Research: 4 risks for the dollar dominance

Researchers from the Brookings Institution have identified several factors that can undermine the dominance of the dollar in global markets. Although the dollar remains the main reserve currency, its share in global reserves has decreased from 71% in 1999 to 59% in 2024. 

At the same time, the share of reserves in alternative currencies such as the Australian dollar, Swiss franc and Chinese yuan is growing.

• One of the main threats to the dollar is the US sanctions, which have prompted Russia and China to actively seek de-dollarization. Russia is switching to payments in yuan and developing alternative payment systems, while China is promoting its yuan as a substitute for the dollar.

• The growing U.S. government debt is also a concern for investors. A rapid increase in government spending and a decrease in the US credit rating may weaken confidence in the dollar and make it less attractive to holders of foreign exchange reserves.

• The improvement of payment technologies is another factor threatening the dollar. New systems allow countries such as China and India to exchange their currencies directly, bypassing the dollar. This may reduce the demand for the dollar, which has traditionally been used in international settlements.

• In addition, the development of central bank digital currencies (CBDC) increases competition for the dollar. China is actively developing its digital currency and payment systems, while the United States is still lagging behind in this area, which puts the dollar in a less favorable position.

Despite these risks, experts believe that the dollar will remain the dominant currency in the near future, since its competitors cannot yet replace it. However, attempts at de-dollarization can lead to economic problems for those who abandon the American currency.