The US dollar has long reigned as the world’s main reserve currency and the default option for global trade and international transactions. But its dominance is now faced with a growing investigation as a transfer of geopolitical and economic forces – and concerns with the potential greenback weapons – more countries to accelerate efforts to loosen their dollar hopes.
In almost every proposal, the US dollar’s command of the global economy is exhausting. Although the country costs about 25% of the global GDP, its money reigns over 60% of foreign exchange reserves – exceeding its nearest rival, the euro.
But this dominance is increasingly under pressure, with strategic use of economic penalties in the past leading to some countries to look for successors, even if US president Donald Trump regularly threatens 100% tariffs in countries that are actively seeking to replace the greenback.
In Russia, with access to the Swift payment platform being cripped by penalties, companies use cryptocurrencies as a way to skirt restrictions, returning to Bitcoin and other digital properties to conduct cross-border business. While the crypto has been prohibited as illegal by the country’s central bank years ago, recent regulation changes have prepared the way for corporations to embrace cryptocurrencies since last year.
The country allowed The use of cryptocurrencies in foreign trade and take steps to make it legal to the mine of cryptocurrencies, including Bitcoin.
Bitcoin, penalty and the push for dedollarization
From the start of Bitcoin, crypto advocates have been fixed to “dedollarization,” which is often described as pushing to reduce the dominance of the US dollar as a global currency reserve. The word broadly refers to the distance from the dollar to major financial and trade activities, including oil and commodity transactions (the petrodollar system), foreign exchange reserves, bilateral trade agreements, and investments in dollars denomination assets.
A 2024 role of the head of Morgan Stanley’s digital asset markets, Andrew Peel, suggested that increasing digital currencies present “opportunities to both erase and strengthen” the dominance of the US dollar, with potentially significantly changing the global currency landscape.
However, while digital possessions -most notable -noted that stablecoins -are increasingly gaining traction, the expectations of the dedollarization of the crypto market look premature.
While Bitcoin is increasingly seen as a strategic reserve, experts warn that it is still close to calling a real alternative to the US dollar. Countries such as El Salvador embrace Bitcoin aggressively, with the owner now make up about 15% to 20% of the country’s total reserves. The US has been reported to be considered similar motions, but the broad adoption remains limited, and the questions continue about whether such steps will distract the dollar rather than support it.
According to Bitcoin Depot CEO Brandon Mintz,
“For Bitcoin to be a real alternative to the USD, it will need a broader adoption of the mainstream, clearer regulation frameworks, and more measured infrastructure.”
Currently, Bitcoin acts similar to a fence and a store of value rather than a dollar replacement, but its role can move as the global financial dynamics change. Factors such as inflation and geopolitical tensions, Mintz said, could drive more interest.
As institutional adoption and cross-border use are rising, Mintz says it remains to be seen “if bitcoin can truly challenge the dominance of the dollar as it depends on how these trends develop over time.”
Related: 3 Reasons why Bitcoin sells Trump Tariff News
Despite its growing appeal, bitcoin volatility remains a major challenge. According to World Gold CouncilBitcoin shows higher volatility than gold and shows a greater touch with Nasdaq tech stocks than traditionally safe properties.
Gold and Major Asset 5 -Year Average Daily Volatility – Annualized. Source: World Gold Council.
Eswar Prasad, a trade professor at Cornell University, told Cointelegraph,
“Decentralized cryptocurrencies such as Bitcoin still have the utmost to change values, giving them inappropriate as vessels of exchange or as money reserves.”
The US Dollar Global Foreign Reserves Reserve
Since the end of World War II, the US dollar reigned as dominant currencies worldwide, with power around 88% of global trade transactions in 2024.
The dollar status as the leading international currency is well established. According to International Monetary Fund. It is significantly higher than the euro, second in the race, which costs 20%
Foreign exchange reserves are provided by central banks. Source: International Monetary Fund
While the US dollar remains dominant global currency due to its stability, widespread acceptance of international trade and finances, and status as a major reserve owner for central banks, there are signs that can lose its reign. The Percent of the global foreign reserve The dollar held was reduced from more than 70% in the early 2000s to the bottom 60%.
Percentage of global FX reserves held in the US dollar. Source: International Monetary Fund
The point of retention came after February 2022 when the US frozen $ 300 billion of Russian foreign exchange reserves held in US and NATO countries. While many US allies support the move, it also sent shockwaves through global markets, which highlights the risk that Washington can weapon the dollar against not only opponents but potential allies whose policies are fighting with American interests.
Mentioned the use of penalties and how countries react, an international financial fund Blog post In 2024 said,
“We have found that financial penalties when imposed in the past, forced central banks to move their reserve portfolios that are moderately far from the currencies, which threatened to be frozen and re -reviewed, in favor of gold, which could warew
Do stablecoins really strengthen the dollar?
Despite the efforts of the BRICS+ countries to prevent the dominance of the US dollar, the dollar value has remained strong in recent years. The US dollar index has been about 8% in the last five years.
In the crypto sector, stablecoins have emerged as some of the fastest growing digital assets, often mentioned as a potential solution for cross-border transactions. However, most stablecoins are still in the US dollar.
Currently, the Stablecoin market cap stands for $ 233 billion, with US-Pegged Stablecoins such as Tether’s USDT dominant over 97% of the sector, according to coingecko data.
This great hope in USD supported supports suggests that instead of breaking the dollar’s dominance, digital properties can really boost it. “Through USD-link stablecoins on the core of this digital ecosystem, we have a unique opportunity to expand US financial influence worldwide-if the policies are now acting,” Cody Carbone, president of the digital chamber, a US blockchain advocacy association, Says In X.
The emergence and widespread adoption of the Central Bank Digital Currencies (CBDCs) can interfere with certain cryptocurrencies, especially stablecoins, by providing excellent and cheap alternative digital payments.
“A widely -accessed digital dollar will reduce the case for privately issued stablecoins, although stablecoins issued by major corporations can still have traction,” Prasad said.
However, Prasad emphasized that no alternative was prepared to eliminate the US dollar as a dominant global currency reserve.
“The strengths of the dollar lies not only in the depth and liquidity of the U.S. financial markets but also the institution’s framework that undergoes its status as a safe shelter.”
This article is for general information purposes and is not intended to be and should not be done as legal or investment advice. The views, attitudes, and opinions expressed here are unique and do not necessarily reflect or represent the views and opinions of the cointelegraph.
