Headlines often proclaim the imminent collapse of the US dollar’s reign over the global economy. Sparked by geopolitical tensions and the rise of new economic blocs, the “de-dollarization” narrative suggests a rapid shift away from the greenback.
However, the latest data from the International Monetary Fund tells a more nuanced story. This analysis delves into what the numbers really say about the dollar’s role as the world’s primary reserve currency.
It reveals a tale not of abrupt revolution, but of a slow, steady evolution towards a more diversified international financial system where new currencies are gradually gaining ground.
I. Executive Summary
The global financial system is at a critical juncture, defined by the tension between the United States’ increasingly assertive use of the U.S. dollar as an instrument of foreign policy and a corresponding acceleration in efforts by other nations to reduce their dependence on it.
This report provides a data-driven analysis of this dynamic, arguing that while the “weaponization” of the dollar has fundamentally altered the risk calculus for global reserve managers, the resulting trend is not a revolutionary collapse of dollar preeminence but rather a deliberate and gradual evolution toward a more multipolar international currency system.
The Dollar’s Enduring Dominance
Despite frequent headlines about its demise, the US Dollar continues to be the world’s preeminent reserve currency. While its share has decreased, it still accounts for the majority of global foreign exchange reserves, underscoring its deep integration into the global financial system.
US Dollar Share of Global FX Reserves
(Q4 2023, IMF COFER Data)
The chart illustrates that the US Dollar’s share, while smaller than two decades ago, still dwarfs that of other major currency blocs combined. The Euro holds a distant second place.
The central thesis of this analysis is that the narrative of “de-dollarization” must be carefully dissected. The freeze of Russian sovereign assets in 2022 was a watershed moment, transforming abstract political risk into a tangible financial threat and making currency diversification a strategic imperative for a growing number of nations.
This has catalyzed a pre-existing, slow-moving trend. However, the primary beneficiaries of this shift are not traditional rivals like the Euro or the Chinese Renminbi. Instead, IMF data shows a sophisticated diversification into a broad basket of “nontraditional” currencies from well-managed, open economies, alongside a significant accumulation of gold. This indicates a move toward portfolio diversification rather than a simple geopolitical realignment.
II. Decoding the Data: What the IMF’s COFER Survey Actually Reveals
An accurate assessment of the U.S. dollar’s global standing must begin with a forensic examination of the primary data source: the IMF’s quarterly Currency Composition of Official Foreign Exchange Reserves (COFER) survey. While headline figures often fuel sensationalist narratives, a deeper analysis reveals a more nuanced and complex reality, characterized by the significant impact of exchange rate fluctuations and a long-term trend of sophisticated diversification rather than a sudden collapse in demand for the dollar.
The Headline vs. The Reality: A Forensic Look at the Latest Numbers
The most recent IMF data, covering the period from the fourth quarter of 2024 through the second quarter of 2025, shows a nominal decline in the U.S. dollar’s share of allocated global foreign exchange reserves. In Q4 2024, the dollar’s share stood at 57.80%. This figure saw a marginal decrease to 57.74% in Q1 2025 before a more pronounced drop to 56.32% in Q2 2025. On the surface, this 1.47 percentage point decline in a single quarter appears to be a significant acceleration of the de-dollarization trend.
However, this raw data is highly misleading. The IMF’s own analysis repeatedly cautions that these nominal shifts are heavily distorted by valuation effects, primarily the movement of exchange rates between the dollar and other major reserve currencies. During the first half of 2025, the dollar depreciated significantly against currencies like the euro, which fell 7.9% against the euro in the second quarter alone.
