For decades, the U.S. dollar has reigned supreme as the world’s reserve currency, underpinning global trade, finance, and economic stability.
But cracks in that dominance are beginning to show—and the question now is whether Washington will act before it’s too late.
The dollar still accounts for roughly 58% of global foreign exchange reserves, but that share has been shrinking—down from over 70% two decades ago. More telling than the decline itself is how it’s happening: in 2022, more than half of the drop was due to deliberate selling by central banks, not just market fluctuations. This isn’t passive adjustment; it’s a strategic shift away from the greenback.
Nigel Green, CEO of deVere Group, warns that the trend reflects deeper concerns. “The world no longer trusts that the U.S. will be the steady hand it once was,” he says. Rising U.S. debt, political volatility, and the increasing use of the dollar as a geopolitical weapon through sanctions and financial restrictions have eroded confidence in its long-term stability.
No single currency is poised to replace the dollar outright, but the landscape is shifting. China and Russia are settling more trade in local currencies. Central banks in the Middle East and Asia are stockpiling gold. Over 130 countries are exploring central bank digital currencies (CBDCs), which could eventually bypass traditional dollar-based systems.
“The challenge isn’t that another currency is overtaking the dollar it’s that trust in the dollar is fading,” Green explains. “When confidence wanes, the shift happens quietly at first, then all at once.”
Losing reserve currency status would carry severe consequences for the U.S. The ability to finance deficits cheaply a privilege known as the “exorbitant privilege” would diminish. Borrowing costs would rise, demand for Treasuries could fall, and America’s geopolitical leverage would weaken.
Already, long-term investors are hedging their bets. Gold purchases by central banks hit record highs in recent years. Digital assets and alternative currencies are gaining traction. And as emerging economies diversify reserves, the dollar’s centrality in global trade is no longer a given.
The U.S. still holds key advantages deep capital markets, rule of law, and institutional stability but these alone may not be enough. “Reserve currency status isn’t a birthright,” Green stresses. “It’s maintained through responsible fiscal policy, economic leadership, and trust.”
The digital revolution adds urgency. While the U.S. hesitates on a digital dollar, other nations are building the infrastructure for a new financial era, one that may not rely on the greenback as its anchor.
The dollar’s decline may be gradual, but the warning signs are clear. If Washington fails to address debt sustainability, political dysfunction, and strategic complacency, the erosion could accelerate. The message to U.S. policymakers? The dollar’s dominance was earned and it can be lost. The time to defend it is now.
