De-Dollarization: Is the Dominance of the Dollar Really Coming to an End?

 De-Dollarisation: Is the Dominance of the Dollar Really Coming to an End?

Introduction: Rumors, Reality, and Signs of Change

In mid-2024, a rumor spread rapidly that Saudi Arabia had not renewed its long-standing "petrodollar" agreement with the United States. This turned out to be a misinterpretation and misinformation. In reality, the arrangements from the 1970s were a series of understandings rather than a fixed-term contract with an expiration date.

Still, the rumor highlights a larger truth: the U.S. dollar's dominance in the global economy, which has lasted over 80 years, is no longer as unchallenged as before. The key question is whether the dollar is truly losing its monopoly-like power or if we are witnessing a slow, gradual shift.

From Bretton Woods to the Nixon Shock: The Rise of the Dollar

In 1944, toward the end of World War II, representatives from 44 countries met in Bretton Woods, USA, to establish a new global monetary system. Under this agreement, the dollar was pegged to gold at a fixed rate ($35 per ounce), and other currencies were linked to the dollar.

In 1971, President Richard Nixon ended the dollar's convertibility to gold — known as the "Nixon Shock." Many predicted the dollar's collapse at the time, but instead, it adapted and endured.

In 1974, an understanding emerged between the United States and Saudi Arabia to price oil trades in dollars. This required oil-importing countries worldwide to acquire dollars first. The system became known as "petrodollars" and helped sustain global demand for the dollar.

The Three Pillars of Dollar Strength

For decades, the dollar's dominance rested on three main foundations:

1. A stable and massive U.S. economy  

2. Deep and highly liquid financial markets  

3. Confidence in the rule of law and the independence of the central bank  

In recent years, questions have arisen about all three.

The Russia-Ukraine War and the Impact of Sanctions

Following Russia's invasion of Ukraine in 2022, the United States and Western countries froze around $300 billion in Russian central bank assets and partially disconnected Russia from the SWIFT payment system.

This action sent a message to many countries: dollar-based assets carry political risk. Major economies like China and India began exploring alternatives more seriously.

What the Data Shows: Decline or Gradual Change?

Dollar's Share in Global Foreign Exchange Reserves

According to International Monetary Fund (IMF) data from the Currency Composition of Official Foreign Exchange Reserves (COFER):  

- In 2000, the dollar accounted for about 70% of global reserves.  

- By late 2023–2025, this fell to around 56–58% (e.g., approximately 56.9% in Q3 2025).  

This represents a slow, long-term decline rather than a rapid drop.

Dollar in International Transactions

- The dollar is involved in about 88% of foreign exchange transactions.  

- More than half of global trade invoicing is in dollars.  

In practical use, the dollar remains dominant.

The Rise of Gold

In recent years, central banks have bought record amounts of gold. Purchases exceeded 1,000 tonnes annually in 2022, 2023, and 2024 — levels not seen in decades. Rising gold prices have increased its value in reserves, making it an attractive alternative to reduce dollar dependence.

BRICS and Local Currency Trade

The BRICS group (Brazil, Russia, India, China, South Africa) is actively seeking dollar alternatives.  

- Russia–China trade: A large portion is now settled in rubles and yuan.  

- India's initiatives: India has introduced mechanisms like Vostro accounts to enable trade in rupees (e.g., allowing countries like Russia to invest rupee proceeds in Indian bonds for oil sales).  

Intra-BRICS trade in local currencies has grown significantly, reaching over 60% in some estimates.

Is the Yuan a Real Alternative to the Dollar?

The Chinese yuan's share in global reserves remains low, around 2–3%. For the yuan to become a major reserve currency, China's capital markets would need greater openness and transparency — which does not fully align with current policies. In the short term, the yuan is not a full replacement for the dollar.

The United States' Counter-Strategy

The U.S. aims to maintain influence in the digital financial space through dollar-backed stablecoins and fintech oversight, keeping the dollar central in future transactions. The U.S. Treasury bond market also remains the world's largest and most liquid, attracting major investors.

Conclusion: Not a Collapse, but a Multipolar Financial World

There is no evidence of a sudden collapse in dollar dominance. However, its unchallenged supremacy is gradually eroding. We are likely moving toward a more multipolar financial system where:  

- The dollar remains the primary currency.  

- The euro, yuan, and gold gain more importance.  

- Regional currencies and alternative payment systems expand.  

In short, the future points to a diversified global financial order — the dollar will endure, but no longer as the sole ruler.

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