88 Euro to US Dollars: Understanding the Dollar’s Dominance in a Post-COVID World

For nearly a century, the U.S. dollar has held a paramount position in the global economy. This prominence is rooted in the robust U.S. economy, its consistent stability, open approach to international trade and capital flows, and a strong legal framework protecting property rights. These factors have cultivated unparalleled depth and liquidity in U.S. financial markets, ensuring a substantial supply of secure, dollar-denominated assets. When considering international finance, questions like “what is 88 Euro To Us Dollars?” often arise, highlighting the constant need for currency exchange and underscoring the dollar’s role as the benchmark.

The dollar’s significance has been further emphasized in the post-COVID era, especially following increased U.S. sanctions against Russia after the Ukraine invasion. This article revisits the dollar’s usage in crucial international functions: as international reserves, a currency anchor, and in global transactions. Our analysis indicates that the dollar not only remains the leading global currency but also wields an exceptionally influential international role. This influence, measured by its prevalence in international reserves and various other indicators, significantly surpasses the U.S.’s proportional share of the global GDP (as illustrated in Figure 1). Our composite index, which integrates diverse factors, demonstrates that the dollar’s international application has essentially remained stable over the last five years. Remarkably, the dollar’s dominance extends into innovative financial domains, serving as the primary anchor for stablecoins. However, this analysis also considers potential challenges to the dollar’s continued supremacy, which we will explore later.

Figure 1. U.S. share of world GDP vs. U.S. dollar share of international reserves, 2022

Note: Comparison of the U.S.’s share of 2022 nominal world GDP against the dollar’s proportion of globally reported foreign exchange reserves in Q4 2022, using current exchange rates.
Source: IMF COFER; IMF World Economic Outlook database.
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Enduring Confidence in the U.S. Dollar as a Store of Value

A fundamental function of any currency is its capacity to serve as a reliable store of value, allowing individuals and institutions to save and access it in the future without significant loss of purchasing power. A key indicator of this confidence is the currency’s utilization in official foreign exchange reserves. Figure 2 illustrates that in 2022, the U.S. dollar constituted 58 percent of globally disclosed official foreign reserves. This figure significantly exceeds all other currencies, including the euro (21 percent), Japanese yen (6 percent), British pound (5 percent), and Chinese renminbi (3 percent). The dollar’s share remained largely unchanged in 2022, suggesting that U.S. sanctions against Russia following the Ukraine invasion have not yet triggered a substantial shift in reserve allocations. Nevertheless, it’s important to note a longer trend: the dollar’s reserve share has decreased from 71 percent in 2000, as reserve managers have diversified their portfolios to include a broader range of currencies, such as the Australian and Canadian dollars (IMF COFER data). Despite this diversification, the U.S. dollar firmly maintains its position as the dominant reserve currency.

Figure 2. Foreign exchange reserves

Note: Breakdown of globally reported foreign exchange reserves by currency share, using current exchange rates. Annual data spans from 1999 to 2022. Legend entries are ordered from top to bottom as they appear in the graph. The Chinese renminbi is recorded as 0 until Q2 2015.
Source: IMF COFER.
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The majority of these official dollar reserves are held as U.S. Treasury securities, which are highly sought after by both official and private foreign investors. By the end of 2022, foreign investors, both official and private, held $7.4 trillion, or 31 percent, of marketable Treasury securities outstanding (Figure 3a). Private domestic investors held 48 percent, and the Federal Reserve System held 21 percent. While the proportion of Treasuries held by foreign investors has declined from nearly 50 percent in 2014, the current level is still comparable to foreign-held shares in the euro area, Japan, and the United Kingdom (Figure 3b).

Figure 3. Foreign holdings of government debt

Note: Figure 3a legend entries are ordered top to bottom as they appear in the graph. Figure 3b excludes domestic central bank holdings. Intra-euro area holdings of euro area debt securities are considered domestic holdings. General government debt securities include local, state, and national debt securities. Figure 3a data is annual, from 1999 to 2022 (2022 data is through Q3). Figure 3b data is quarterly, from Q1 1999 to Q3 2022.
Source: Financial Accounts of the United States, Table L.210. BIS debt securities statistics; World Bank/IMF Quarterly External Debt Statistics (QEDS), accessed via Haver Analytics; Bank of England; Bank of Japan; European Central Bank; Federal Reserve Board; Board staff calculations.
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Furthermore, substantial amounts of physical U.S. dollar banknotes are held by foreign entities. Figure 4 shows the increasing value of U.S. dollar banknotes held abroad over the past two decades, both in absolute terms and as a percentage of total banknotes in circulation. Federal Reserve Board staff estimate that over $1 trillion in U.S. dollar banknotes were held by foreigners at the end of 2022, approximately half of all U.S. dollar banknotes outstanding.

