Dollar Dominance Crumbling Under Weight of US Policies
The US dollar's dominance as the world's reserve currency has been eroding gradually over decades. However, recent US policies have accelerated this trend of de-dollarisation.
The Bretton Woods conference in 1944 established the indirect gold standard, which fixed the gold price in dollars and pegged other currencies to it at fixed exchange rates.
This arrangement has allowed the dollar to maintain its dominant role, with over 90% of foreign exchange market transactions involving the dollar. Most central bank reserves are still denominated in dollars, and the US dollar is used to invoice around two-fifths of international trade.
The erosion of dollar dominance is evident in the decline of the US share of global income at purchasing power parity from 25% to under 15%. Despite this, the US stock market accounts for over three-fifths of the world's total market capitalisation.