The US dollar has served as the world’s leading reserve currency since World War II. Today, the dollar represents 58 percent of foreign reserve holdings worldwide. The euro, the second-most-used currency, accounts for only 20 percent of foreign reserve holdings.
But in recent years, and especially since Russia’s 2022 invasion of Ukraine and the Group of Seven (G7)’s subsequent escalation in the use of financial sanctions, several countries have signaled their intention to accelerate efforts to diversify away from dollars.
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 progress by members of the BRICS grouping of emerging economies 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
Tracking the dollar’s international use
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.
BRICS summit in Kazan
At the October 2024 BRICS Summit in Russia, members focused on building the foundational payment and trade infrastructure necessary to support the use of domestic currencies. Two key initiatives from the summit, the BRICS Cross Border Payments Initiative (BCBPI) and the Grain Exchange, could directly impact the dollar’s international role.
The BCBPI strategy encompasses three key projects:
While these projects might offer efficiency and cost benefits to BRICS members, they would also enable them to settle transactions bypassing the US-led financial system. Therefore, the projects would provide mechanisms for countries such as Russia to evade sanctions, and others to evade secondary sanctions implications—inevitably diminishing the effectiveness of the US economic statecraft toolkit. Additionally, advancements in financial technology and payment infrastructure are now supporting the growing demand to “de-dollarize” among BRICS members.
BRICS does not need to look far for inspiration
FOR A MESSAGING MODEL — SPFS
Russia’s System for Transfer of Financial Messages (SPFS) was developed in 2014 as an alternative to the widely used SWIFT messaging system. By 2024, SPFS was connected to 550 organizations across twenty countries, including China, Kazakhstan, and Kyrgyzstan. In Novemeber 2024, the US Treasury emphasized the risks of sanctions evasion associated with SPFS. However, SPFS still lacks SWIFT’s international connectivity and continues to have operational limitations.
FOR A CLEARING SETTLEMENT AND MESSAGING MODEL — CIPS
China’s Cross-Border Interbank Payment System (CIPS), launched in 2015, combines messaging and settlement for cross-border renminbi payments. By 2024, CIPS had 160 direct participants and facilitated over 377,000 transactions. CIPS continues to be a part of China’s effort to internationalize the renminbi, and could serve as a model for BRICS Clear.
FOR A DIGITAL CURRENCY MODEL — mBRIDGE
Project mBridge is a cross-border digital payments network that connects Hong Kong, Thailand, the UAE, Saudi Arabia, and China through their central bank digital currencies (CBDCs). At this stage, mBridge has the capacity to manage up to $190 million worth of transactions annually. All founding BRICS members have piloted their CBDCs and could leverage this project as a model for BRICS Bridge. In October 2024, Chinese state media stated that the new BRICS plan “is likely to draw on the lessons learned” from mBridge.
The Grain Exchange, a platform for intra-bloc trade, could serve as a test case for new financial infrastructures. Global grain price benchmarks, like most commodities, are currently set in US exchanges and are hence settled in dollars despite the dominant market share of emerging markets. The BRICS members collectively offer sufficient liquidity and depth for such an exchange.
These initiatives are still in formation phase and face challenges:
- Both proposals deliberately avoid elaborating on the specifics of currency management. These discussions would generate disagreements between BRICS member states on economic terms—as they evaluate their exposure to volatile or isolated financial markets—and on political terms as countries will want to avoid encouraging the internationalization of a geostrategic rival’s currency.
- Russia has primarily shaped these proposals around political goals that are irrelevant to countries not at risk of US sanctions. The Kazan Summit Communiqué mentions establishing a Grain Exchange to “minimize disruption,” but does not mention more broadly appealing financial motives such as reducing transaction costs or establishing more transparent price formation systems. Russia says the new payment infrastructure’s main goal is to “ring-fence its participants from any external pressures such as extraterritorial sanctions.”
- Trump has taken an interest in dollar dominance and has already threatened 100 percent tariffs on BRICS members supporting alternative currencies. Some members will try to avoid the perception of challenging dollar dominance.
A scattered approach to dedollarization
This section provides a comprehensive analysis of each country’s dedollarization efforts. It 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).
Acknowledgements
Research team: Mrugank Bhusari and Alisha Chhangani
Thank you to Maia Nikoladze for her work on originally designing, researching, and developing this project
Contributions from: Mondrita Rashid, Israel Rosales, Ryan Murphy, and Grace Kim
Project editors: Josh Lipsky, Kimberly Donovan, Charles Lichfield, and Ananya Kumar
Visual design: Nancy Messieh, Andrea Ratiu, and Michael Currie
Related content
Stay connected
Sign up to receive emails on new research & reports, program highlights, and events.