For over a century, the U.S. Dollar has been the cornerstone of global finance, anchoring international trade, reserves, and investment. Despite discussions about the rise of digital currencies and de-dollarization, the structural realities of global finance ensure that the dollar remains indispensable.
The USD dominates international trade and financial systems:
80% of global FX transactions involve the USD (BIS, Triennial FX Survey 2022).
50%+ of global trade and payments are settled in USD, especially commodities like oil, where 90% of transactions are dollar-denominated (International Energy Agency, 2022).
The USD accounted for 59% of global FX reserves according to IMF, Q1’23), far ahead of the euro (20%) and Chinese yuan (2.6%).
The U.S. Treasury market, valued at over $20 trillion, is the largest and most liquid bond market globally, making it the preferred safe haven for reserves. Non-U.S. entities hold $7.5 trillion in Treasuries, while total USD-denominated debt in non-US hands exceeds $12 trillion (BIS, 2023).
This dominance enables the U.S. to run substantial trade and fiscal deficits without severe economic consequences. By running deficits, the U.S. effectively "exports" dollars globally, creating a self-reinforcing cycle where surplus dollars are reinvested into U.S. financial markets.
The U.S. has increasingly leveraged the USD as a geopolitical tool, imposing sanctions and financial restrictions on adversaries. Notable examples include:
Russian sanctions were escalated after the annexation of Crimea and the 2022 invasion of Ukraine, including freezing Russian reserves and excluding the country from the SWIFT payment system. In response, Russia has turned to yuan-based trade and gold (World Gold Council, 2022).
The U.S. sanctions have restricted Iran’s access to USD-based systems, forcing reliance on alternative mechanisms.
Anticipating potential sanctions over Taiwan, China has promoted the yuan in trade and is exploring alternatives through initiatives like the BRICS bloc.
Digital currencies have introduced new dynamics to the global financial system, but rather than undermining the USD, they often reinforce its dominance:
Over 90% of stablecoins are pegged to the USD (CoinGecko, July 2023), extending its utility in decentralized finance (DeFi) and cross-border payments.
A U.S.-issued central bank digital currency (CBDC) could further entrench the USD’s role by improving efficiency in cross-border transactions (Federal Reserve, 2022).
While China’s e-CNY aims to reduce USD reliance, its adoption is limited by regional focus and capital controls (PBOC, 2023).
Cryptocurrencies like Bitcoin and Ethereum are unlikely to become reserve currencies due to their volatility, lack of scalability, and absence of institutional trust. Bitcoin’s blockchain is limited to 7 transactions per second, Ethereum handles 30, while Visa can manage 65,000 per second, underscoring the technological gap.
Despite diversification efforts there is no real viable alternative to the USD. The euro lacks cohesion and scale, the yuan is restricted by capital controls, and cryptocurrencies are too volatile for reserve status. The USD’s unmatched liquidity, trust, and integration into global systems will ensure its continued dominance for a long while to come.The US Dollar's Position Ain't Going Away
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