Dollar Dominance Eroding as US Policies Accelerate De-Dollarisation
The US dollar's role as the world's reserve currency has been eroding gradually over decades. However, various US policies have accelerated de-dollarisation at times.
The Bretton Woods conference in 1944 fixed the gold price in dollars, making the US currency the dominant one. Other currencies were pegged to it at fixed exchange rates, strengthening its role as the world's reserve currency.
Despite warnings from economists like John Maynard Keynes, the US imposed an indirect gold standard at Bretton Woods. The dollar system has become more important in attracting foreign investors and inducing capital market bubbles over time.
Since World War II, the US economy has become deindustrialised and financialised. Its share of global income at purchasing power parity (PPP) has fallen to under 15%, while its stock market accounts for over three-fifths of the world's total market capitalisation.
The dollar's share of foreign reserves has been declining, from 70% in 2000 to below 58% in early 2025. Some central banks hold other reserves off the books due to concerns about Western actions to freeze and seize their assets.