S. dollar ascending to become the world's primary reserve currency for international trade, and the only post-war currency linked to gold at $35 per troy ounce.

Web Search Results

• Navigating the Tides of De-dollarization: Impact on Global Economy ...

  The term “de-dollarization” denotes the process through which countries and entities seek to diminish their dependence on the US dollar in various facets of international dealings, encompassing trade, finance, and reserves. This global shift away from the dollar is shaped by multiple factors, including geopolitical developments, trade agreements, and diversification of reserves, alternative payment systems, global economic shifts, policy measures, and market dynamics. It is crucial to recognize [...] De-dollarization represents a purposeful endeavor undertaken by countries and entities to diminish their reliance on the US dollar, seeking to diversify their currency holdings and advocate for the use of alternative currencies (Liu and Papa 2022). This strategic shift is substantiated by three distinct categories of evidence. Firstly, in the diversification of reserves, central banks have notably decreased their holdings of US dollar assets while augmenting allocations to other currencies like [...] Simultaneously, de-dollarization itself involves a strategic shift away from the US dollar as the primary currency in international trade and financial transactions. The multifaceted role of time in this intricate process becomes apparent, particularly considering long-term contracts such as those involving supply agreements, infrastructure projects, or energy contracts. These contracts often bind parties to predetermined payment terms and pricing structures, making any transition away from the

• De-dollarization: The end of dollar dominance? - J.P. Morgan

  Head of Global Commodities Strategy, J.P.Morgan Commodity markets De-dollarization is most visible in commodity markets, where the greenback’s influence on pricing has diminished. “Today, a large and growing proportion of energy is being priced in non-dollar-denominated contracts,” said Natasha Kaneva, head of Global Commodities Strategy at J.P.Morgan. [...] On the other hand, de-dollarization is unfolding in central bank FX reserves, where the share of USD has slid to a two-decade low in tandem with its macro footprint. “However, the dollar share in FX reserves was lower in the early 1990s, so the recent decline to just under 60% is not completely out of the norm,” said Meera Chandan, co-head of Global FX Strategy at J.P.Morgan. [...] “The de-dollarization trend in the commodity trade is a boon for countries like India, China, Brazil, Thailand and Indonesia, which can now not only buy oil at a discount, but also pay for it with their own local currencies,” Kaneva noted. “This reduces the need for precautionary reserves of U.S. dollars, U.S. Treasuries and oil, which might in turn free up capital to be deployed in growth-boosting domestic projects.” Deposit dollarization in emerging markets

• Dedollarisation - Wikipedia

  A group of Southeast Asian countries in the region, such as Singapore, Malaysia, Indonesia, Cambodia, and Thailand, are currently contemplating the process of de-dollarization in order to diminish their dependence on the US dollar within their economies. These nations have voiced apprehensions regarding the volatility of the dollar's value and the American government's utilization of the dollar embargo mechanism. Consequently, they have developed a keen interest in mitigating their [...] On May 24, 2023, IMF Managing director Kristalina Georgieva stated that "We don't expect a rapid shift in reserves because the reason the dollar is a reserve currency is because of the strength of the US economy and the depth of its capital markets." On June 6, 2023, JP Morgan stated that "De-dollarization is evident in FX reserves where USD share has declined to a record as share in exports declined, but it is still emerging in commodities."

• A Cross-Regional Comparative Analysis of De-Dollarization Strategies

  In this context, de-dollarization has evolved from a narrow macroeconomic objective into a strategic pillar of national and regional economic resilience. Countries are increasingly exploring alternative reserve assets, regional payment systems, bilateral currency swap lines, and the use of central bank digital currencies (CBDCs) as instruments to diversify away from the dollar-centric system. [...] market-driven (organic) and policy-driven (interventionist) approaches. Market-driven de-dollarization typically arises from improved macroeconomic stability, declining inflation, and enhanced confidence in the domestic currency, leading to the spontaneous substitution of local for foreign currency in both financial intermediation and trade settlement. In contrast, policy-driven strategies involve deliberate government or central bank actions, including legal prohibitions on foreign currency [...] This study demonstrates that de-dollarization is not a monolithic policy prescription but a complex, context-specific, and path-dependent process. Successful transitions away from reliance on the U.S. dollar require the strategic alignment of three critical domains: macroeconomic fundamentals, institutional credibility, and regional monetary integration. Countries that combined sustained inflation control, stable fiscal frameworks, and robust external accounts with credible institutions,

• The Dollar Still Dominates, but De-dollarization Is Unstoppable

  Published Time: 2024-01-02T11:15:11+00:00 The Dollar Still Dominates, but De-dollarization Is Unstoppable Top Posts reserves, modes of financial clearance, debt issuances, etc. De-dollarization also seems to reflect the sentiments and efforts of moving from a unipolar world toward a multipolar world in the face of deepening fragmentation, changing narratives and aspirations toward a new and more democratic international economic order. Economic rationale for de-dollarization [...] Currently, not only states but also investors have been reassessing the dollar’s role in the global economy and its implications for the world’s financial system. De-dollarization is not a mood swing; there are economic reasons behind this trend. First, the asymmetry between the shrinking US economic weight in the world since World War II and the dollar’s growing dominant role has given rise to concerns related to global financial stability. [...] Overall, recent developments in de-dollarization, even though broad-based, do not point to any imminent loss of the US dollar’s dominance. The biggest challenge to de-dollarization is that no single alternative currency meets the criteria for being the world’s leading reserve currency, a store of value, and a medium and means of payment.