Figure 4. Foreign holdings of U.S. dollar banknotes

Note: The precise amount of U.S. dollar banknotes held overseas is not definitively known and this figure is likely a conservative estimate (see Judson (2017)). Data is quarterly, spanning from Q4 2002 to Q4 2022.
Source: Financial Accounts of the United States, Table L.204; Factors Affecting Reserve Balances (H.4.1), Table 1; Board staff calculations.
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Many foreign countries also leverage the dollar’s effectiveness as a store of value by pegging or closely managing their currencies against the U.S. dollar – effectively using it as an anchor currency. Research by Ilzetzki, Reinhart, and Rogoff (2020) indicates a growing trend in dollar anchoring over the last two decades. They estimate that in 2015, 50 percent of global GDP was produced in countries whose currencies were anchored to the U.S. dollar (excluding the United States itself). In contrast, the euro anchored only 5 percent of world GDP (excluding the euro area). This anchoring pattern has remained largely stable since 2015. One notable shift is China’s move to re-anchor the renminbi to a basket of currencies instead of solely the U.S. dollar. However, the U.S. dollar and dollar-linked currencies still constitute over 50 percent of this basket, maintaining a limited range of fluctuation for the renminbi against the dollar.

Dollar Dominance in International Transactions and Financial Markets

Beyond a store of value, a currency’s international role is also defined by its use as a medium of exchange. Numerous recent studies highlight the dollar’s dominance in global trade and international financial transactions. The U.S. dollar is overwhelmingly the most used currency in global trade. Figure 5 presents an estimate of the dollar’s share in global trade invoicing. From 1999 to 2019, the dollar was used for 96 percent of trade invoicing in the Americas, 74 percent in the Asia-Pacific region, and 79 percent in the rest of the world. Europe is the exception, where the euro dominates with 66 percent of trade invoicing.

Figure 5. Share of export invoicing

Note: Average annual currency composition of export invoicing, where data is available. Data spans from 1999 to 2019. Regions are IMF defined. Legend entries are ordered top to bottom as in the graph. European value includes intra-euro area trade.
Source: IMF Direction of Trade; Central Bank of the Republic of China; Boz et al. (2020); Board staff calculations.
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Partly due to its dominant role as a medium of exchange, the U.S. dollar is also the leading currency in international banking. Figure 6 shows that approximately 60 percent of international and foreign currency claims (primarily loans) and liabilities (primarily deposits) are denominated in U.S. dollars. This proportion has remained relatively stable since 2000 and significantly exceeds the euro’s share (around 20 percent).

Figure 6. Share of international and foreign currency banking claims and liabilities

Note: Share of banking claims and liabilities across national borders or denominated in a foreign currency. Banking claims and liabilities are defined as loans and deposits only, including repurchase agreements. Excludes claims on and liabilities to related banking offices and central banks, and intra-euro area cross-border claims and liabilities. At current exchange rates. Annual data spans from 1999 to 2022. Legend entries ordered top to bottom.
Source: BIS locational banking statistics; Board staff calculations.
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The demand for dollar financing is particularly acute during crises, which can strain foreign financial institutions’ access to dollar funding. In response, the Federal Reserve has implemented programs to ease crisis-induced pressures in international dollar funding markets, mitigating the impact on credit supply to both domestic and foreign entities. During the 2008-2009 financial crisis, the Federal Reserve introduced temporary swap lines with several foreign central banks, some of which became permanent in 2013. In the COVID-19 crisis of March 2020, the Federal Reserve increased the operational frequency of standing swap lines and established temporary lines with additional counterparts. Furthermore, a repo facility for Foreign and International Monetary Authorities (FIMA) with accounts at the Federal Reserve Bank of New York was made permanent in 2021. The frequency of swap line operations was again temporarily increased in March and April 2023 to alleviate market stresses related to the intervention in Credit Suisse by Swiss authorities.

Both swap lines and the FIMA repo facility enhance the dollar’s standing as the dominant global currency, assuring approved users of stable dollar funding access during crises. Swap lines were extensively utilized during the 2008-2009 financial crisis and the 2020 COVID-19 crisis, reaching outstanding totals of $585 billion and $450 billion, respectively (Figure 7a). While other central banks have also established swap lines, non-dollar-denominated swap lines, such as those offered by the European Central Bank, saw minimal usage (Figure 7b). This highlights the critical importance of dollar funding for many internationally active banks.

