De-dollarization? Not so fast

Abstract

De-dollarization refers to the reduction of the reliance of foreign countries on the US dollar. This phenomenon generates concern about the U.S. dollar as a global currency. We construct new data on the currency denomination of central bank currency reserves, foreign exchange transaction volume, denomination of global debt securities, and the invoicing of trade. This paper presents empirical evidence suggesting that these concerns are misplaced, finding US dollar dominance remains unchanged up through late 2023, nearly two years after the 2022 Russian invasion of Ukraine and several years after the 2020 COVID-19 pandemic. Meanwhile euro and renminbi influence have since declined. These findings have implications for reserve currency resilience, U.S. dollar dominance, U.S. sanctions policy, international spillovers of U.S. monetary policy, and U.S. government borrowing costs.