Start with a curiosity: when a central bank in Kuala Lumpur or Brasilia holds its dollar reserves, it is not stacking bills in a vault. It owns US Treasury securities, debt of the American government, the way a pension fund owns bonds. That one substitution explains most of what follows, because the dollar’s dominance as the world’s reserve currency is really a story about a bond market, and the financial “plumbing” it lubricates runs through every economy on earth.
How it works, mechanically. A reserve currency is one that governments and central banks keep among their official foreign exchange reserves, the stash a country reaches for when it must pay abroad, steady its exchange rate, or survive a financial panic. If a local bank cannot obtain foreign currency in a crisis, the central bank sells dollar assets and provides it. The dollar serves all three classical jobs of money across borders: a store of value parked in Treasuries, a medium of exchange used to settle trade and contracts, and a unit of account quoted in global prices. The scale is startling. Per the Bank for International Settlements, the dollar figured in roughly 89 percent of all foreign exchange trades as of April 2025.
Why this currency and not another? Three reinforcing facts. The United States produced roughly 26 percent of global GDP in 2024, keeping the dollar central to trade. Its Treasury market is large, deep and liquid, so a foreign central bank can buy or sell billions without moving the price much. And long-standing legal and political institutions give investors confidence that contracts will be enforced and debts repaid. The result shows in the reserve ledger: when 2025 closed, dollars made up about 57 percent of the world’s foreign exchange reserves, against about 20 percent for the euro, with the yen, pound and renminbi trailing far behind.
Intriguingly, the perks flow mostly through interest rates. Global demand for Treasuries means the US government can attract buyers without offering as high a rate, lowering its borrowing costs, and American firms get to borrow, invest and sign contracts in their own currency, skipping the exchange-rate risk everyone else pays a toll on. But the same global demand keeps the dollar stronger than fundamentals alone would leave it, and a strong dollar picks winners and losers at home: importers and households enjoy cheaper foreign goods, while exporters find their products pricier abroad and domestic firms face cheaper import competition. When a currency strengthens, buying from the world gets easier and selling to it gets harder; reserve status amplifies exactly that.
What about the countries that want out? De-dollarization is real as a motive, weaker as a fact. Some states want to dodge exchange-rate risk, others to avoid exposure to US sanctions, especially since Russia’s 2022 invasion of Ukraine and the G7’s escalation of financial sanctions. But the alternatives keep stubbing their toes. The euro, second-most held, has no single unified Treasury market to park reserves in. China’s renminbi is managed and fenced by capital controls, so money cannot move freely in and out. The BRICS grouping is trying to build the missing rails from scratch. At its 18th summit, in New Delhi in September 2026 under India’s presidency, the bloc released a communiqué titled “Building for Resilience, Innovation, Cooperation and Sustainability”, and the notable feature was restraint: explicit talk of abandoning the dollar stayed muted, while the text took indirect aim at tariffs and condemned economic sanctions. The practical work continues through local-currency settlement, a cross-border payments initiative, and a payment task force, framed as cutting transaction costs rather than replacing the existing system.
The infrastructure being borrowed is Chinese. The Cross-Border Interbank Payment System, launched in 2015, combined messaging and settlement for renminbi payments; as of December 2025 it counted 193 direct and 1,573 indirect participants, with 2024 business volume above $26 trillion, and usage spiked in March and April after the start of the Iran war. Russia offers SPFS, a SWIFT alternative developed in 2014 that by 2024 connected 550 organizations across twenty countries, though it lacks SWIFT’s reach. Project mBridge links the central bank digital currencies of China, Hong Kong, Thailand, the UAE and Saudi Arabia; its cumulative volume hit $55.49 billion by November 2025, up from just $22 million in 2022, and Chinese state media said the new BRICS plan “is likely to draw on the lessons learned” from it. These rails would let members settle trade while bypassing the US-led system, which is precisely the sanctions-evasion worry in Washington.
The dollar’s own government is stress-testing it from inside. US debt crossed $40 trillion, and the G7 average ten-year benchmark yield crossed 4 percent in September, the first breach of that mark since 2008. Treasury Secretary Scott Bessent raised the buyback ceiling on long-dated Treasuries to $6 billion per operation, from $2 billion, to curb borrowing costs; the effect faded, partly because the move was telegraphed late, and the lesson the Atlantic Council draws is blunt: macroeconomic drivers of a currency outweigh any intervention. When US yields rise alongside a higher term premium and dollar appreciation, capital flees emerging markets, which in turn feeds the very resentment that keeps the “de-dollarize” conversation alive.
What researchers found, overall, is a paradox in slow motion. The dollar’s share of reserves is on a modest long-term decline, its lost slivers scattered among several currencies rather than captured by one rival; the BRICS public ambitions have been deliberately lowered since 2024; and displacing the dollar entirely would require a currency combining scale, safety, liquidity and trusted institutions, which none yet does. The plumbing still runs on dollars. The plumbers are, quietly, drawing other plans.
Sources
- Why Is the U.S. Dollar the World's Dominant Reserve Currency?
- Dollar Dominance Monitor – Atlantic Council