Figure 7. Central bank swap lines

Note: In Figure 7a legend entries are ordered top to bottom. Federal Reserve swap line provisions to the Bank of England, Bank of Japan, and other central banks were near 0 before September 2008. Provisions to the Swiss National Bank were near 0 before March 2008 and after June 2009. Figure 7b includes both swap line and repo provisions by the European Central Bank for the COVID-19 period. At current exchange rates. Data is daily, from December 1, 2007 to December 31, 2013 for the Global Financial Crisis, and January 1, 2020 to April 30, 2023 for COVID-19. European Central Bank swap line provisions are 0 (or near 0 in billions) before October 2008 and after February 2009.
Source: Federal Reserve Bank of New York; European Central Bank.
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Issuance of foreign currency debt—debt issued by firms in a currency other than their home country—is also predominantly in U.S. dollars. Since 2010, the percentage of foreign currency debt denominated in U.S. dollars has remained around 70 percent (Figure 8). This significantly surpasses the euro, which accounts for 21 percent of foreign currency debt issuance.

Figure 8. Share of foreign currency debt issuance

Note: Foreign currency debt is denominated in a currency foreign to the issuing firm’s country (not issuance location). At current exchange rates. Annual data spans from 2005 to 2022. Legend entries ordered top to bottom. Chinese renminbi is 0 in 2005.
Source: Refinitiv; Board staff calculations.
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The extensive demand for U.S. dollars is also reflected in its high share of foreign exchange (FX) transactions. The 2022 Triennial Central Bank Survey from the Bank for International Settlements reported that the U.S. dollar was involved in approximately 88 percent of global FX transactions in April 2022. This share has remained stable for the past 20 years (Figure 9). In contrast, the euro was involved in 31 percent of FX transactions, a decrease from its peak of 39 percent in 2010.

Figure 9. Share of over-the-counter foreign exchange transactions

Note: On a net-net basis at current exchange rates. Percentages sum to 200 percent because every FX transaction includes two currencies. Legend entries are ordered top to bottom. Chinese renminbi is 0 until 2007.
Source: BIS Triennial Central Bank Survey of FX and OTC Derivatives Markets.
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Stable Dollar Dominance Over Two Decades

A review of the dollar’s global usage over the last two decades indicates a consistently dominant and relatively stable role. To illustrate this stability, we have constructed an aggregate index of international currency usage. This index is calculated as the weighted average of five currency usage measures with available time series data: official currency reserves, FX transaction volume, foreign currency debt instruments outstanding, cross-border deposits, and cross-border loans. Figure 10 displays this index. The dollar index has remained stable at around 70 since 2010, significantly higher than any other currency. The euro has the next highest value, around 23, and its value has also been relatively stable. While international usage of the Chinese renminbi has increased over the past 20 years, its index level has only reached about 3, remaining behind the Japanese yen and British pound, at approximately 7 and 6, respectively.

Figure 10. Index of international currency usage

Note: Index is a weighted average of each currency’s share of globally disclosed FX reserves (25 percent), FX transaction volume (25 percent), foreign currency debt issuance (25 percent), foreign currency and international banking claims (12.5 percent), and foreign currency and international banking liabilities (12.5 percent). Foreign currency debt issuance data is available from 2005, and the 2005 value is backfilled to previous years.
Source: IMF COFER; BIS Triennial Central Bank Survey of FX and OTC Derivatives Market; Refinitiv; BIS locational banking statistics; Board staff calculations.
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Unlikely Diminution of Dollar Status in the Near Term

In the near future, significant challenges to the U.S. dollar’s dominance appear limited. History records only one instance of a dominant currency shift – the dollar replacing the British pound. The dollar’s ascent began after the financial instability of World War I and solidified post-Bretton Woods Agreement in 1944 (Tooze 2021, Eichengreen and Flandreau 2008, Carter 2020).

However, over a longer timeframe, the risk to the dollar’s international status increases, and certain recent developments could potentially boost the international usage of alternative currencies.

Some analysts suggest that sanctions imposed by the U.S. and its allies on Russia might reduce the dollar’s appeal as a reserve currency. Geopolitical rivals might fear exposure to U.S. sanctions when holding dollar reserves. However, Weiss (2022) notes that about three-quarters of foreign government holdings of safe U.S. assets are already held by countries with military ties to the U.S. Furthermore, other major reserve currencies like the euro, Japanese yen, and British pound are issued by close U.S. allies who also participated in the Russia sanctions. This limits attractive alternatives to the U.S. dollar for geopolitical adversaries.