The IMF provides exchange-rate-adjusted data to strip out these valuation effects and reveal the true portfolio management decisions of central banks. When these adjustments are applied to the Q2 2025 data, the narrative changes dramatically. The headline drop of 1.47 percentage points is almost entirely an accounting mirage; currency movements explain 92% of the reduction.
| Currency | Q4 2024 Share (%) | Q1 2025 Share (%) | Q2 2025 Share (%) | Q2 2025 Exchange-Rate-Adjusted Change (p.p.) |
| U.S. Dollar (USD) | 57.80 | 57.74 | 56.32 | -0.12 |
| Euro (EUR) | 19.83 | 20.06 | 21.13 | -0.04 |
| Chinese Renminbi (RMB) | 2.18 | 2.12 | 2.12 | +0.03 |
| Other Currencies | 20.19 | 20.09 | 20.43 | Not specified |
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Data compiled from IMF COFER releases.
This table crystallizes the core analytical point: focusing on nominal shifts is misleading. The most accurate measure of central bank intent—the exchange-rate-adjusted change—shows remarkable stability in the second quarter of 2025, with only a very modest active shift away from the U.S. dollar. The perception of a rapid decline is largely a function of the dollar’s own cyclical weakness against other currencies. This creates a potential feedback loop where a weakening dollar amplifies the political narrative of its structural decline, a dynamic that can influence market sentiment and policy decisions even if it diverges from the underlying reality of portfolio allocation.
The Long-Term Trajectory: A Two-Decade Perspective
Placing this recent quarterly data into a broader historical context is essential. The gradual erosion of the dollar’s share of global reserves is not a new phenomenon that began with recent geopolitical tensions. It is a slow, steady trend that has been underway for over two decades. Around the year 2000, the U.S. dollar constituted over 70% of global allocated reserves. Today, that figure stands below 60%.
A crucial insight from IMF analysis is that this long-term decline represents a genuine shift in central bank preferences, not just market noise. Over the last two decades, the real effective exchange rate of the U.S. dollar has been broadly unchanged. The fact that its share of global reserves has declined significantly over the same period indicates that central banks have, in aggregate, been making active and deliberate decisions to gradually shift their portfolios away from the dollar.
The Rise of the “Nontraditionals”: The Real Diversification Story
Perhaps the most significant finding from recent IMF analysis is where the capital flowing out of the dollar is going. Strikingly, the dollar’s reduced role has not been matched by a corresponding increase in the shares of the other traditional “big four” reserve currencies: the euro, the Japanese yen, and the British pound. This fact challenges the simplistic notion of a bipolar currency world where the euro is poised to supplant the dollar.
Instead, the decline in the dollar’s share has been accompanied by a notable rise in the allocation to what the IMF terms “nontraditional reserve currencies”. This group includes the Australian dollar, Canadian dollar, South Korean won, Singaporean dollar, and Nordic currencies. This movement is not isolated to a few countries; it is a broad-based trend. IMF researchers identified 46 “active diversifiers”—countries holding at least 5% of their reserves in these nontraditional currencies—by the end of 2020, a group that includes most G20 economies. By 2023, at least three more countries, including Israel and the Netherlands, had joined this list.
The Renminbi’s Stalled Ascent
The Chinese renminbi (RMB) is often cited as the principal challenger to the dollar, but the COFER data presents a far more sober picture. While the RMB is one of the nontraditional currencies that has gained market share over the past decade—accounting for roughly a quarter of the decline in the dollar’s share—its progress appears to have stalled and, in some respects, reversed.
As of Q2 2025, the RMB’s share of allocated reserves remained stagnant at 2.12%, down from its peak in previous quarters. This represents a tiny fraction of the global total, dwarfed by the dollar’s 56.32% and the euro’s 21.13%. Even after adjusting for the RMB’s depreciation against the dollar, its share of reserves has declined since 2022. This stagnation points to the significant structural impediments that continue to hinder the RMB’s internationalization.
III. The Catalyst: Weaponization and the Breach of Sovereign Trust
While the diversification of global reserves is a long-term structural trend, its pace and urgency have been unmistakably influenced by a powerful catalyst: the expanding use of the U.S. dollar as an instrument of American foreign policy. This “weaponization” of finance, culminating in the unprecedented seizure of a major power’s sovereign assets, has fundamentally altered the risk calculus for nations worldwide, transforming the abstract concept of diversification into a concrete strategic imperative.
