Is The Dollar Going To Be Replaced As The World’s Reserve Currency?

Summary/TL;DR

Despite understandable concerns, claims made by social media and YouTube influencers about the US dollar losing its place as “top-dog” of the world’s reserve currencies are vastly overstated. De-dollarization efforts led by the BRICS countries have epically failed - the dollar comprises the plurality of global exchange reserves (with no second place in sight), and countries considered top monetary competitors to the United States (namely, China) have currency problems that make the dollar’s seem like a day in the park. Empirical evidence for this is overwhelming – there is simply no second-best to the dollar. The passing of the Genius Act and the likely implementation of stablecoins into the global financial system will only further entrench the dollar’s status as king.

Introduction

This is a question I receive at least once per year and, judging by the frequency that this claim is made on social media or YouTube, it won’t be going away anytime soon.

Today’s piece is devoted to answering this question as concisely and simply as I can.

What Does It Mean To Be The World's Reserve Currency?

First, we should place our topic in context. Before we can adequately discuss whether or not the dollar could be replaced as the world’s reserve currency, we need to understand what it means to be the “world’s reserve currency”. A comprehensive answer to this question is beyond the scope of today’s piece, but the following, abbreviated explanation will suffice: the world’s reserve currency is the currency that is primarily used for settlement in global trade and the pricing of global commodities.

Consequently, countries around the world will hold this currency in significant quantities on their national balance sheet (also called foreign exchange reserves). Being the country that issues the world’s reserve currency has numerous advantages. Maintaining this status is therefore of prime importance for the existing world order.

It is important to note that the dollar is only the world’s reserve currency de facto – it is not the consequence of a global agreement to make it so. In other words, the dollar has emerged as the world’s reserve currency, it wasn’t chosen de jure or by fiat. It is therefore technically more accurate to say that the dollar is the world’s primary or dominant reserve currency.

Why Would The Dollar Be Replaced?

Now that we’ve discussed the context surrounding our topic, we can better understand the topic itself. Why would the dollar ever be replaced as the world’s reserve currency? Or why would anyone become concerned that this would occur? The answer that will suffice for today is a short one: it gives America a lot of economic power. Adversarial countries, such as China, obviously do not like this and are likely to launch efforts aimed at dethroning the dollar.

The consequences of this system for non-Americans is many-fold. First, and most obviously, the country with the world’s reserve currency has a tremendous advantage on the world’s geo-political stage. The amount of economic leverage that the US has over other countries is considerable and often enough to either force them into compliance or exert tremendous economic pain. Other consequences are purely economic in nature. Consider, for example, the fact that inflation helps debtors and hurts creditors. If other countries are holding most of their national reserves in the form of US Treasuries, then their value of their national reserves are also guaranteed to be eroded away as the US floods the world with more dollars.

Those concerned about this issue are typically predicting one of two outcomes to occur: first, that other countries (namely, Brazil, Russia, India, China, and South Africa) decide that “enough is enough” and join efforts in launching a competing monetary system. Alternatively, they suggest that the monetary destiny of the United States is the same as that of Weimar, Germany in the 1930s and that we will hyperinflate the dollar into worthlessness, at which point it will then need to be replaced. The rest of today’s piece will explore whether or not these concerns have any merit.

Is The Dollar Being Replaced?

The answer to this question is an emphatic NO. Despite the understandable concerns of those who make this claim, both common sense and empirical fact fail to validate them. The first reason for this is quite obvious – if the dollar is “going away”, then something must replace it. It is a simple fact that there are currently no “close seconds” to King Dollar on the global stage, and that currencies who are usually touted as contenders (primarily, the Chinese Yuan) have problems of their own that make America’s challenges look like a day in the park. While the dollar system does not benefit/harm everyone equally, the rest of the world would far rather be under the economic hegemony of the US than of China or any other conceivable non-American body. I want you to really stop and think about this for a moment - do you believe that the rest of the world would get on board with this sales pitch: “The currency manipulation of the United States has thrust us under their arm for too long! The time has come to throw off the chains imposed upon us by the dollar-reserve system and embrace the far more trustworthy, economically stable, morally resolute, and incorrupt Chinese Yuan!”. Give me a break.

A common counterargument raised by those who fear de-dollarization is to point out that BRICS have, in fact, joined efforts with the likes of Iran, Egypt, and the UAE to reduce their reliance on the US dollar. Every year, headlines about something these countries are doing in isolation (such as increasing their gold reserves) or together (such as promoting trade in their local currencies) circulate. Despite their “efforts”, however, these countries have completely failed in reducing their reliance on the dollar. If their efforts are failing (and failing epically, I might add), then it doesn’t matter what they’re trying! It's like hurling small rocks against a megalithic stone - it might catch the attention of those around you and perhaps even cause a piece of it to chip off on occasion, but it will never displace the stone.

And you don’t have to take my word for it! Arguments, however reasonable they may appear, have little to say in the face of data that contradicts them. Let us therefore turn to data as the final arbiter for today’s piece. Below are three visuals from the April 17, 2025 issue of economist Brian Wesbury’s weekly blog, Three on Thursday.

First, the dollar has been strengthening. The chart below shows that the dollar is currently trading at its strongest level in nearly twenty-five years and is at its third strongest level since 1975. This strength is expected to continue as the Trump administration’s trade policies take effect. Furthermore, stablecoins are becoming more and more likely to become a part of the global economic system, and the US is the only serious player around in this department.

Next, the US dollar currently makes up nearly 58% of global foreign exchange reserves! While this has fallen from a level of 71% in 1999, it is still the global leader by an exceptionally wide margin. It’s also worth noting that China is the largest international holder of dollars. Furthermore, notice where the Chinese Yuan, often touted as the dollar’s biggest competitor, sits on this chart. The Yuan accounts for a measly, pitiful sum of 2% of global foreign exchange reserves. There is simply no close second to the dollar.

This next chart is my favorite because it addresses our question from a different perspective. The United States remains the second most popular destination for high-net-worth migrants. The least popular destination? China. Wealthy people are attracted to the economic strength, resilience, dominance, and security of the United States. This kicks-off a self-reinforcing cycle in which the dollar’s status as top-dog is further entrenched as more people choose to store their wealth in dollars and dollar-denominated assets, which further upholds the dollar’s attractiveness.

These charts are just the tip of the iceberg. Numerous additional economic, cultural, demographic, and political points could be made which put America’s exceptionalism on display. The stronger America is on all of these fronts, and the weaker our adversaries are relatively, the less likely the dollar is to lose its status as the world’s reserve currency. Wesbury is exactly correct when he states that “the U.S. is not strong because the dollar is the reserve currency, the dollar is the reserve currency because the U.S. is strong… The U.S. remains one of the few places where people risk their lives daily to get into, not out of.”