Overview

Dedollarisation refers to efforts by governments, firms and market participants to reduce the use of the U.S. dollar in reserves, trade invoicing and settlement, cross-border finance, and domestic transactions. Motivations are diverse, and include gaining greater economic independence, reducing exposure to U.S. monetary and sanctions policy, lowering currency mismatch and transaction costs, and building local market infrastructure. The channels of dedollarisation are distinct and progress is uneven across them.

Since the establishment of the Bretton Woods system, the US dollar has been used as the medium for international trade. The U.S. dollar remains the leading international currency by most measures: foreign-exchange turnover, trade invoicing outside Europe, and the denomination of cross-border assets. However, its share in official reserves has drifted down gradually over two decades.

History

The U.S. dollar began to displace the pound sterling as the international reserve currency from the 1920s since it emerged from the First World War relatively unscathed and since the United States was a significant recipient of wartime gold inflows. After the U.S. emerged as an even stronger superpower during the Second World War, the Bretton Woods Agreement of 1944 established the post-war international monetary system, with the U.S. dollar ascending to become the world's primary reserve currency for international trade, and the only post-war currency linked to gold at $35 per troy ounce.

Under the Bretton Woods system established after World War II, the value of gold was fixed to $35 per troy ounce, and the value of the U.S. dollar was thus anchored to the value of gold. Rising government spending in the 1960s, however, led to doubts about the ability of the United States to maintain this convertibility, gold stocks dwindled as banks and international investors began to convert dollars to gold, and as a result, the dollar's value began to decline.

Facing an emerging currency crisis and the imminent danger that the United States would no longer be able to redeem dollars for gold, gold convertibility was finally terminated in 1971 by President Nixon, resulting in the "Nixon shock".

The value of the U.S. dollar was therefore no longer anchored to gold, and it fell upon the Federal Reserve to maintain the value of the U.S. currency. The Federal Reserve, however, continued to increase the money supply, resulting in stagflation and a rapidly declining value of the U.S. dollar in the 1970s. This was largely due to the prevailing economic view at the time that inflation and real economic growth were linked (the Phillips curve), so inflation was regarded as relatively benign. Between 1965 and 1981, the U.S. dollar lost two thirds of its value.

Global reserve currency shares over time

The percental composition of currencies of official foreign exchange reserves from 1995 to 2025.

Adverse American foreign policies and tariffs

The dollar's stability and safety as a global safe haven is being undermined by increased political polarization jeopardizing governance or by destabilizing economic policies like ongoing (as of 2026) U.S. tariffs, which cause investors to lose confidence in American assets and the country's overall standing. America and its western allies' foreign policies, such as weaponisation of economic sanctions and SWIFT system, has forced other nations to dedollarise to maintain their sovereignty, independence and freedom from undue American-Western coercion.

In 2025, during the second presidency of Donald Trump, many countries began moving away from the US dollar as a foreign currency reserve. This coincides with the US beginning to pursue an isolationist foreign policy and an erratic economic policy. In particular, during the 2026 Iran war, Harvard economist Kenneth Rogoff criticised Operation Economic Outcast as being likely to accelerate dedollarisation, cause China and Europe to expand their own international financial systems, and make China retaliate against the U.S. with its own leverage in rare earths and pharmaceuticals.

In 2026, Fortune cited EBC Financial Group market analyst Sana Ur Rehman, who argued that France's replacement of its remaining New York-held gold with compliant bars stored in Paris and Canada's creation of the C$25 billion Canada Strong Fund represented a broader phase of dedolalrisation involving longstanding U.S. allies rather than primarily geopolitical adversaries. Rehman linked the development in part of tariffs and trade unertainty.

Reuters reported that France's operation left the overall size of its golf reserves unchanged and that Banque de France Governor Francois Villeroy de Galhau said the decision was not politically motivated. The Canadian governement described the Canada Strong Fund as part of an effort to build a more independent and resilient Canadian economy.

Emergence of other nations as power centres

The popularity of the dollar is also being undermined by the growth of other nations, such as China and India, which are undergoing economic and political reforms that boost the credibility and viability of alternative currencies as safe, stable, and liquid reserves. Hence, a shift toward dedollarisation is altering the global balance of power, with the most severe adverse impact felt in the U.S., likely leading to a broad depreciation and underperformance of its financial assets relative to the rest of the world.

While as of 2025 the US dollar is still dominant in foreign exchange market (88%), trade invoicing (40%), cross-border liabilities (48%), and foreign currency debt issuance (70%), its dominance is declining in the foreign currency reserves (from 90% in 1960 to 45% in 2023), the bond market (from earlier 50% to 30% in 2024), and commodity markets (especially in energy where nations like India, China, Brazil, Thailand and Indonesia buy discounted oil and gas discounted price by bypassing the SWIFT sanctions against Russia or Brazil and pay in own local currencies).