Anatomy of Dollar Weaponization
“Dollar weaponization” refers to the leveraging of the U.S. currency’s dominant position in the global financial system to achieve geopolitical objectives through sanctions, asset freezes, and trade restrictions. This extraordinary power stems from the dollar’s central role in several key areas. Any transaction cleared in U.S. dollars, regardless of where it originates or terminates, must ultimately pass through the U.S. financial system, typically via the Federal Reserve’s clearing system or U.S. correspondent banks. This grants U.S. regulators extraterritorial reach, subjecting these transactions to U.S. law.
Furthermore, the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the messaging network that underpins most international payments, is effectively under U.S. influence for dollar-denominated transactions.
This architecture gives Washington a “single-key veto” over global finance, allowing it to cut off entire countries from the dollar-based system, as was done with Iran, or to impose crippling fines on non-U.S. banks that violate sanctions. The number of sanctions designations imposed by the U.S. has increased dramatically in recent years, making this tool a central pillar of its foreign policy.
The Rubicon Moment: The 2022 Russian Asset Freeze
While sanctions have been used for decades, the playbook expanded dramatically in 2022 following Russia’s invasion of Ukraine. The decision by the U.S. and its allies to freeze approximately $300 billion in assets belonging to the Central Bank of Russia was a watershed moment. It marked the first time that the sovereign reserves of a G20 member state were seized outright, sending a clear signal that no country was “too big to sanction”.
This action crossed a geopolitical Rubicon. Foreign exchange reserves, long considered sacrosanct and the ultimate backstop for a nation’s financial stability, were suddenly shown to be vulnerable to confiscation for political reasons. The move fundamentally altered the nature of reserve assets. For a central bank governor, whose primary mandate is the safety and liquidity of national savings, this was a paradigm shift.
Quantifying the Sentiment Shift: From Theory to Practice
The impact of this weaponization on the mindset of global reserve managers is not merely anecdotal; it is quantifiable. Surveys of central bank officials reveal a profound shift in their perception of risk. A May 2025 survey of 84 central bank reserve managers found that 85% believe the weaponization of reserves will have “significant consequences for the future of reserve management”. More tellingly, the same survey found that 76% of respondents now classify U.S. sanctions risk as a “significant” factor in their asset allocation decisions. This is a dramatic increase from just 30% before the 2022 Russian asset freeze.
This altered sentiment has translated directly into observable action. The most prominent example is the surge in gold purchases by central banks, which have been running at near-record levels. In 2024, central banks collectively added 1,037 tonnes of gold to their reserves, the second-highest annual total on record, and this trend continued with a further 290 tonnes acquired in the first quarter of 2025.
IV. The Global Response: The Architecture of De-Dollarization
In response to the perceived risks of dollar dependency and the coercive power of U.S. financial sanctions, a coalition of nations, spearheaded by the BRICS bloc, is actively constructing the architecture for a more multipolar financial system. This effort is not centered on the quixotic goal of creating a single new currency to replace the dollar. Instead, it is a pragmatic, multi-layered strategy focused on building a resilient and decentralized network of alternatives designed to increase financial sovereignty and create optionality outside the dollar-centric system.
The BRICS+ Coalition as a Financial Bloc
The strategic core of the de-dollarization movement is the expanded BRICS+ coalition. Originally comprising Brazil, Russia, India, China, and South Africa, the bloc has undergone a significant expansion. In January 2024, Egypt, Ethiopia, Iran, and the United Arab Emirates (UAE) officially joined, with other nations like Saudi Arabia remaining closely engaged. Furthermore, a network of “partner countries” has been established, including major regional economies like Nigeria, Kazakhstan, Malaysia, and Thailand.
