Are we in the midst of a ‘regime change’ in global currency markets? Will the U.S. dollar retain its status as the key international currency? Is de-dollarisation for real? And, more importantly, how should currency managers react?  

In this blog we disentangle the debate around the U.S. dollar and its status in world currency markets. It is a sensitive topic. It can give rise to expressing political preferences. It can trigger emotional reactions. Yet, we need elements of response. 

A tribute to the mighty USD

Before we delve into the complexities of the de-dollarisation debate, a tribute of sorts must be paid to the mighty U.S. dollar. This is the currency that, for the better part of the last 70 years was —and still is— at the center of the global financial and currency system. 

Two recently published books can help us assess the tremendous impact of the U.S. dollar: King Dollar by Paul Blustein and Our Dollar, Your Problem by Harvard economist Ken Rogoff. Consider the following metrics: 

• Although there are about 150 currencies, almost 90% of all FX transactions involved USD on one side of the trade (BIS data)

• About 60% of central bank reserves worldwide are USD-denominated

• At least 40% of global trade is conducted in USD

• About 80% of the global oil market is traded in dollars

• In swap transactions that we discussed in the previous session of CurrencyCast (“How Treasury Teams Bridge the Cash Flow Gap in FX Risk Management”) a whopping $5 trillion are executed, on average, every single day, and most involve USD (BIS data)

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How do we account for the massive dominance of USD? A useful concept here is network effects. The more useful a system is, the more it attracts users. The more the users, the higher its usefulness. And so on and so forth. Such systems tend to become natural monopolies: think of Facebook, Amazon—and the dollar.

But what lies at the heart of the U.S. dollar’s network effects? Consider the following qualitative factors: 

• Extremely deep and liquid financial markets, allowing investors and companies to park money on a 24/7/365 basis

• The strongest military power on earth

• Top-ranked universities 

• The rule of law, which rests on the pillars of good graders in terms of judicial independence, freedom of the press and an independent central bank

Here’s the key point. All of these factors reinforce themselves. This is, of course, fantastic news for the dollar—when the news is good. But it also points to possible vulnerabilities—when the news is not so good news. 

Digital dollarisation ahead?

Before turning to the vulnerabilities of the dollar-based global currency system, let me briefly discuss what some analysts call digital dollarisation. It refers to the use of stablecoins. Stablecoins are a "digital proxy" for the U.S. dollar—with the advantage of speed. 

USDC and USDT have emerged as a "de facto standard" in the stablecoin universe. Backers argue that stablecoins allow companies to "bypass traditional banks and Swift". According to the Financial Times, transaction volumes climbed to $752bn in May 2025.

They are growing in popularity, especially in Emerging Markets, and firms like Uber have announced that they are exploring their use in treasury operations.

‍The USD: a vulnerable hegemon? Internal and external factors 

Having discussed the formidable advantages of the U.S. dollar, let us turn to its vulnerabilities. These vulnerabilities are both internal and external. Internal vulnerabilities include: 

• Threats to the independence of the U.S. Federal reserve

• Threats to the rule of law, especially judicial independence

• Above all: the temptation to run unsustainable budget deficits—the U.S. federal government’s debt is about $36 trillion, or 120% of GDP. Ken Rogoff argues that a debt crisis in the United States would have massive consequences in terms of increased FX markets volatility.

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The main external vulnerability refers mostly to the desire of Chinese authorities to arrive at a multi-polar international monetary system in which a few sovereign currencies coexist, compete with each other, and check and balance each other.  

But technology also plays a role. Multi-Dealer Trading platforms allow investors —and corporate treasurers— to bypass the dollar altogether. For example, a Canadian buyer of Mexican pesos used to buy USD against CAD, and then sell those USD to purchase MXN.

This is no longer necessarily the case, and it points to a ‘bottom-up’ de-dollarisation process. Here, the currencies of a number of relatively small, but well-managed economies, can prosper: CAD, AUD, NZD, SEK, MXN, NOK, TWD, KRW, SGD and others. 

USD vulnerability on display 

Let me now mention some examples of bottom-up actions that involve investors: 

• Some Dutch pension funds are thinking of reducing their holdings of USD-denominated assets, explicitly citing threats to the independence of the judiciary. European pension funds —including large players from the Netherlands and Denmark— hold as much as $770bn in unhedged exposure

• A number of Asian currencies, notably TWD, CNY, HKD and KRW have been mentioned as benefiting from “a $2.5 trillion avalanche of buying” as Asian countries unwind their stockpile of the world’s reserve currency.

• Chinese banks, according to a Federal Reserve paper, are ditching USD lending in Emerging Markets in favour of CNY-denominated loans. Note that, more than a political decision, this seems to reflect banks’ lower cost of funding in CNY compared to USD.

• In addition to the ‘cliff’ in the USD to TWD rate in late May, there has been an interest rate cliff in HKD interest rates have fallen and are now more in line with CNY interest rates, even though the Hong Kong dollar is still pegged to the dollar. 

Other signs of uneasiness with the dollar and the institutional framework that underpins include: 

• Save-haven flows. USD has failed to attract safe-haven flows during recent episodes of market volatility and geopolitical instability. Gold, CHF and even SEK have acted in this capacity instead. 

• Gold reserves. Reports that both Germany and Italy are considering ‘repatriating’ their holdings of physical gold in the United States, bringing back memories of what French president Charles de Gaulle did back in the 1960s.  That’s about $245bn. It

• Central bank currency swaps. Uneasiness about the renewal of currency swaps lines between the U.S. Federal Reserve and other leading central banks. These swap lines had been instrumental in creating a sense of confidence during crises episodes in the past, notably 2008 and 2020. 

• Custody holdings. Central banks selling some of their holdings in US Treasury securities that are held in custody at the Federal Reserve Bank of New York. You can check yourself by going to the U.S. central bank on Thursdays in the evening. 

Taking ownership of the FX risk management process

As value chains become fragmented across multiple countries, companies need to use a wider range of currencies to become more resilient. Many firms, fearing the cost of FX management, use only a handful of currencies or reject them altogether. 

This perception predates automated FX risk management. Technology makes it advantageous to actively and confidently sell in the currencies of your customers, and buy in the currency of your suppliers. 

In B2C setups, selling in the currencies of your clients means:

• A better customer experience 

• Higher conversion rates

• Clarity in pricing

• Higher sales-to-assets

In a B2B scenario, using more currencies means:

• No supplier FX markups (*)

• A wider range of suppliers (*)

• Extended paying terms (*)

• Less credit risk in receivables

(*) The first three when contracting. 

Companies have a choice to make. By using just a handful of currencies like the dollar or the euro, they leave the underlying FX risk management process to their clients/suppliers. These firms are bound to face lower sales and/or higher costs. 

There is another possibility. Thanks to Currency Management Automation and real-time API connectivity, firms can ‘take ownership’ of FX risk management to their advantage. This is how they reap the benefits of embracing currencies.

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