• US dollar's share of global allocated foreign exchange reserves hovered around 56-58% in 2025 but no major rival has emerged, with the euro at ~20–21%, yen ~6%, and RMB ~2%
• Central banks accelerated gold purchases boosting its share surpassing US Treasuries' ~23% reflecting de-dollarization efforts by BRICS
• Drivers include US trade wars/tariffs, BRICS expansion and non-dollar experiments, and central bank diversification

Source: IMF COFER, WGC, Equity Axis

Harare- For nearly eight decades, the American dollar has reigned as the undisputed monarch of global finance, a currency so entrenched that it seems woven into the fabric of international commerce. Born from the ashes of World War II at the Bretton Woods conference in 1944, the dollar's ascent was no accident. It was the product of American economic might, backed by vast gold reserves and a promise of convertibility that anchored the post-war order.

Yet, as the latest data trickles in from central banks and international institutions, whispers of decline are growing louder. The share of gold in global reserves has climbed steadily, from 13% in 2021 to 24% in 2025, while foreign holdings of US debt have slipped from 28% to 23% over the same period. Is this the twilight of dollar dominance, or merely a cyclical dip in a long reign? 

The dollar's story begins in the ruins of Europe and the rubble of global trade. Before Bretton Woods, the British pound sterling had held sway for over a century, underpinned by the vast British Empire and the gold standard. But two world wars had drained Britain's coffers, leaving the United States as the sole superpower with an intact economy and two-thirds of the world's gold stock.

At Bretton Woods, 44 allied nations agreed to peg their currencies to the dollar, which in turn was fixed to gold at $35 per ounce. This system, overseen by the newly minted International Monetary Fund (IMF) and World Bank, positioned the dollar as the linchpin of international payments and reserves. Central banks worldwide amassed dollars to facilitate trade, confident in America's pledge to redeem them for gold. 

The arrangement worked brilliantly in the post-war boom. The Marshall Plan, America's $13 billion aid package to Europe (equivalent to $150 billion today), was disbursed in dollars, fostering reconstruction while embedding US currency in global flows. By the 1950s, the dollar accounted for over 70% of international reserves, a dominance amplified by the petrodollar system in the 1970s.

After the 1973 oil crisis, Saudi Arabia and other OPEC nations agreed to price oil in dollars and invest surpluses in US Treasuries, ensuring a perpetual demand for greenbacks. This recycled petrodollars into the US economy, funding deficits while keeping borrowing costs low, a privilege dubbed "exorbitant" by French finance minister Valéry Giscard d'Estaing. 

Yet, strains emerged early. America's Vietnam War spending and Great Society programs inflated the dollar supply, leading to a glut of dollars abroad. Foreign central banks, wary of devaluation, began demanding gold redemptions. In August 1971, President Richard Nixon shocked the world by suspending convertibility, effectively ending Bretton Woods.

The dollar floated freely, and critics predicted its demise. Instead, it adapted. The 1973 oil shock solidified the petrodollar, and the US's deep, liquid financial markets bolstered by deregulation under Reagan attracted capital. By the 1980s, the dollar's share of reserves hovered around 60-70%, buoyed by high interest rates that drew in foreign investment. 

The 1990s and early 2000s marked the dollar's zenith. The fall of the Soviet Union left America as the sole hegemon, its economy booming with tech innovation and globalisation. The euro's launch in 1999 posed a potential rival, uniting Europe's economies under one currency.

Yet, the dollar's network effects its use in 85% of forex transactions and as the invoice currency for 80% of global trade proved insurmountable. Central banks preferred dollars for their liquidity; Treasuries offered unmatched safety. Even the 2008 financial crisis, originating in US subprime mortgages, paradoxically strengthened the dollar. As panic spread, investors flocked to Treasuries, affirming the greenback's safe-haven status. By 2010, the dollar comprised 62% of global reserves, per IMF COFER data. 

But the seeds of erosion were sown. The crisis exposed vulnerabilities in US financial oversight, eroding trust. Quantitative easing flooded the world with dollars, stoking inflation fears abroad. Geopolitical shifts accelerated the trend. Russia's 2014 annexation of Crimea prompted US sanctions, freezing Russian dollar assets and prompting Moscow to diversify reserves.

China, eyeing global influence, launched the Belt and Road Initiative in 2013, promoting renminbi (RMB) use in loans and trade. By 2021, the RMB's reserve share was a modest 2.6%, but Beijing's digital yuan (e-CNY) trials hinted at future disruptions. 

In 2021, gold's share of global reserves stood at 13%, per World Gold Council estimates, as central banks sought hedges against dollar volatility. Gold, long a relic of the pre-dollar era, appealed for its scarcity and independence from fiat systems. By 2022, amid Russia's invasion of Ukraine and sweeping US-led sanctions, gold's share ticked up to 14%.

Sanctions weaponised the dollar, freezing $300 billion in Russian assets and excluding banks from SWIFT. This spurred de-dollarisation talk; BRICS nations (Brazil, Russia, India, China, South Africa) discussed alternative payment systems. Gold purchases surged. Central banks added 1,082 tonnes in 2022, the highest since 1967. 

The trend accelerated. In 2023, gold's reserve share reached 15%, while US debt holdings by foreigners dipped to 26% of total Treasuries, down from 28% in 2021, according to US Treasury data. Foreign holdings grew in absolute terms, from $7.3 trillion in 2021 to $8.5 trillion in 2025 but as a percentage, they declined amid exploding US deficits.

