Dollar Dominance Monitor

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The US dollar has served as the world’s leading reserve currency since World War II. Today, the dollar represents 58 percent of the value of foreign reserve holdings worldwide. The euro, the second-most-used currency, comprises only 21 percent of foreign reserve holdings.

But in recent years, and especially since Russia’s invasion of Ukraine and the Group of Seven (G7)’s subsequent escalation in the use of financial sanctions, some countries have been signaling their intention to diversify away from dollars.

Over the past twenty-four months, the BRICS (a grouping of Brazil, Russia, India, China, and South Africa) has been actively promoting the use of national currencies in trade and transactions. During this same time, China has been expanding its alternative payment system to its trading partners and seeking to increase international usage of the renminbi.

This first-of-its-kind project on dollar dominance by the Atlantic Council’s GeoEconomics Center

• Analyzes why the dollar is currently the world’s dominant reserve currency,
• Presents indicators for tracking China’s progress in creating an alternative financial infrastructure, and
• Creates a novel framework and data set for evaluating strengths and weaknesses of the world’s major currencies.

Dollar dominance remains strong in reserves, trade, and transactions

Key takeaways

The dollar’s role as the primary global reserve currency is secure in the near and medium term. The dollar continues to dominate foreign reserve holdings, trade invoicing, and currency transactions globally. All potential rivals, including the euro, have a limited ability to challenge the dollar in the immediate future.

All five BRICS members are seeking to reduce their reliance on the dollar. The group has so far been unable to make significant progress on dedollarization efforts, including the creation of a common currency. However, because of their combined share of global GDP, BRICS can pose a long-term challenge to the dollar’s hegemony.

Alternative financial plumbing may be a leading indicator that precedes any shift away from dollars. To assess the dollar’s relative strength at present, and anticipate its future status, it is critical to track the rise of competing financial settlement networks and payments architecture.

With the goal of creating a multipolar and less dollar-dominated financial system, China has accelerated its development of alternative payment systems. China’s Cross-Border Interbank Payment System (CIPS)—a renminbi settlement mechanism—has grown rapidly to include 119 direct and 1,304 indirect participants around the world.

China has actively exchanged renminbi directly with its trading partners’ central banks to boost their renminbi reserves. Russia is now the most active client of the People’s Bank of China. The two countries’ central banks can exchange up to $1.4 billion worth of rubles and yuan every day.

If Beijing were to allow more free movement of renminbi in and out of the country, it would significantly enhance the international appeal of its currency. However, even without a policy change, the renminbi possesses some characteristics of a reserve currency and can continue to slowly grow its share in global payments.

BRICS and dedollarization: What’s happening and why

The project identifies the BRICS as a potential challenge to the dollar’s status due to the individual members’ signal of intent to trade more in national currencies and the BRICS’ growing share of global GDP. Among the BRICS currencies, the renminbi has the highest potential of competing with the dollar as a trade and reserve currency. This section provides a comprehensive analysis of each country’s dedollarization efforts. It also identifies and tracks two key indicators of the strength of the alternative financial infrastructure China is building: China’s swap lines with the BRICS countries and membership in China’s Cross-Border Interbank Payment System (CIPS).

What does it take to be a reserve currency?

The table below identifies the six essential qualities of a reserve currency. This new analysis evaluates the currencies included in the IMF’s Special Drawing Rights basket as well as the Indian rupee and Russian ruble against the criteria and allows us to demonstrate why the dollar is the global reserve currency. The US Treasury Department originally identified the six criteria in 2009 and now the Atlantic Council GeoEconomics Center built this new framework by identifying specific indicators to compare the selected currencies’ performance in each criterion. You can access the detailed methodology here.

Tracking the dollar’s international use

Research Team: Maia Nikoladze, Mrugank Bhusari, Mondrita Rashid
Contributions from: Sophia Busch, Alisha Chhangani, Niels Graham, Ananya Kumar, Ryan Murphy
Project Editors: Josh Lipsky, Kimberly Donovan, Charles Lichfield, Walter Frick
Visual Design: Nancy Messieh
The project leads would like to thank Senior Fellows Daniel McDowell and Martin Mühleisen for their input and feedback.

Report Sep 20, 2023

The US, EU, and UK need a shared approach to economic statecraft. Here’s where to start.

By Kimberly Donovan, Maia Nikoladze, Nicole Goldin, Mrugank Bhusari, Sarah Bauerle Danzman, Ambuj Sahu, and Daniel McDowell

The economic statecraft landscape is becoming more complex as transatlantic partners increasingly leverage the tools to counter transnational threats. There is a growing need to understand how these tools are used, by whom, and when, as well as their intended and real impacts worldwide.

Economic Sanctions Economy & Business

New Atlanticist Sep 22, 2022

The dollar has some would-be rivals. Meet the challengers.

By Ananya Kumar, Josh Lipsky

What are the realistic alternatives to the dollar that US and allied policymakers should be paying attention to? And how can they respond?

China Digital Currencies

Issue Brief Sep 27, 2022

The international role of the euro and the dollar: Forever in the lead?

By Martin Mühleisen

This paper argues that this is unlikely for the foreseeable future, in part because a larger global role for the renminbi would be inconsistent with the Chinese leadership’s current policy priorities. However, there is no room for complacency.

Digital Currencies Digital Policy

Testimony Jun 8, 2023

Dollar dominance: Preserving the US dollar’s status as the global reserve currency

By Dr. Carla Norrlöf

Dr. Carla Norrlöf, a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center, testified to the US House Committee on Financial Services Subcommittee on Financial Institutions and Monetary Policy. Below are her prepared remarks for the committee on preserving the US dollar’s status as a global reserve currency.

China Economic Sanctions

Econographics Nov 16, 2023

CBDCs will further fragment the global economy—and could threaten the dollar

By Hung Tran, Barbara C. Matthews

Divergent regulatory and technological standards are evolving along geopolitical fault lines. Such an outcome would be costly.

China Digital Currencies

Econographics Mar 18, 2022

Internationalization of the Renmibi via bilateral swap lines

By Hung Tran

Russia’s brutal war of aggression against Ukraine has triggered unprecedented sanctions being imposed by the US, Europe and other countries on various Russian entities. The most important measure so far is denying the Russian central bank access to most of its international reserves held in major world currencies.

China Digital Currencies

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