The dollar cannot lose its status as a global reserve currency unless another currency gains global usage.
Fears of the US dollar’s fall from international dominance arise with some frequency these days. Sometimes they emerge out of exaggerated notions of Chinese economic and financial power. Sometimes they reflect concerns about the hollowing out of America’s economy and the nation’s chronic trade deficits. Most recently, dollar fears have sprung from otherwise legitimate concerns about the increasing burden of public debt.
These matters are not unrelated, but the dollar’s role as the primary vehicle of international exchange and store of wealth, what bankers and economists refer to as the “global reserve,” is more complex than such easy links imply. Should the dollar lose its global status, it would occur more slowly than these fears suggest, and if it does, it will not happen for some time. The world simply has no alternative.
When, at the end of World War II, the dollar assumed international primacy, the US economy dwarfed that of any other nation on earth. American finance was unassailable. The world’s wealth, in large part lay within this country’s borders. That is no longer the case, and it has not been for decades. Japan and Europe have long since developed huge economies with sophisticated financial systems. China has risen from poverty at a fantastic pace.
Although the United States has grown richer and more powerful in absolute terms, its relative status is not what it was. Yet, for all this change, no currency—neither Japan’s yen, nor the European Union’s euro, nor the Chinese yuan—can offer what is required of a global reserve currency. The dollar stands alone in this regard, and neither global trade nor global finance will abandon the dollar until it has a viable alternative.
At the most basic level, the dollar has custom and habit on its side. It has dominated for so many decades that global trade and finance have built lasting institutions and practices around it. The euro may dominate trade within the EU, and Beijing may push the use of its yuan in many of its trade relationships, most especially within its Belt and Road Initiative (BRI). Still, outside these particulars, the world continues to rely heavily on the dollar.
According to statistics from The Atlantic Council, more than half of the world’s export invoicing is in dollars, whether an American is involved or not. Contrast this with the three other leading currencies in the world. Barely 30 percent of export contracts are invoiced in euros, and that is mostly intra-EU trade. Outside that union, the number falls to single digits. For the pound sterling, the figure is 4 percent, as it is for the Japanese yen or China’s yuan. Since China accounts for almost 13 percent of world trade, these figures suggest that much of that country’s exports are invoiced in dollars.
The dollar’s dominance certainly looks secure in the patterns of currency trading that underlie all international trade and finance. According to the Atlantic Council’s statistics, the dollar is used in about 90 percent of all currency transactions, wherever they occur. Because trading in and out of dollars is easier and faster than in any other currency, the dollar plays a role even when neither side of the trade is American or has an interest in American products.
A Malaysian buyer of Indonesian goods, for example, will doubtless see his ringgits exchanged for dollars before those dollars are then exchanged for the rupiahs he needs for his purchase. Because trading between ringgits and rupiahs is irregular and sometimes unreliable, the dollar intermediary makes it smoother and easier, whether the exchange takes place in London, New York, Singapore, or just about anywhere else.
To challenge the dollar’s premier status, other currencies would need to up their role in such exchanges. They have a long way to go. The Atlantic Council identifies the euro as playing a role in about 30 percent of the world’s currency transactions, but many of those trades are against the dollar. Japan’s yen, which accounts for only 17 percent of global currency transactions, is hardly significant. China’s yuan is even further behind. It has a role in only 9 percent of the world’s currency transactions (the figures exceed 100 percent because all these other currencies have a role when traded against the dollar).
Nor is it an effort to increase a currency’s role within the power of governments, like the one in Beijing, which wants to see the yuan supplant the dollar’s international role. Most foreign exchange trading occurs in London, largely because it has built up expertise over centuries and occupies a sweet spot in time zones, enabling trade with Asia in the British morning and North America in the afternoon. At last count, British traders handle the equivalent of some $4.7 trillion a day in foreign exchange trades, much of it involving dollars. American traders handle some $2.3 trillion a day.
If the EU wanted to boost the euro’s stature by increasing the trading activity in euros, its only recourse would lie within its member countries. France and Germany together trade some $612 billion worth of foreign exchange a day, a long way from dominance. Beijing would look to Hong Kong to boost the yuan, but that market trades only some $883 billion a day, also a long way from parity with the dollar, much less dominance.
Reinforcing the dollar’s appeal is its support from larger, more diverse, and more liquid financial markets than those of any alternative. This is significant because trading companies and their governments that conduct their business must hold balances in the reserve currency. Accordingly, they demand a wide variety of financial instruments in which to place their holdings, and markets that are active enough to enable them to move into and out of those investments, as well as the reserve currency, quickly and at minimal cost. In these regards, America’s dollar-based markets are far and away superior to any alternative.
Consider that, according to the Securities Industry and Financial Markets Association (Sifma), almost half the world’s value of stocks is traded on US markets, and some 40 percent of the world’s bonds. For the EU, those figures are respectively 8.7 and 18 percent, and for China, they are 9.3 and 17.3 percent. China hampers itself even more by regulating who can trade what. The UK has tremendous financial sophistication and diverse markets, but sterling markets are simply too small to support global needs. Only some 3.5 percent of the world’s stocks are traded in the UK, and only some 4.2 percent of its bonds. Clearly, the necessary financial support simply does not exist outside the US dollar.
There is an additional, admittedly counterintuitive reality supporting the dollar’s role as the global reserve currency: the United States runs a trade deficit. When this country buys more from the world than it sells, it makes up the difference by pushing dollars into global exchange. That flow of dollars is needed to support the growth of world trade, just as economic growth in a given country demands the support of a comparable increase in that nation’s money supply.
At last count, the United States in 2024 ran a $1.2 trillion trade deficit with the rest of the world (figures for all of 2025 are not yet available). That might have exceeded or fallen short of the needs of world trade growth, but some flow was necessary. Contrast this with the EU, which in 2024 ran a dollar-equivalent trade surplus of $156 billion. If the euro were the global reserve currency, this flow would have withdrawn monetary support from the global trading system. China recently announced, with great fanfare, a trade surplus of $1 trillion, which, if the yuan were the global reserve, would have constituted a debilitating withdrawal of monetary support from global trade arrangements.
None of this is to say that US trade deficits are desirable, especially for American workers. Nor does this discussion make implicit excuses for Washington’s failure to control its budget or its excessive reliance on debt. What this analysis does say is that these less-than-desirable developments are not an immediate threat to the dollar’s global role, as has been suggested, and that the dollar’s position is much less immediately vulnerable than some headlines suggest and than some of America’s competitors—read: China—would like.
About the Author: Milton Ezrati
Milton Ezrati is a contributing editor at The National Interest, an affiliate of the Center for the Study of Human Capital at the University at Buffalo (SUNY), and chief economist for Vested, the New York-based communications firm. His latest books are Thirty Tomorrows: The Next Three Decades of Globalization, Demographics, and How We Will Liveand Bite-Sized Investing.
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