Is the U.S. Dollar Still Strong? Why the Reserve Currency Isn't Going Anywhere
Is the US dollar still the world's dominant currency? A look at reserve status, the 'imperial circle,' de-dollarization claims and what would truly threaten it.
By Diego Alcalá · Sat Jul 25 2026 · Investing
Let's start with a quick recap. The U.S. dollar has been the world's dominant currency for many decades, and it is likely to remain so for the foreseeable future, for several reasons:
- It is still the world's reserve currency. The dollar is the global reserve currency, meaning it is what central banks around the world hold in large quantities to back their own currencies and stabilize their economies.
- It offers stability and trust. The dollar is regarded as stable and reliable thanks to the political and economic stability of the United States and the strength of its financial system. Many investors and businesses still prefer to transact in dollars rather than other currencies.
- It is the primary currency in international trade. A great many cross-border transactions are settled in dollars, in large part because the United States is one of the world's biggest exporters and importers of goods and services.
- Its influence remains global. The United States is a leading world power in economic, political and cultural terms, and that far-reaching influence is reflected in demand for its currency.
We have all heard the concerns about the dollar's future, from the rising national debt to competition from currencies such as the yuan. Yet it remains more likely to stay the most important currency in the near term because of its stability, the trust it commands and steady global demand.
Reports of the dollar's decline are greatly exaggerated. From where I stand, its status remains firmly in place. The dollar's role across capital and financial markets, trade and government debt reinforces the status quo. Barring a genuine, wholesale overhaul of the world economy, the dollar will stay on top. What we have seen so far are small shifts in economic power.
It is quite true that excessive global dependence on the dollar can destabilize emerging markets, slow trade flows and generate worldwide repercussions, as when markets collapsed in March 2020 amid the global Covid-19 shutdowns. This has been the case ever since the dollar was crowned the principal reserve currency after World War II. It is worth recalling that in 1971, U.S. Treasury Secretary John Connally quipped:
"The dollar is our currency, but it's your problem."
The contenders for the throne
Among the pretenders to the currency throne are the yuan and digital alternatives, whether CBDCs or decentralized projects that keep gaining momentum, such as Bitcoin. China has long tried to promote international use of its currency; its most recent tactic has been offering oil exporters payment in yuan. Meanwhile, some central banks have begun promoting CBDCs as a way to build a more balanced global economy in which no single country dominates.
The United States has also started weaponizing its own currency. After the invasion of Ukraine, Washington and its allies froze nearly half of Russia's roughly $640 billion in foreign-currency reserves. Dollars held by Afghanistan, Iran and Venezuela have likewise come onto its radar.
Those who argue the dollar's hegemony is fading point to the steady decline in its share of central-bank reserves, around 59% in 2022, down from more than 70% in 1999, according to the IMF. Over the same broad period, the U.S. share of global output fell from 32% in 1980 to 24% in 2020, per the Fed, and the U.S. share of world trade slipped from 14% to 11%. That evidences a rebalancing, not a tragic collapse.
In other respects, dominance is clearer than ever
By other measures the dollar's dominance is clearer than ever. According to the Bank for International Settlements, in April 2022 the dollar was involved in 88% of global foreign-exchange transactions. The Fed calculates that between 1999 and 2019 it accounted for 96% of trade invoicing in the Americas, 74% in Asia-Pacific and 79% in the rest of the world. Banks used the dollar for 60% of international deposits and loans.
Structural factors help keep this dominance in place. U.S. capital markets are deep and liquid enough to absorb the savings of both emerging and developed economies. The product of an excess of international saving gets recycled into U.S. assets.
The "imperial circle"
The dollar's role as an engine of global economic activity has another important effect: a stronger dollar restrains world trade. When the dollar appreciates, trade becomes more expensive for companies in other countries.
That feeds what is known as the "imperial circle." When the dollar strengthens, it slows global trade and growth. Because U.S. growth depends less on the rest of the world, dollar-denominated assets become more attractive to foreign investors, reinforcing the dollar's grip on the global economy and pushing its value higher still.
The trigger for this cycle is almost always a round of rate hikes by the Fed. What ends it is that, after a while, weakness in global manufacturing spreads to U.S. production. Higher rates also tighten financial conditions for companies and households, slowing the domestic economy. But the dollar's central role in capital markets keeps investors from fleeing the United States, which all but guarantees the cycle soon begins again.
What would actually dethrone the dollar
Of course, the United States cannot take its pivotal role in global trade and the economy for granted. The weaponization of the dollar, geopolitical tensions with China and others, and the country's own policy missteps have all sharpened the appetite for alternatives.
But for those factors to pose a serious threat, they would have to trigger a real shift, beyond the media narrative, in capital flows. To give a brief sense of what that would require: China would have to recycle its domestic savings differently, and Japanese investors would have to repatriate a meaningful share, more than half, of the more than a trillion dollars they hold in U.S. Treasuries. Both scenarios, offered only as examples, would take years to unfold. Central banks would also need to find an alternative currency, or some crypto asset, that is safe and liquid enough for them to feel comfortable parking their reserves in it.
Historically, financial revolutions of this magnitude have tended to coincide with other upheavals, such as world wars. Absent a radical change of that kind, the dollar has many years left on its throne.
For international investors, the practical takeaway is straightforward: the dollar's staying power is one of the strongest arguments for holding dollar-denominated assets. At Buying America, that is precisely the foundation we help global investors build on when they put capital to work in the United States.