• Opinion by Jomo Kwame Sundaram (jakarta, indonesia)
• Tuesday, September 01, 2026
• Inter Press Service

JAKARTA, Indonesia, September 1 (IPS) - The US dollar’s role as the world’s reserve currency has been eroding gradually for decades. However, various US policies, including recent deliberately unexpected actions, have at times accelerated de-dollarisation.

Dollarisation

Jomo Kwame Sundaram

Despite warnings from Keynes and others about its likely problems, Harry Dexter White, the head US delegate, imposed an indirect gold standard at the 1944 Bretton Woods conference.

By fixing the gold price in dollars, the US currency became the world’s reserve currency, with other currencies pegged to it at fixed exchange rates. With this indirect gold standard, the metal’s price was fixed in US dollars.

Other currencies were pegged to the dollar, strengthening its role as the dominant currency. Other arrangements that could have mitigated the problems and adverse consequences of the dollar system were effectively rejected by the US at Bretton Woods.

Ninety per cent of foreign exchange market transactions now still involve the dollar. Most central bank reserves are still denominated in dollars, while the US dollar is still used to invoice around two-fifths of international trade.

Just after World War II (WW2), the US economy accounted for a quarter of world output, measured in terms of purchasing power parity (PPP), and even more in nominal terms. The US share of the world economy has fallen to under 15% since.

The US also accounted for a quarter of world exports at that time. Unlike most other nations, US industry was strengthened rather than destroyed during WW2.

The size, liquidity, and depth of US capital markets have also reinforced the dollar’s role. Its special status in the Bretton Woods dispensation conferred an ‘exorbitant privilege’, increasing international demand for dollar bonds.

This has enabled the US government and companies to borrow at lower interest rates than others. The resulting increase in demand for dollar-denominated assets has also strengthened the greenback.

Erosion of dollar dominance

Since then, the US economy has become much more financialised and de-industrialised, now accounting for less than a tenth of world goods exports.

However, although the US now accounts for under 15% of global income at PPP, its stock market still accounts for over three-fifths of the world’s total market capitalisation.

Leading international monetary economist Barry Eichengreen’s 2022 survey of central banks’ foreign exchange reserves showed the dollar share of foreign reserves falling from 70% in 2000 to under 60% in 2021; it has since declined to below 58% in early 2025.

Ben Norton suggests that the actual dollar share of foreign reserves is even lower and continues to decline. Some central banks hold other reserves off the books for fear of Western actions to freeze and seize their foreign reserves.

With the US economy more de-industrialised and financialised, the dollar system has become more important in attracting foreign investors and inducing capital market bubbles from time to time.

De-dollarisation accelerating

De-dollarisation goes back many decades, even when the dollar-gold peg was still in place. France famously demanded gold for dollars, then shipped bullion back under armed escort.

Many recent Trump policies have heightened international concerns about holding dollar-denominated assets. Greater Washington belligerence, including illegal tariffs, sanctions and bombings, has also accelerated de-dollarisation.

Trump’s attempts to influence the US Federal Reserve Bank and other public surveillance and regulatory institutions have also shaken public and international trust. Humiliating dismissals of allegedly recalcitrant officials have not helped.

In the first half-year of Trump’s second presidential term, the dollar experienced its biggest fall since the 1973 OPEC oil crisis, by over 10% against other major currencies, before fluctuating considerably.

After Trump threatened massive tariffs against all other countries on 2 April 2025, fears of “a simultaneous collapse in the prices of all US assets” quickly grew.

Instead of the usual ‘flight to safety’ in dollar assets when crises previously loomed, it seems “The market has lost faith in US assets”, selling them down in response to new threats and uncertainties.

Since then, uncertainties have worsened market and dollar volatility worldwide. Unsurprisingly, foreign governments and investors are looking for alternatives to the dollar.

Eichengreen had previously expected a gradual decline in dollar dominance and a slow transition to a more balanced multi-currency reserve system.

Although the US president is not the sole cause of the recent acceleration of de-dollarisation, Trump 2.0 policies have prompted monetary authorities worldwide to consider alternatives to the US dollar as the world’s reserve currency.

More recently, Eichengreen has warned of a likely acceleration in the dollar’s decline, expressing concern about its adverse effects. That would threaten financial institutions holding dollar-denominated assets, causing them to lose value in foreign-currency terms.

No alternative?

However, Eichengreen insists “no other currency … is positioned to fill the dollar’s shoes”. Neither the euro nor the renminbi has the capacity or ambition to replace the dollar.

With privately issued cryptocurrencies not functioning as currencies except for mainly illicit transactions, Eichengreen expects the dollar to remain “the cleanest dirty shirt in the pile”.

IPS UN Bureau

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