The U.S. dollar remains the dominant force in the international monetary system despite increasing discussions about “de-dollarization,” according to a recent report by Otaviano Canuto, Senior Fellow at the Policy Center for the New South.
The topic is significant as several countries, including China, are taking steps to promote alternative currencies and diversify global reserves. However, Canuto said any meaningful shift away from dollar dominance will be partial, slow, and bounded due to four structural advantages: network effects that reinforce the dollar’s position, deep financial markets with unmatched liquidity in U.S. Treasuries, a stable monetary policy framework supported by credible U.S. institutions, and the absence of capital controls allowing free convertibility.
The report highlights key trends such as China’s move to settle approximately 50% of its cross-border transactions in renminbi and bilateral agreements like Brazil-China 2023 that allow local currency trade settlement. The People’s Bank of China has established swap lines with 41 countries totaling around $480 billion. The share of renminbi in trade finance rose from less than 2% in 2022 to about 6% in 2023.
Despite these developments, the dollar’s share of global reserves fell from 71% in 1999 to 57.3% in 2024. Gains have gone mainly to non-traditional currencies such as the Australian dollar, Canadian dollar, Swiss franc, and renminbi rather than traditional alternatives like the euro or yen. Dollar asset holdings still increased from $4.4 trillion in 2014 to $7.1 trillion in 2021.
Canuto outlined constraints on further internationalization of the renminbi due to China’s capital controls and concerns over convertibility among foreign investors. He also noted that many emerging market and developing economies lack access to major central bank swap lines and that the International Monetary Fund’s lending capacity has not kept pace with global external liabilities.
“The monetary system is on the way to losing its single polarity. The world should do whatever it takes to minimize the risks of instability that may rise during and after such a transition,” Canuto said.
For more details see the full report at Policy Center for the New South.