This expansion is about more than political symbolism; it is a deliberate effort to achieve a critical mass of economic weight. Collectively, the expanded bloc now accounts for a substantial portion of global GDP and represents over half of the world’s population. This scale is essential for creating the trade volumes and liquidity necessary to support a viable alternative financial infrastructure. The goal is to build a bloc large and diverse enough to conduct a significant share of its internal trade and investment without recourse to the U.S. dollar or Western-controlled financial intermediaries.
From Common Currency to Interoperability: A Pragmatic Approach
Despite recurring media speculation, the creation of a single, gold-backed BRICS currency is not a feasible or actively pursued goal. The idea has been repeatedly floated at summits only to be deferred, with officials from key members like India, Brazil, and even Russia acknowledging that the concept is “not mature”. The immense political and economic hurdles—including vast divergences in economic structure, competing geopolitical interests between members like China and India, and the unwillingness to surrender monetary sovereignty—make a unified currency an “overly ambitious goal”.
Instead, the BRICS coalition is pursuing a more realistic and arguably more resilient strategy focused on creating interoperability between national systems. This approach is built on three main pillars:
- Bilateral Trade in Local Currencies: This is the foundational layer of the de-dollarization architecture. Rather than creating a new currency, members are systematically increasing the use of their own currencies in bilateral trade. There are numerous concrete examples of this in practice: Russia now conducts over 90% of its trade with BRICS partners in national currencies ; China and Brazil have a direct yuan-real settlement mechanism ; India and the UAE are trading in rupees ; and a significant share of Sino-Russian trade is settled in yuan and rubles.
- Alternative Payment Systems: The second pillar is the development of financial messaging and payment systems to rival SWIFT. China’s Cross-Border Interbank Payment System (CIPS) is the most developed of these, designed to facilitate renminbi-denominated transactions. While its volume is still a fraction of SWIFT’s, it is growing. More recently, the bloc has been developing “BRICS Pay,” a decentralized payment messaging system designed to connect the national financial systems of member states and facilitate transactions directly in their local currencies.
- Digital Currencies and CBDCs: The third pillar involves leveraging financial technology to bypass the traditional correspondent banking system entirely. The development of Central Bank Digital Currencies (CBDCs) is key to this effort. China is a global leader in this area with its digital yuan (e-CNY). In a landmark transaction in January 2024, a Chinese state-owned oil company used the e-CNY to purchase oil from the UAE, demonstrating a viable pathway for conducting major international commodity trades without touching either the U.S. dollar or the SWIFT network. This represents a potentially disruptive innovation that could significantly accelerate de-dollarization if adopted more widely.
The Strategic Role of Gold
Underpinning this entire architecture is the strategic accumulation of physical gold. As discussed previously, the sustained, large-scale gold purchases by central banks, particularly those within the BRICS+ orbit, are a core component of the de-dollarization strategy. Gold serves as the ultimate neutral, sanctions-proof reserve asset.
V. The Unassailable Core? The Dollar’s Enduring Structural Dominance
2025 Outlook: Evolution, Not Revolution
The data points to a continued, gradual shift in the international monetary system. For 2025 and beyond, expect the US Dollar to remain the anchor currency, but with a more diverse and multipolar system emerging around it. The key drivers are not a flight from the dollar, but a flight to diversification, enabled by technology and pushed by geopolitical realities.
While the forces of diversification and de-dollarization are reshaping the periphery of the global financial system, the core of that system remains firmly anchored by the U.S. dollar. A narrow focus on the shifting composition of central bank reserves is myopic, as it overlooks the deep, structural entrenchment of the dollar in the daily functioning of the global economy.
This operational dominance, buttressed by powerful network effects and the unparalleled nature of U.S. financial markets, constitutes a formidable barrier to any rapid or wholesale displacement of the dollar’s preeminent role.