Increased European integration presents another potential challenge. The EU is a major economy with deep financial markets, generally free trade, and stable institutions. During the COVID-19 crisis, the EU began issuing substantial jointly backed debt, reaching around EUR 400 billion by May 2023. While significant for the EU, this is small compared to over $20 trillion in outstanding U.S. Treasuries. However, further fiscal integration and the development of a large, liquid EU bond market could enhance the euro’s attractiveness as a reserve currency. This process could be accelerated by improvements in EU sovereign debt market infrastructure and the introduction of a digital euro. Additionally, the euro’s prominent role in corporate and sovereign green finance could strengthen its international standing if these sectors continue to grow. Despite fiscal integration, political fragmentation within the EU will continue to create policy uncertainty.

The continued rapid growth of China, the world’s largest exporter, also poses a long-term challenge. While China’s import value lags the U.S., its GDP already exceeds the U.S. on a purchasing power parity basis (IMF World Economic Outlook, July 2021) and may surpass the U.S. in nominal terms in the 2030s. However, with a declining population, forecasts generally project China’s economy not exceeding the U.S. economy by more than 30 percent. This size difference may not be sufficient to overcome significant obstacles to wider renminbi use. The renminbi is not freely exchangeable, China’s capital account is not open, and investor confidence in Chinese institutions is relatively low (Wincuinas 2019). These factors make the renminbi less attractive for international investors. To address these limitations, China has increased efforts to promote renminbi invoicing, such as agreements with Brazil to settle trade in domestic currencies and discussions with Saudi Arabia to price oil in renminbi. However, analysts view these agreements as largely symbolic, potentially setting the stage for future renminbi usage.

Evolving payment landscapes, including the rapid growth of digital currencies (both private and official), could also challenge dollar dominance. Shifting consumer and investor preferences and new financial products could alter the perceived costs and benefits, potentially overcoming the inertia that sustains the dollar’s leading role. Conversely, technological progress might also reinforce the dollar’s dominance. For instance, about 99 percent of stablecoin market capitalization is linked to the U.S. dollar, suggesting that crypto assets are effectively traded in U.S. dollars.

In conclusion, barring major political or economic shifts that degrade the U.S. dollar’s value as a store of value or medium of exchange while simultaneously enhancing the appeal of dollar alternatives, the dollar is likely to remain the world’s dominant international currency for the foreseeable future.

References

Bank for International Settlements. BIS Data Bank, https://dbsonline.bis.org/.

Boz, E., C. Casas, G. Georgiadis, G. Gopinath, H. Le Mezo, A. Mehl, and T. Nguyen (2020). “Patterns in Invoicing Currency in Global Trade.”IMF Working Paper No. 20-126.

Carter, Z. (2020). The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes. Random House.

Committee on the Global Financial System (CGFS), (2020). “U.S. dollar funding: an international perspective.” BIS CGFS Papers No 65.

Dealogic, DCM Manager, http://www.dealogic.com/en/fixedincome.htm.

The Economist (2020). “Dollar dominance is as secure as American leadership.” https://www.economist.com/finance-and-economics/2020/08/06/dollar-dominance-is-as-secure-as-american-global-leadership. Accessed August 18, 2021.

Eurostat, Extra-EU trade by invoicing currency, https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Extra-EU_trade_by_invoicing_currency

Eichengreen, B. and M. Flandreau (2008). “The Rise and Fall of the Dollar, or When Did the Dollar Replace Sterling as the Leading International Currency?” NBER Working Papers No. 14154.

Judson, R. (2017). “The Death of Cash? Not So Fast: Demand for U.S. Currency at Home and Abroad, 1990-2016.” International Cash Conference 2017.

Refinitiv, Thomson ONE Investment Banking with Deals module and SDC Platinum, http://www.thomsonone.com/.

Tooze, A. (2021). “The Rise and Fall and Rise (and Fall) of the U.S. Financial Empire.” Foreign Policy https://foreignpolicy.com/2021/01/15/rise-fall-united-states-financial-empire-dollar-global-currency Accessed August 13, 2021.

Weiss, Colin (2022), “Geopolitics and the U.S. Dollar’s Future as a Reserve Currency”, International Financial Discussion Paper.

