While the U.S. dollar maintains its transactional dominance in areas like foreign exchange volumes (88% in 2022) and trade invoicing, there are clear signs of de-dollarization in other critical aspects of the global financial system. The dollar's share in central bank foreign exchange reserves has declined to a two-decade low, falling to just under 60%. This trend is partly offset by an increased demand for gold as a reserve asset, particularly among emerging market central banks like China, Russia, and Türkiye, with gold's share in EM reserves more than doubling to 9% in the last decade.
De-dollarization is most evident in commodity markets, where a significant and increasing proportion of energy transactions are now priced in non-dollar-denominated contracts. For instance, Russian oil exports are being settled in local currencies or currencies of allied countries, with buyers like India, China, and Turkey seeking alternatives to the dollar. Saudi Arabia is also considering yuan-denominated futures for its oil pricing, although progress has been slow. This shift benefits countries that can pay for commodities in their own currencies, reducing their need for U.S. dollar reserves and potentially freeing up capital for domestic projects.
Conversely, capital controls in countries like China limit the internationalization of alternative currencies like the renminbi, making it challenging for foreign firms to use it for transactions. Despite efforts to promote the renminbi through systems like CIPS, its global use remains marginal, with less than 5% of global trade settled in the Chinese currency, primarily in transactions involving a Chinese firm. Outside China, yuan deposits stood at only $234 billion in early 2025, a small fraction compared to the $15 trillion in dollar-denominated assets abroad.
Despite the dollar's resilience in many transactional aspects, a sustained move away from the dollar could lead to significant impacts on the U.S. economy, including a broad depreciation of U.S. financial assets and upward pressure on real yields due to potential divestment from U.S. Treasuries by foreign investors. Harvard economist Kenneth Rogoff warns that aggressive use of the dollar as a sanction tool, particularly against China, could accelerate de-dollarization by prompting countries to expand their own international financial systems and trade outside the dollar system, signaling a potential shift away from the "Pax Dollar" era.