Beyond Reserves: A Multi-Dimensional Hegemony
The true strength of the dollar lies not merely in its status as the leading reserve currency held by governments, but in its pervasive use as the world’s primary transactional and financing currency by the private sector. De-dollarizing sovereign reserves is a relatively straightforward portfolio adjustment; de-dollarizing the intricate web of global trade, finance, and investment is an undertaking of an entirely different magnitude. Data across several key domains illustrates the scale of this structural dominance:
- Global Trade Invoicing: The vast majority of international trade is priced and settled in U.S. dollars, even when the United States is not a party to the transaction. According to Federal Reserve analysis, the dollar accounts for 96% of trade invoicing in the Americas, 74% in the Asia-Pacific region, and 79% in the rest of the world, with Europe being the only major exception where the euro is dominant. This means that an exporter in Vietnam selling to an importer in Brazil will almost certainly conduct the transaction in dollars, creating constant, organic demand for the currency.
- Foreign Exchange Market Turnover: The dollar is the undisputed linchpin of the global foreign exchange market, the largest and most liquid market in the world. According to the Bank for International Settlements’ authoritative triennial survey, the U.S. dollar is on one side of 88% of all global foreign exchange transactions. It serves as the world’s primary “vehicle currency,” meaning it is often cheaper and more efficient for a company to convert its local currency into dollars and then into a third currency, rather than attempting a direct, less liquid exchange.
- International Debt and Lending: The global financial system runs on dollar-denominated credit. The majority of cross-border loans and international debt securities are issued in U.S. dollars. Corporations and governments around the world, from emerging markets to developed nations, borrow in dollars to finance their operations and investments. This creates a massive, permanent, and structural demand for dollars, as these entities must continuously acquire them to service their debt obligations. The share of foreign currency debt denominated in dollars has remained stable at around 60% since 2010.
The Power of Network Effects and U.S. Market Depth
This multi-dimensional dominance is sustained by what economists call “network effects”: the more widely the dollar is used, the more useful and convenient it becomes for everyone else to use it, creating a powerful, self-reinforcing loop that is incredibly difficult to break. This inertia is reinforced by the unique characteristics of U.S. financial markets.
The depth, liquidity, and transparency of U.S. markets are unparalleled. The market for U.S. Treasury securities is the largest and most liquid government bond market in the world, serving as the global benchmark risk-free asset. There is simply no other market that can absorb the trillions of dollars in daily transactions or offer the vast and sophisticated array of financial instruments—from derivatives to corporate bonds—that are available in the United States. For a large sovereign wealth fund or multinational corporation needing to park or move billions of dollars quickly and safely, there is no realistic alternative to the U.S. financial system.
The Lack of a Viable Successor
The dollar’s position is further secured by the significant shortcomings of its potential rivals.
- The Euro: While a major international currency, the euro is hampered by the political fragmentation of the Eurozone. It lacks a single, unified sovereign safe asset equivalent to a U.S. Treasury bond. The capital markets of the European Union remain less integrated and developed than those of the U.S., limiting the euro’s capacity to serve as the ultimate global safe haven.
- The Renminbi: As previously noted, the renminbi’s potential is fundamentally constrained by China’s policy choices. The persistence of strict capital controls, the lack of a fully convertible and freely floating exchange rate, and deep-seated concerns among global investors about the opacity of Chinese policymaking and the rule of law prevent the RMB from being a credible contender for the world’s primary reserve currency. A true reserve currency must be a reliable store of value that is not subject to the arbitrary decisions of a single state actor.
Interestingly, some forms of financial innovation are paradoxically reinforcing the dollar’s role. While state-led CBDCs like the digital yuan are seen as a tool for de-dollarization, the private sector’s adoption of cryptocurrencies has had the opposite effect. The vast majority of “stablecoins,” which serve as the bridge between traditional finance and the digital asset ecosystem, are pegged to the U.S. dollar (e.g., USDT, USDC).
VI. Synthesis and Strategic Outlook: Navigating a Multipolar Currency World
The evidence presented in this report reconciles two seemingly contradictory narratives. On one hand, the weaponization of the U.S. dollar has undeniably catalyzed a strategic, broad-based effort by nations to diversify their reserves and build alternative financial infrastructures.