America's debt-to-GDP ratio hit 123% in 2025, raising sustainability concerns. Inflation, peaking eroded dollar purchasing power, prompting diversification. Central banks in emerging markets, wary of US policy swings, boosted gold. Turkey added 148 tonnes in 2023, China 225 tonnes. 

By 2023, gold's share hit 17%, driven by price surges (gold averaged $2,050/oz, up 15% yoy) and net purchases of 1,037 tonnes. US debt holdings fell to 24%, as Japan and China trimmed positions, Japan from $1.3 trillion to $1.1 trillion amid yen weakness, China from $1.1 trillion to $0.8 trillion amid trade tensions.

The dollar's reserve share, per IMF COFER, slipped to 58% from 59% in 2023, the lowest since 1995. Yet, no single rival emerged. The euro held 20%, yen 6%, RMB 2.1%. Instead, "other" currencies (Australian dollar, Canadian dollar) rose collectively to 9%. 

In 2025, the shift intensified. Gold's reserve share leaped to 24%, fuelled by record buying. Central banks netted over 1,000 tonnes for the third straight year. Prices hit above $4000/oz amid geopolitical strife, US-China tech wars, Middle East tensions and US fiscal woes (debt surpassing $35 trillion). US debt holdings dwindled to 23%, with foreign share of Treasuries at 30%, down from 35% in 2021. BRICS expanded, with Saudi Arabia and UAE joining, piloting non-dollar oil trades. India's rupee settlements with Russia and Iran's rial experiments chipped at petrodollar edges.

A key catalyst in this depletion has been the trade war initiated by Donald Trump during his first term (2017-2021) and revived in his second (2025 onward). Trump's 2018 tariffs on $360 billion of Chinese goods sparked retaliation, disrupting supply chains and raising costs.

Short-term, the dollar strengthened as a safe haven amid uncertainty appreciating 4% against major currencies in 2018-2019. Investors flocked to Treasuries, boosting demand.

However, long-term effects have undermined dominance. The war accelerated de-dollarisation. China reduced US debt holdings by $300 billion since 2018, while promoting RMB in trade (now 4% of global payments, up from 1% in 2015). Bilateral deals with Russia and Iran bypassed dollars, eroding petrodollar exclusivity.

Trump's policies like high tariffs, immigration curbs, fiscal deficits weakened US economic vitality, eroding trust in dollar stability. In 2025, renewed tariffs (projected to raise $2 trillion in revenue but cut GDP 0.5%) fuelled inflation and uncertainty, prompting further reserve diversification. Studies show tariffs appreciate the dollar short-term but encourage alternatives, hastening multipolarity.

 Gold's surge raises the question. Is it replacing the dollar? Not quite. Gold's reserve share has overtaken Treasuries for the first time since 1996 (24% vs 23% in 2025), driven by emerging-market demand (China added 200 tonnes in 2025). It serves as a hedge against inflation, sanctions, and dollar debasement neutral, unencumbered by geopolitics.

Yet, gold is no transaction currency, it's illiquid for daily trade, lacking dollar's network effects. Central banks buy gold to diversify, not supplant dollars, gold complements, hedging volatility without replacing the greenback's role in payments (88% of forex) or debt (54% global issuance). Prices soared 35% in 2025, but gold remains a store of value, not a full substitute.

 If the dollar falls further perhaps below 50% by 2030, which currency could replace it? No single heir looms. The euro, at 20-21%, is stable but hampered by EU fiscal fragmentation and low yields. The yen (6%) offers safety but suffers from Japan's debt (260% GDP) and aging demographics. The pound (5%) has Brexit scars and limited scale. The RMB, with potential (2%), grows via Belt and Road but faces capital controls, opacity, and geopolitical risks, China's share in reserves doubled since 2020, yet it's far from open. Smaller currencies like Australian/Canadian dollars (collective 9%) gain, but lack depth.

A BRICS currency or SDR basket has been floated historically (Zhou Xiaochuan's 2009 call for SDRs), but progress stalls on governance. Digital alternatives, e-CNY or stablecoins emerge, but regulatory hurdles abound. Likely, a multipolar system, with no dominant replacement, increasing volatility but reducing US leverage.

 For the US, dominance yields "exorbitant privilege": cheap borrowing (foreigners fund deficits at low rates), seigniorage (profits from printing money others hold), and sanction leverage. Erosion could raise borrowing costs by 0.5-1%, per IMF estimates, adding $100-200 billion annually to interest payments. Global trade might fragment into currency blocs, dollar for West, RMB for Belt and Road raising costs and volatility. Emerging markets, holding $12 trillion in reserves (mostly dollars), face adjustment pains but gain autonomy.

 The dollar's decline is gradual, not cataclysmic. Network effects endure. 88% of forex trades involve dollars, 54% of global debt is dollar-denominated. Replacing it requires a rival with comparable liquidity, stability, and openness criteria the euro partially meets, but RMB lacks due to capital controls. Gold's rise reflects hedging, not replacement; it's a store of value, not a transaction medium.

 The dollar's halo dims, but it won't vanish overnight. History shows shifts take decades the pound lingered post-1945. By 2030, dollar reserves might dip below 50%, with gold at 30% and RMB at 5-10%. A multipolar system beckons, less efficient but perhaps more equitable. As Bretton Woods fades, the world braces for a currency remix less American exceptionalism, more global balance.

 Equity Axis News