De-dollarisation: diversification, not disruption

For decades, the US dollar has stood as the cornerstone of the global financial system. Its role as the world’s primary reserve currency has made it a symbol of stability and trust. Yet, in recent years, concerns about ‘de-dollarisation’ have gained traction, as some countries seek to reduce their reliance on the greenback amid rising geopolitical tensions and economic shifts.

A key fear is that an abrupt shift away from the dollar and US financial assets would push up borrowing costs and potentially, in an extreme scenario, trigger a debt crisis.

While we are monitoring these developments, in our view, the move underway reflects diversification in a globalised world, not an outright rejection of the dollar. Even if the dollar’s dominance were to erode over time, we think the transition would likely be gradual.

A reserve currency is one that central banks and governments hold in significant quantities to support international trade, stabilise their own currencies, and manage economic shocks. Since the end of World War II, the US dollar has been the preeminent reserve currency, thanks to the size and strength of the US economy, its deep and liquid financial markets, and its stable political and legal institutions.

Today, the dollar accounts for 58% of global foreign exchange reserves - down from 71% in 1999. However, the absolute amount of dollars held has grown from $1 trillion to $6.6 trillion¹, suggesting that the decline in percentage terms reflects diversification rather than a loss of confidence in the dollar.

Beyond its role as the primary reserve currency, the dollar is also the currency of choice for global transactions and financing. Currently, 88% of foreign exchange trade involves the dollar and 50% of trade globally is invoiced in dollars, despite the US accounting for only 10% of global trade². It is also the dominant currency used in Society for Worldwide Interbank Financial Telecommunication (SWIFT) payments and cross-border loans. The dollar’s role in global transactions far exceeds the US’s economic footprint, where its share of global gross domestic product (GDP) is just 25%, underscoring the dollar’s entrenched position in global finance.  

This widespread usage creates a network effect: the more the dollar is used, the more valuable and convenient it becomes. Replacing it would require not just a viable alternative, but a coordinated global effort to overhaul systems and renegotiate contracts, an undertaking which would be costly and unlikely in the near term. 

Despite growing interest in de-dollarisation, no other currency currently offers a credible alternative to the dollar’s reserve status. For a currency to take on that role, it must be backed by a large, open economy with deep and liquid financial markets, strong legal institutions, and global trust. For context, the US Treasury market had $29 trillion³ debt outstanding at the end of July 2025, dwarfing all other markets. In fact, this is roughly the same size as the debt markets of China, Japan, UK, France, Italy and Germany combined⁴. Top contenders to replace the dollar as a reserve currency also fail to meet other criteria: 

• China’s Renminbi is constrained by capital controls and limited access for foreign investors 
• The Euro suffers from fragmented markets, insufficient depth, and a relatively short, crisis-prone history 
• Bitcoin and other digital assets are too volatile and lack regulatory clarity to serve as reliable reserves 

Some countries, particularly within the BRICS bloc (Brazil, Russia, India, China, and South Africa), have taken steps to reduce their reliance on the dollar, exploring alternatives such as trading in local currencies and developing new payment systems. These efforts are partly aimed at insulating their economies from US sanctions, which are more effective when the dollar is central to global finance. 

However, these efforts remain limited in scope and face significant structural and political challenges. Diversification is not the same as displacement, and the dollar’s unique advantages remain firmly intact. 

Even if the dollar’s share of reserves continues to decline, the impact on US borrowing costs is likely to be modest. Other developed economies - such as Germany or Japan—still enjoy low yields, suggesting that domestic economic conditions are the main driver of borrowing costs. 

While it may be true that the dollar’s share of global reserves has declined modestly in recent years, this trend suggests a slow and steady diversification of global reserves, not a dramatic exit from the dollar. Central banks are gradually increasing their holdings of non-traditional currencies like the Canadian dollar, Australian dollar, and Singapore dollar. Some commodity contracts are now priced in local currencies, and gold has seen renewed interest among emerging market central banks. These are incremental changes - not signs of a systemic shift.

The dollar remains the most trusted and widely used currency in the world. It is the world’s preferred currency for global transactions, foreign exchange and financing by a wide margin, creating a powerful network effect that reinforces its central role in the global economy. While gradual diversification may occur, this is unlikely to destabilise the US economy or trigger a debt crisis.

At Evelyn Partners, we build portfolios designed to weather change, not chase headlines. While the dollar may gradually share space with other currencies, it remains a cornerstone of global finance. For now, there’s no reason to lose sleep over de-dollarisation.

1. Sifma.org, US Treasury Securities Statistics, 8 August 2025
2. Maronoti, B., Revisiting the International Role of the US Dollar, BIS Quarterly Review, 5 December 2022
3. Bestbrokers.com, US Dollar Share of Global Currency Reserves, 4 July 2025
4. Sifma.org, US Treasury Securities Statistics, 8 August 2025