Wincuinas, J. (2019). “The China position: Gauging institutional investor confidence.” Economist Intelligence Unit. https://eiuperspectives.economist.com/financial-services/china-position-gauging-institutional-investor-confidence Accessed August 18, 2021.

1. We thank John Caramichael and Kevin Bao for excellent research assistance. Return to text

2. For example, IMF First Deputy Managing Director Gita Gopinath warned that sanctions on Russia could dilute dollar dominance (https://www.reuters.com/business/imf-warns-russia-sanctions-threaten-chip-away-dollar-dominance-ft-2022-03-31/) Return to text

3. For a detailed discussion of the dollar’s use in international financial markets see Committee on the Global Financial System (2020). Return to text

4. Their definition of anchored currencies includes currencies explicitly pegged to the dollar as well as currencies that move less than 2 percent against the dollar in over 80 percent of months. Return to text

5. The U.S. dollar is also the most commonly used currency for cross-border payments via SWIFT, accounting for over 40% of payments (see Chart 2 in The International Role of the Euro June 2022 published by the European Central Bank https://www.ecb.europa.eu/pub/pdf/ire/ecb.ire202206~6f3ddeab26.en.pdf ). This figure would be even higher if inter-euro area payments were excluded. Return to text

6. This percentage includes trade within the euro area. Only 48 percent of extra-EU exports were invoiced in euro in 2020 (Eurostat). Return to text

7. Since 2013, the following six central banks have had permanent bilateral swap arrangements with each other: the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank. Return to text

8. Additional information about the Federal Reserve’s central bank swap lines can be found at https://www.federalreserve.gov/monetarypolicy/central-bank-liquidity-swaps.htm. Return to text

9. The FIMA repo facility allows approved foreign central banks and other foreign monetary authorities to temporarily raise dollars by selling U.S. Treasuries to the Federal Reserve’s System Open Market Account and agreeing to buy them back at the maturity of the repurchase agreement. Thus, it provides an alternative temporary source of U.S. dollars for FIMA account holders of Treasury securities other than sales of the securities in the open market. Additional information about the facility can be found at https://www.federalreserve.gov/monetarypolicy/fima-repo-facility.htm. Return to text

10. To improve the swap lines’ effectiveness in providing U.S. dollar funding, the frequency of swap line operations was increased from weekly to daily between March 20 and April 30, 2023. https://www.federalreserve.gov/newsevents/pressreleases/monetary20230319a.htm Return to text

11. Because one currency is purchased and another currency is sold in FX transactions, each trade is counted twice, so the sum of the FX transactions measure is 200 percent. Return to text

12. U.S. GDP may have eclipsed British GDP as early as the late 1800s, but the dollar did not completely solidify its dominance until after the Bretton Woods Agreement in 1944 (Eichengreen and Flandreau (2008)). Return to text

13. This is especially true for China, which holds a lot of U.S. dollar reserves and cannot use the Chinese renminbi as a reserve currency. Return to text

14. Bloomberg’s base case forecast predicts that Chinese GDP will exceed U.S. GDP in nominal terms in 2033 (https://www.bloomberg.com/news/features/2021-07-05/when-will-china-s-economy-beat-the-u-s-to-become-no-1-why-it-may-never-happen?srnd=premium&sref=c1gYoH2n). Return to text

15. https://www.economist.com/briefing/2023/05/11/how-soon-and-at-what-height-will-chinas-economy-peak Return to text

16. https://www.bloomberg.com/news/articles/2023-03-30/brazil-takes-steps-to-transact-in-yuan-as-ties-with-china-grow Return to text

17. https://www.bloomberg.com/opinion/articles/2023-02-27/pricing-petroleum-in-china-s-yuan-sounds-inevitable-not-for-saudi-arabia Return to text

18. See Box 5 Euro-based stablecoins in The International Role of the Euro June 2022 published by the European Central Bank (https://www.ecb.europa.eu/pub/pdf/ire/ecb.ire202206~6f3ddeab26.en.pdf ). Return to text

Please cite this note as:Bertaut, Carol, Bastian von Beschwitz, Stephanie Curcuru (2023). “The International Role of the U.S. Dollar” Post-COVID Edition,” FEDS Notes. Washington: Board of Governors of the Federal Reserve System, June 23, 2023, https://doi.org/10.17016/2380-7172.3334.

Disclaimer: FEDS Notes are articles in which Board staff offer their own views and present analysis on a range of topics in economics and finance. These articles are shorter and less technically oriented than FEDS Working Papers and IFDP papers.