The once-unshakable supremacy of the U.S. dollar now faces unprecedented challenges. When Greenland's sovereignty becomes entangled with tariff policies, when the Federal Reserve's independence comes under scrutiny, how long can global markets maintain confidence in the dollar? Zhu Min, an expert at the China Center for International Economic Exchanges, presents a compelling case: the dollar's dominant position in global reserve assets is undergoing profound transformation, driven by eroding trust and the rise of diversification.
Fractures in Dollar Hegemony: Declining Reserve Share
While the dollar remains the primary currency in central bank foreign exchange reserves worldwide, its declining share tells a different story. Data reveals the dollar's proportion in global reserves has fallen below 60%, reaching multi-decade lows. This trend serves as a warning sign for dollar hegemony.
The dollar historically earned global trust through its widespread use in trade, investment, and financial markets, backed by America's strong economy and political stability. However, recent years have seen the U.S. increasingly weaponize the dollar through sanctions, fueling global apprehension. Mounting U.S. fiscal deficits, debt concerns, and political instability have further diminished the dollar's appeal.
Emerging Challengers: The Rise of RMB, Gold, and Diversification
As the dollar weakens, emerging market currencies like the Chinese yuan are gaining ground in global reserves. Simultaneously, gold has emerged as a formidable competitor. Notably, central banks in China and other non-Western nations have significantly increased gold holdings, reshaping global demand patterns.
Ray Dalio, founder of Bridgewater Associates, observes that gold is increasingly favored over dollar-denominated assets like U.S. Treasuries. As a tangible asset independent of any nation's credit, gold offers an ideal safe haven amid geopolitical turbulence.
The De-Dollarization Wave: Nations Reduce Dollar Exposure
De-dollarization has evolved from concept to reality, with countries actively reducing dollar assets to decrease dependence. Recent U.S. actions linking tariff policies to Greenland's sovereignty have strained transatlantic relations, intensifying trade conflict fears and prompting investors to retreat from U.S. assets.
German media reports highlight accelerating de-dollarization trends, while Danish pension funds' Treasury sell-offs have sparked similar moves elsewhere. British analysts note massive capital flows into gold and Swiss francs, driving record gold prices. Concerns about U.S. fiscal sustainability and credit risks continue to erode dollar asset appeal.
The Fed's Dilemma: Eroding Independence
The dollar faces internal pressures too, particularly regarding Federal Reserve independence. Political interference in monetary policy could undermine confidence in the dollar and U.S. financial system—a system built on political stability and deep Treasury markets. Should central bank autonomy weaken or inflation spiral, dollar assets would lose their luster.
Reports of a criminal investigation into the Fed chair have prompted PIMCO to reduce dollar holdings. CIO Dan Ivascyn confirms long-term diversification away from U.S. assets, citing policy unpredictability: "We've entered a multiyear process of reducing U.S. exposure given this administration's volatility."
Market Concerns and Analyst Warnings
Candriam analyst Nicolas Jullien predicts prolonged dollar weakness due to policy credibility concerns and potential Fed rate cuts. Even with a strong economy, governance issues may cause episodic dollar declines, especially if loose monetary policy materializes. Inflation uncertainty and yield curve risks add further pressure.
Pepperstone's Chris Weston notes rising political risk in U.S. assets is driving foreign investors to reduce exposure. While opinions differ on direct equity sales, funds are likely cutting dollar positions tied to U.S. stocks—a trend depressing the dollar while boosting gold. Weston emphasizes that growing uncertainty makes risk assessment increasingly difficult.
Gold's Ascent: Challenging Dollar Supremacy
Morgan Stanley observes the dollar's gradual but persistent decline in global currency systems. While no single currency currently rivals the dollar, gold emerges as its strongest challenger in a multipolar world. The dollar's shrinking role in reserves, corporate settlements, and emerging market bonds confirms this shift.
Yet the dollar remains the largest reserve component, indicating no immediate replacement exists. Meanwhile, gold's reserve share has surged from 14% to 25-28%, with momentum building. Safe-haven demand, risk premiums, and hedging behavior continue suppressing the dollar while elevating gold. The pace of de-dollarization policies in coming months will determine how far this trend progresses.
Even Dollar Stablecoins Face Challenges
Former Bank of China Deputy Governor Wang Yongli notes dollar-pegged stablecoins require full reserve backing—either in cash deposits, short-term Treasuries, or Fed-backed money market funds (primarily Treasuries). However, fluctuating Treasury prices risk breaking the 1:1 peg if values decline, exposing reserve inadequacies.
2026 Outlook: Dollar Volatility and Fed Pressures
Rabobank's Jane Foley anticipates heightened dollar volatility as political pressure mounts on the Fed—from rate cut demands to leadership scrutiny. While FOMC members may counter premature easing while inflation persists, credibility concerns could weaken the dollar without triggering collapse.
The Future: A Multipolar Currency Landscape
The dollar's future remains uncertain, but one trend is clear: a more diversified monetary system is emerging. The yuan's rise, gold's resurgence, and global de-dollarization efforts all signal potential decline for dollar dominance. In this transformative era, central banks and investors must reassess strategies to navigate coming risks and opportunities.