The US dollar has long reigned as the world’s primary reserve currency and the default choice for global trade and international transactions. But its dominance is now facing growing scrutiny as shifting geopolitical and economic forces—and concerns over the potential weaponization of the greenback—push more countries to accelerate efforts to loosen their dependence on the dollar.
By almost every measure, the US dollar’s command of the global economy is staggering. Although the country accounts for roughly 25% of global GDP, its currency reigns over nearly 60% of global foreign exchange reserves—far outpacing its nearest rival, the euro.
But this dominance is increasingly under pressure, with the strategic use of economic sanctions in the past leading some countries to seek alternatives, even as US President Donald Trump regularly threatens 100% tariffs on countries that actively seek to substitute the greenback.
In Russia, whose access to the SWIFT payment platform is crippled by sanctions, companies have been using cryptocurrencies as a means to skirt restrictions, turning to Bitcoin and other digital assets to conduct cross-border business. While crypto was barred as illegal by the country´s central bank years ago, recent changes to the regulation have paved the way for corporations to embrace cryptocurrencies since late last year.
The country permitted the use of cryptocurrencies in foreign trade and has taken steps to make it legal to mine cryptocurrencies, including Bitcoin.
Bitcoin, sanctions and the push for dedollarization
Since Bitcoin’s inception, crypto advocates have been fixated on “dedollarization,” often described as the push to reduce the US dollar’s dominance as the global reserve currency. The term broadly refers to moving away from the dollar in key financial and trade activities, including oil and commodity transactions (the petrodollar system), foreign exchange reserves, bilateral trade agreements, and investments in dollar-denominated assets.
A 2024 paper by Morgan Stanley’s head of Digital Asset Markets, Andrew Peel, suggested that the rise of digital currencies presents “opportunities to both erode and reinforce” the US dollar’s dominance, with the potential to significantly alter the global currency landscape.
Still, while digital assets—most notably stablecoins— are increasingly gaining traction, the crypto market’s dedollarization expectations look premature.
While Bitcoin is increasingly seen as a strategic reserve asset, experts caution that it’s still too soon to call it a true alternative to the US dollar. Countries like El Salvador have embraced Bitcoin aggressively, with the asset now making up about 15% to 20% of the nation’s total reserves. The US has reportedly considered similar moves, but widespread adoption remains limited, and questions persist about whether such steps would undermine the dollar rather than support it.
According to Bitcoin Depot CEO Brandon Mintz,
“For Bitcoin to become a true alternative to the USD, it would require broader mainstream adoption, clearer regulatory frameworks, and more scalable infrastructure.”
Currently, Bitcoin acts more like a hedge and a store of value than a dollar replacement, but its role could shift as global financial dynamics evolve. Factors like inflation and geopolitical tensions, Mintz said, could drive more interest.
While institutional adoption and cross-border use are on the rise, Mintz said that it remains to be seen “whether Bitcoin can genuinely challenge the dominance of the dollar as this will depend on how these trends develop over time.”
Related: 3 reasons why Bitcoin sells off on Trump tariff news
Despite its growing appeal, Bitcoin’s volatility remains a significant challenge. According to the World Gold Council, Bitcoin exhibits considerably higher volatility than gold and shows a greater correlation with Nasdaq tech stocks than with traditional safe-haven assets.
Gold and major asset 5-year average daily volatility - annualized. Source: World Gold Council.
Eswar Prasad, a trade professor at Cornell University, told Cointelegraph,
“Decentralized cryptocurrencies such as Bitcoin still have highly volatile values, rendering them unsuitable as mediums of exchange or as reserve currencies.”
US dollar global foreign reserves decline
Since the end of World War II, the US dollar has reigned as the world’s dominant currency, powering around 88% of global trade transactions in 2024.
The dollar’s status as the leading international currency is well-established. According to the International Monetary Fund, as of the third quarter of 2024, central banks held about 58 percent of their allocated reserves in US dollars—much of it in cash and US bonds. This is significantly higher than the euro, second in the race, which accounts for as much as 20%
Allocated foreign exchange reserves by central banks. Source: International Monetary Fund
While the US dollar remains the dominant global currency due to its stability, widespread acceptance in international trade and finance, and status as a key reserve asset for central banks, there are signs that its reign may be waning. The percentage of global foreign reserves held in dollars has diminished from over 70% in the early 2000s to below 60%.
Percentage of global FX reserves held in US dollars. Source: International Monetary Fund
The turning point came after February 2022 when the US froze $300 billion of Russia’s liquid foreign exchange reserves held in the US and NATO countries. While many US allies backed the move, it also sent shockwaves through global markets, highlighting the risk that Washington could weaponize the dollar against not just adversaries but potentially allies whose policies clash with American interests.
Citing the use of sanctions and how sanctioned countries react, an International Monetary Fund blog post in 2024 said,
“We have found that financial sanctions when imposed in the past, induced central banks to shift their reserve portfolios modestly away from currencies, which are at risk of being frozen and redeployed, in favor of gold, which can be warehoused in the country and thus is free of sanctions risk.”
Do stablecoins actually reinforce dollarization?
Despite efforts by BRICS+ nations to counteract US dollar dominance, the dollar’s value has remained strong in recent years. The US Dollar Index is up roughly 8% over the past five years.
In the crypto sector, stablecoins have emerged as some of the fastest-growing digital assets, often cited as a potential solution for cross-border transactions. However, most stablecoins are still pegged to the US dollar.
Currently, the stablecoin market cap stands at $233 billion, with US-pegged stablecoins such as Tether’s USDT dominating 97% of the sector, according to CoinGecko data.
This overwhelming reliance on USD-backed stablecoins suggests that rather than undermining dollar dominance, digital assets may actually reinforce it. “With USD-linked stablecoins at the core of this digital ecosystem, we have a unique chance to extend US financial influence globally—if policymakers act now,” Cody Carbone, president of Digital Chamber, a US-based blockchain advocacy association, said on X.
The emergence and widespread adoption of central bank digital currencies (CBDCs) could disrupt some cryptocurrencies, particularly stablecoins, by providing efficient and low-cost digital payment alternatives.
“A widely accessible digital dollar would undercut the case for privately issued stablecoins, though stablecoins issued by major corporations could still have traction,” said Prasad.
Still, Prasad emphasized that no viable alternative is poised to displace the US dollar as the dominant global reserve currency.
“The dollar’s strengths lie not just in the depth and liquidity of US financial markets but also in the institutional framework that underpins its status as a safe haven.”
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.