The Reign of the Dollar: Tracking Global Currency Dominance

The US dollar’s position as the world’s premier reserve currency has been steadfast since World War II. Currently, it accounts for a significant 58 percent of global foreign reserve holdings. In comparison, the euro, the second most utilized currency, holds a considerably smaller 20 percent share.

However, recent geopolitical events, notably Russia’s invasion of Ukraine in 2022 and the subsequent imposition of financial sanctions by the G7, have prompted several nations to publicly express their intentions to expedite the diversification away from the dollar. This shift marks a potential turning point in the established global financial order.

This pioneering project from the Atlantic Council’s GeoEconomics Center provides an in-depth examination of dollar dominance, seeking to:

Analyze the fundamental reasons behind the dollar’s current status as the dominant global reserve currency.
Present key indicators to monitor the progress of BRICS nations in their efforts to establish an alternative financial infrastructure.
Develop a comprehensive framework and dataset to assess the strengths and weaknesses of the world’s major currencies, including a detailed comparison with the euro and its position against the dollar.

Dollar Still Leads: Dominance in Reserves, Trade, and Transactions

Key Insights into Dollar Dominance

The US dollar’s role as the leading global reserve currency is firmly entrenched for the foreseeable future. The data consistently shows the dollar maintaining its dominance across critical areas: foreign reserve holdings, international trade invoicing, and global currency transactions. This resilience underscores the deep-seated infrastructure and trust in the dollar-based system.

No immediate challenger, including the euro, poses a significant threat to the dollar’s dominance. While there is a gradual, long-term decline in the dollar’s share of global reserves, this decrease is not translating into a consolidation behind a single alternative. Instead, the reduced dollar share is being distributed among a range of other currencies, indicating diversification rather than a direct challenge. The euro, despite being the closest competitor to the dollar, has not been able to capitalize sufficiently to overtake the dollar’s established position.

At the 2024 BRICS Summit, member states officially supported Russia-led initiatives aimed at promoting trade and finance in domestic currencies. These agreements, while symbolically important, deliberately remain ambiguous on specific implementation details. This vagueness likely reflects internal disagreements among BRICS members on the practical and political implications of moving away from the dollar.

BRICS nations are exploring financial technology as a lever to create a more multipolar global currency system. These nations are considering leveraging existing financial infrastructures within the bloc, such as China’s mBridge project, to develop innovative cross-border payment systems. This represents a long-term strategy to build alternatives to the dollar-centric financial architecture.

China’s Cross-Border Interbank Payment System (CIPS) continues to expand its reach and transaction volume. Since 2022, CIPS has witnessed an impressive 80% surge in annual transaction volume, now connecting over 160 countries, including a majority of BRICS members. This growth signals China’s ambition to promote the renminbi as a viable alternative in international finance, further impacting the dollar’s unchallenged position compared to currencies like the euro.

Former President Donald Trump has expressed strong interest in maintaining dollar dominance, even threatening tariffs against nations attempting dedollarization. Looking ahead to 2025, BRICS countries are expected to pursue incremental advancements in their financial infrastructure, carefully navigating to avoid direct confrontation with the United States, especially considering potential US responses to challenges against the dollar in favor of currencies like the euro or renminbi.

Tracking the Global Use of the Dollar

Core Qualities of a Reserve Currency

The following table outlines the six essential attributes that define a reserve currency. This analysis benchmarks currencies within the IMF’s Special Drawing Rights basket, along with the Indian rupee and Russian ruble, against these criteria. This evaluation clearly demonstrates the underlying factors contributing to the dollar’s status as the global reserve currency, and by extension, why other currencies, including the euro, face challenges in fully replicating the dollar’s role.

BRICS Summit in Kazan: Pushing for Alternatives

The BRICS Summit held in Kazan in October 2024 underscored the group’s focus on establishing the necessary payment and trade infrastructure to facilitate the increased use of domestic currencies. Two key initiatives emerged from this summit: the BRICS Cross Border Payments Initiative (BCBPI) and the Grain Exchange. These projects have the potential to significantly influence the dollar’s international role and potentially elevate the standing of other currencies, including the euro, in global trade.

The BCBPI is structured around three core projects:

These initiatives are designed to offer BRICS members greater efficiency and cost savings in transactions. Critically, they also aim to create pathways for bypassing the US-dominated financial system. This capability would provide mechanisms for countries facing sanctions, such as Russia, to circumvent these restrictions, and for other nations to mitigate the impact of secondary sanctions. Consequently, these developments could erode the effectiveness of the US economic statecraft toolkit and potentially shift the balance of power in international finance, creating more space for alternatives to the dollar, such as the euro or the renminbi. Furthermore, advancements in financial technology and payment infrastructure are fueling the growing momentum for “de-dollarization” among BRICS members.