Deconstructing De-Dollarization Myths
Myth: Sanctions Caused a Collapse
Financial sanctions have not led to an accelerated decline in the dollar’s reserve share. Statistical tests on IMF COFER data, which covers 93% of global FX reserves, show the pace of decline remains slow and steady.
The trend remains linear, not exponential.
Myth: It’s All About China’s Renminbi
While the Renminbi is a key nontraditional currency, its internationalization has stalled. Its share of reserves has not increased since 2022, even when accounting for exchange rate fluctuations.
Renminbi’s share of global reserves.
Myth: Driven by a Few Countries
The shift is broad-based. The number of “active diversifiers”—countries holding at least 5% of reserves in nontraditional currencies—is growing, including most G20 economies.
On the other hand, the dollar’s structural dominance in the operational mechanics of global trade and finance remains profound and deeply entrenched. The logical synthesis of these facts is that the world is not witnessing a wholesale “de-dollarization” that will result in the dollar’s imminent collapse. Instead, it is experiencing a fundamental and accelerating evolution from a unipolar currency system to a more complex, multipolar one.
Reconciling the Narratives: Diversification, Not De-Dollarization
In this emerging multipolar system, the U.S. dollar will almost certainly remain the most important global currency for the foreseeable future—a “first among equals.” However, its relative dominance will continue to gradually decline. Regional currency blocs, centered on the euro in Europe and, to a much lesser extent, the renminbi in Asia, will gain greater traction in their respective spheres of influence.
Future Trajectories and Key Signposts to Watch
For policymakers, investors, and corporate leaders, navigating this transition requires moving beyond headline-driven narratives and focusing on key metrics that will signal the true pace and direction of change. The following signposts should be monitored closely:
- Payment System Volumes: The growth in transaction volume and the number of participating banks in China’s CIPS will be a key indicator of the renminbi’s adoption as a settlement currency. Similarly, the operational deployment and adoption rate of the BRICS Pay messaging system will be a crucial test of the bloc’s ability to create a viable alternative to SWIFT for intra-bloc trade.
- Commodity Pricing: A significant shift away from dollar-pricing in major global commodity markets would represent a fundamental challenge to the dollar’s transactional dominance. The growth of the “petro-yuan”—the use of the renminbi to settle oil trades, particularly with major producers like Saudi Arabia and Russia—is the most important development to watch in this space.
- Cross-Border CBDC Adoption: The success of pilot projects for cross-border payments using CBDCs, such as the China-UAE e-CNY transaction, will indicate the potential for new technology to circumvent the traditional correspondent banking system. The expansion of such projects would signal a genuine threat to the dollar’s role as the primary intermediary currency.
- Central Bank Reserve Allocation: Continued close monitoring of the IMF’s exchange-rate-adjusted COFER data is essential. A sustained acceleration in the modest, gradual trend of diversification away from the dollar would suggest that the risk calculus of reserve managers has shifted more dramatically than is currently evident.
Implications and Recommendations
This evolving landscape carries significant implications for key global actors.
For U.S. Policymakers: The United States faces a profound strategic dilemma. It must carefully balance the clear tactical benefits of using the dollar as a foreign policy tool against the significant long-term strategic cost of eroding the “exorbitant privilege” that underpins much of American global power. The more aggressively sanctions are deployed, the stronger the incentive becomes for the rest of the world to build the very systems that will ultimately blunt the effectiveness of those sanctions. A more prudent and targeted application of this powerful tool is necessary to slow the momentum of the de-dollarization trend.
For Investors and Corporations: The primary takeaway is the need to prepare for a world of greater currency fragmentation and increased foreign exchange volatility. The era of assuming a stable, predictable, and universally dollar-denominated global financial system is drawing to a close. This necessitates more sophisticated and dynamic hedging strategies for multinational corporations to manage currency risk across a wider range of pairs. For investors, this new environment may present opportunities.