US Dollar Power Is Shrinking, But Not Collapsing

Key Takeaways

• The dollar’s reserve share has fallen from 72% in 2001 to around 57.8% by end-2024.
• Dedollarisation is a structural trend, but not yet a dollar crisis.
• Central banks have increased gold buying as part of reserve diversification.
• China’s CIPS, local currency trade, gold and crypto rails are creating alternatives.
• Foreign investors are still buying US assets, showing trust in American markets remains strong.

The US dollar is not collapsing, but its global privilege is slowly shrinking. For decades, the dollar has dominated reserves, trade settlement and sovereign debt markets. That dominance gave the US cheaper borrowing, deeper global demand for Treasuries and powerful financial influence.

Now, that position is being tested. The dollar remains the centre of global finance, but more governments are looking for ways to reduce dependence on Washington-controlled payment rails.

Dedollarisation Is Not A Collapse

Dedollarisation is not one dramatic break from the dollar. It is a slow process where countries reduce reliance on the dollar across reserves, trade and debt markets.

The shift has accelerated since the freezing of Russia’s foreign exchange reserves in 2022. That event showed governments that dollar assets could be immobilised by US policy decisions. Since then, more countries have increased gold holdings, expanded local-currency settlement and explored alternative payment systems.

Gold And Alternative Payment Rails Gain Ground

Central banks bought more than 1,000 tonnes of gold annually between 2022 and 2024, with another 863 tonnes added in 2025. This reflects a broader move to diversify reserves away from political risk.

China’s CIPS system has also expanded, processing around 180 trillion yuan in transactions in 2025. Meanwhile, countries such as Russia and Iran have shifted more bilateral trade into non-dollar currencies.

The Petrodollar Faces A New Test

The Strait of Hormuz has become a visible example of dedollarisation pressure. Iran reportedly charged vessels transit fees in Bitcoin, USDT or Chinese yuan instead of dollars.

This does not end the petrodollar system, but it shows how non-dollar infrastructure is being used in real trade flows. The dollar is still dominant in global energy markets, but it is no longer the only settlement option being tested.

The Investment Paradox

The world is reducing some dollar exposure, but it is not fleeing the US. In 2025, foreign investors bought a record $1.55 trillion in US financial assets and held around $21 trillion in US equities.

This creates the central paradox. Governments may hedge against dollar political risk, while investors still want exposure to American companies, innovation and market depth.

Discover how dedollarisation is reshaping dollar dominance, gold demand and global market flows in this article.