Inspiration for BRICS: Models for a Dollar Alternative

SPFS: A Messaging Model – Russia’s System for Transfer of Financial Messages (SPFS) was created in 2014 as a direct response to the need for an alternative to the SWIFT messaging system. By 2024, SPFS had expanded to connect 550 organizations across twenty countries, including major players like China, Kazakhstan, and Kyrgyzstan. In November 2024, the US Treasury highlighted the sanctions evasion risks associated with SPFS. However, SPFS still lags behind SWIFT in terms of global connectivity and faces ongoing operational limitations, suggesting that while it provides a valuable alternative, it’s not yet a full-scale replacement for the dollar-centric SWIFT system, or a direct boost for the euro.

CIPS: A Clearing, Settlement, and Messaging Model – Launched in 2015, China’s Cross-Border Interbank Payment System (CIPS) integrates messaging and settlement functionalities for cross-border renminbi payments. By 2024, CIPS boasted 160 direct participants and facilitated over 377,000 transactions. CIPS is central to China’s strategy to internationalize the renminbi and could serve as a blueprint for a broader BRICS clearing system. This development directly challenges the dollar’s dominance in international payments and, while not directly benefiting the euro, contributes to a more multi-currency world.

mBridge: A Digital Currency Model – Project mBridge is pioneering a cross-border digital payments network connecting Hong Kong, Thailand, the UAE, Saudi Arabia, and China through their respective central bank digital currencies (CBDCs). Currently, mBridge can handle up to $190 million in transactions annually. Significantly, all founding BRICS members are experimenting with CBDCs and could potentially use mBridge as a model for a BRICS-wide digital currency bridge. Chinese state media indicated in October 2024 that the new BRICS plan is “likely to draw on the lessons learned” from mBridge. This move towards digital currencies represents a forward-looking approach to potentially reduce reliance on traditional systems heavily influenced by the dollar, and could indirectly benefit other digital-ready currencies like a digital euro in the future.

The Grain Exchange initiative, designed as a platform for trade within the BRICS bloc, could become a testing ground for these new financial infrastructures. Global grain price benchmarks, like most commodities, are currently established in US exchanges and settled in dollars, even though emerging markets dominate the grain trade. BRICS members collectively possess the necessary liquidity and market depth to support their own exchange. Success here would be a symbolic victory in moving away from dollar dependence in commodity trading.

However, these initiatives are still in their early stages and face significant hurdles:

Currency Management Ambiguity: Both the payments and grain exchange proposals intentionally avoid specifying details regarding currency management. These discussions are likely to trigger disagreements among BRICS member states due to varying economic exposures to volatile or isolated financial markets, and political sensitivities around promoting a geostrategic rival’s currency over their own, or even the euro.
Geopolitical vs. Economic Motivations: Russia has largely framed these proposals around political objectives, particularly sanctions evasion, which may not resonate with BRICS members not directly threatened by US sanctions. The Kazan Summit Communiqué mentions minimizing disruption through the Grain Exchange but lacks broader appeals to financial advantages like reduced transaction costs or enhanced price transparency. Russia emphasizes the new payment infrastructure’s primary goal as shielding participants from “external pressures such as extraterritorial sanctions.” This narrow focus may limit broader BRICS buy-in beyond countries seeking to avoid dollar-based sanctions, and might not appeal to nations who see benefit in the euro as an alternative for trade.
US Pushback: The US, under administrations concerned about dollar dominance, may exert pressure against these dedollarization efforts. Threats of tariffs on BRICS nations supporting alternative currencies could deter some members from fully committing to these initiatives, especially if they perceive the euro or other alternatives as less politically risky than directly challenging the dollar.

Dedollarization: A Divergent Landscape

This section offers a detailed analysis of individual country dedollarization efforts. It tracks two key indicators of the alternative financial infrastructure being developed, primarily by China: China’s swap lines with BRICS nations and membership in China’s Cross-Border Interbank Payment System (CIPS). These indicators provide insights into the practical steps being taken to reduce reliance on the dollar and potentially increase the role of currencies like the euro or the renminbi in specific trade relationships.

Acknowledgements

Research team: Mrugank Bhusari and Alisha Chhangani
Thank you to Maia Nikoladze for her foundational work on 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