The US dollar has long been the default choice for major global reserve currencies as well as global trade and international transactions. But its dominance is facing increasing scrutiny as the shift in geopolitical and economic power and the focus on the potential weaponization of Greenback.
With almost every measure, the US dollar’s command on the global economy is shocking. Although the country accounts for about 25% of global GDP, its currency accounts for nearly 60% of global foreign exchange reserves, surpassing its recent rival, the euro.
However, this dominance is increasingly under pressure as past economic sanctions strategies exploit economic sanctions have led some countries to seek alternatives, even as U.S. President Donald Trump often threatens 100% tariffs actively seeking alternatives to greenbacks.
In Russia, Russia’s access to the Swift payment platform has been weakened by sanctions, and companies have been using cryptocurrencies as a means of restriction, turning to Bitcoin and other digital assets for cross-border operations. A few years ago, cryptocurrencies were banned by the country’s central bank as illegal, but the latest changes in the regulation paved the way for companies to adopt cryptocurrencies since the second half of last year.
This country allow Use cryptocurrencies in foreign trade and measures have been taken to make cryptocurrencies including Bitcoin legal.
Bitcoin, the driving force behind sanctions and undressing
Since the inception of Bitcoin, the crypto declaration has been fixed on “dedolarization” and is often described as a driving force for reducing the dollar’s dominance as a global reserve currency. The term broadly refers to investing in USD in key financial and trade activities, including oil and commodity trading (oil companies), foreign exchange reserves, bilateral trade agreements, and assets denominated in USD.
A paper by Andrew Peel, head of digital assets markets at Morgan Stanley, shows that the rise of digital currencies to “evil and enhancement opportunities” proposes the dominance of the dollar, which has the potential to significantly change the global currency landscape.
Nevertheless, while digital assets, especially stable assets, are increasingly attractive, it seems too early to expect hair loss in crypto markets.
While Bitcoin is increasingly seen as a strategic reserve asset, experts warn that it is too early to call it a true alternative to the dollar. Countries like El Salvador have actively accepted Bitcoin, and now assets account for about 15% to 20% of the country’s total reserves. The United States has reportedly considered similar moves, but widespread adoption is still limited, and questions about whether such a step would undermine the dollar rather than support this step.
According to Bitcoin Warehouse CEO Brandon Mintz
“To make Bitcoin a true alternative to the dollar, it will require wider mainstream adoption, a clearer regulatory framework and a more scalable infrastructure.”
Currently, Bitcoin is acting more like a hedge and storage of value than a one-dollar alternative, but its role may change as global financial dynamics develop. Matters such as inflation and geopolitical tensions may arouse more interest, Mintz said.
Mintz said that while institutional adoption and cross-border use are on the rise, it remains to be seen: “Bitcoin can really challenge the dominance of the dollar, as it will depend on how these trends develop over time.”
Related: 3 Reasons for Bitcoin Sold on Trump Tariff News
Despite the increasing appeal of appeal, Bitcoin’s volatility remains a major challenge. according to World Gold CouncilBitcoin has much higher volatility than gold and is more relevant to Nasdaq tech stocks than traditional safe haven assets.
5-year average daily volatility of gold and major assets – 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, making them unsuitable as mediums of exchange or reserve currencies.”
Global foreign reserves decline
Since the end of World War II, the US dollar has dominated the world’s major currency, powering 88% of global trade transactions in 2024.
The US dollar is well positioned as a leading international currency. according to International Monetary Fundas of the third quarter of 2024, central banks held approximately 58% of the allocated reserves of US dollar and U.S. bonds. This is significantly higher than the euro, accounting for 20% for the second time
Foreign exchange reserves allocated by the central bank. Source: International Monetary Fund
Although the U.S. dollar has become a global currency due to its stability, widespread acceptance in international trade and finance, and its status as a central bank’s main reserve asset, there are signs that its dominance may be weakening. this Percentage of global foreign reserves Income held in USD has dropped from 70% in the early 2000s to less than 60%.
Percentage of global FX reserves in USD. Source: International Monetary Fund
The turning point is after February 2022, when the United States frozen $300 billion in Russian liquid foreign exchange reserves in the United States and NATO countries. Although many American allies support the move, it also creates shock waves through global markets, emphasizing that Washington can weaponize the dollar, not only an adversary, but also a potential ally, whose policies conflict with U.S. interests.
The IMF invoked the use of sanctions and how it responds to sanctions Blog Posts In 2024,
“We found that financial sanctions imposed in the past have prompted central banks to modestly transfer their reserve portfolios into currencies that are at risk of being frozen and redeployed in favor of gold, which can be warehoused in the country, so there is no risk of sanctions.”
Will stablecoins actually enhance dollarization?
Despite efforts by the BRICS+ countries to offset the dominance of the US dollar, the value of the US dollar has remained strong in recent years. The U.S. dollar index has risen about 8% over the past five years.
In the cryptocurrency sector, stable bacteria have become some of the fastest-growing digital assets and are often considered a potential solution for cross-border transactions. However, most Stablecoins are still fixed in the US dollar.
Currently, Stablecoin has a market capitalization of $233 billion, according to Coingecko Data, US-PEGGGEGGEGGENGECOIN (such as Tether’s USDT) accounts for 97% of the market dominant.
The reliance on stable and stable backed by the dollar suggests that digital assets may actually strengthen this digital asset rather than undermining the dominance of the dollar. “Because of the core of this digital ecosystem, we have Stablecoins linked to USD, and we have a unique opportunity to expand U.S. financial reach globally – if policymakers take action now,” Cody Carbone, president of Digital Chamber, a U.S.-based blockchain advocacy association, explain On X.
The emergence and widespread adoption of central bank digital currencies (CBDCs) may undermine some cryptocurrencies, especially stable ones, by providing efficient and low-cost alternatives to digital payments.
“Although stablecoins issued by large companies may still attract attention,” Prasad said.
Nevertheless, Prasad stressed that there is no viable alternative to replace the US dollar as the main global reserve currency.
“The advantage of the dollar is not only the depth and liquidity of the U.S. financial markets, but also the institutional framework based on its position as a safe haven.”
This article is for general information purposes and is not intended to be considered legal or investment advice. The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or represent Cointelegraph’s views and opinions.
