The idea that the dominance of the US dollar will eventually end is a common theme in global economics, often referred to as de-dollarization. Historically, reserve currencies like the British pound or the Spanish dollar have reigned for about 80 to 100 years before being replaced. The US dollar has been in this position since about 1944. While the dollar currently remains the world’s primary reserve currency, its long-term status is facing structural changes. Many analysts and financial reports indicate that Donald Trump’s policies, particularly his trade war, heavy use of tariffs and financial sanctions, are accelerating global efforts towards de-dollarization. His approach has led countries to seek alternatives to reduce dependence on the US dollar, which has been used as a geopolitical tool, leading to the pursuit of safe-haven assets such as gold.
Most analysts do not expect the dollar to suddenly lose its position. Instead, they hope for a gradual shift toward a multipolar world where multiple currencies share the spotlight. While the dollar is losing its “weight”, it still remains the primary global reserve currency, and many analysts see this change as a slow evolution towards a multi-currency system rather than imminent collapse.
The US dollar is backed by the petroleum market through the “petrodollar system”, where global oil sales are primarily settled in dollars, forcing countries to hold dollar reserves. After America’s departure from the gold standard in 1971, he negotiated with OPEC countries (especially Saudi Arabia) in 1974 to stabilize the dollar by tying it to oil. It established the dollar as the dominant global reserve currency, creating huge demand for it and increasing US financial, economic, and geopolitical power. Oil exporters receive US dollars (petrodollars) and reinvest this large surplus in US Treasury bonds, securities and financial assets. Since oil is a vital commodity, nations must maintain large reserves of US dollars to ensure consistent global demand. The petrodollar system allows the US to easily finance its trade deficit and maintain high foreign demand for its debt.
The petrodollar system is experiencing a gradual, long-term weakness due to accelerating de-dollarization trends, increasing geopolitical multipolarity, and the global energy transition. While the US dollar remains dominant, the use of non-dollar currencies such as the Chinese yuan or bilateral deals for oil trade is increasing, often as a result of US sanctions. This development, coupled with less reinvestment of oil revenues into US assets by Gulf countries, is changing the petrodollar landscape. For example, Saudi Arabia is using oil revenues for domestic diversification rather than purchasing US Treasuries.
Thus, the US dollar is experiencing a gradual decline in its global dominance. This shift is characterized by a lower share of the dollar in global central bank reserves, increased use of alternative currencies for trade, and declining confidence due to geopolitical and domestic policy factors.
Based on data from 2025-2026, here’s how the dollar is losing its ‘weight’:
- Decrease in share of central bank’s reserves: Data from the International Monetary Fund (IMF) and other financial analysts confirm that the share of US dollar-denominated assets in global foreign exchange reserves is set to decline to about 56-57% by the end of 2025, from more than 66% a decade ago. For example, the Reserve Bank of India (RBI) is reportedly reducing its share of US government debt to a five-year low of around $174 billion by early 2026, reducing risks from a volatile US dollar and potential sanctions. According to the RBI, treasuries now make up about one-third of the country’s foreign exchange reserves, down from about 40% a year ago. With a growing share of gold and other assets in reserves, India’s strategy echoes steps taken by larger holders such as China, according to a Bloomberg report.
- Increasing use of local currencies in trade: Countries are increasingly bypassing the dollar in bilateral trade. Examples include China using the yuan to buy Russian oil, India and the United Arab Emirates using local currencies for oil, and Bangladesh paying for projects in yuan. Countries fear that the US is using the dollar as a geopolitical tool, leading to a search for alternative, secure payment methods. Emerging economies aim to create a multipolar global financial structure, thereby reducing sensitivity to US economic policy. India is trading sharply higher in the Indian Rupee (INR) as part of a strategic effort to “internationalize” the currency, reduce dependence on the US dollar, and mitigate external shocks. By mid-2025, banks from more than 30 countries, including Russia, UAE, Malaysia and several countries in Africa and Asia, are authorized to operate Special Rupee Vostro Accounts (SRVA) for trade settlements.
- Increasing demand for gold: Central banks, especially in emerging markets such as China, Russia, India and Turkey, have been aggressively purchasing gold to diversify away from US dollar reserves, pushing prices to record highs. Driven by geopolitical sanctions and inflation fears, this trend has pushed gold holdings to their highest levels in nearly 30 years. The RBI has been actively buying gold to diversify its foreign exchange reserves, reduce its heavy dependence on US dollar-denominated assets and enhance protection against geopolitical, economic uncertainties and currency volatility. Beginning in 2026, the RBI has significantly reduced US Treasury holdings and significantly increased gold holdings, in line with global trends among central banks. The share of gold in India’s total reserves increased from 5.87% in March 2021 to more than 14.7% in October 2025. The RBI has shifted significant amounts of gold from foreign vaults (especially London) to domestic vaults in India, marking a shift towards asset protection on domestic soil.
- Policy Uncertainty and Trade Activities: Unexpected trade policies, including Trump’s 2025 Liberation Day tariffs, have created significant volatility and reduced the perceived safety of US assets. This has prompted a “flight to safety”, resulting in a decline in investor confidence, a major selloff in the S&P 500, and the US dollar falling to a four-year low in January 2026. In February 2026, the US Supreme Court ruled that the administration’s use of emergency powers under the International Emergency Economic Powers Act (IEEPA) to impose these sweeping tariffs was illegal. Despite the court’s decision, the administration has indicated that it will pursue new global tariffs of 10% to 15% while maintaining a high level of trade policy uncertainty.
- Rising National Debt: Driven by continued borrowing for economic, defense, and social programs, the US national debt is set to exceed $39 trillion by March 18, 2026, with annual interest payments exceeding $1 trillion. The debt is increasing at the rate of $1 trillion every 100 days. The growing debt burden creates the risk of market instability, inflation, and loss of confidence in the dollar as the primary global reserve currency. This surge is raising global concerns regarding fiscal stability, leading to higher global interest rates and increased risk of currency market instability. Global confidence in the stability of the dollar has diminished.
- Decline in foreign demand for US Treasuries: Foreign ownership of US Treasury securities has seen a structural decline from more than 50% during the 2008 financial crisis to about 31% by early 2025. This shift signals a significant reduction in reliance on foreign, especially official, holders of funds to finance U.S. government debt, with foreign residents holding about a third of outstanding Treasuries in 2025 compared to about 60% in 2008.
In conclusion, despite his vocal support for the supremacy of the dollar, Trump’s policies are accelerating global de-dollarization by encouraging other countries to seek alternative currencies. The frequent use of economic sanctions and tariffs against both adversaries such as the BRICS countries and allies such as the EU has led countries to reduce their reliance on the US dollar to circumvent US influence. This policy uncertainty has increased the demand for gold as a hedge. While Trump has threatened to impose 100% tariffs on countries moving away from the dollar, experts argue that ironically, these same threats accelerate the search for non-dollar alternatives. Policy instability and sourness have eroded confidence in the dollar as a stable, neutral and safe-haven asset. Although the dollar is not facing an imminent collapse of its reserve status, it is experiencing a wounded dominance scenario, in which its dominance is threatened by long-term, structural diversification toward gold and other currencies.
This article is written by Prabhu Dayal, former Ambassador to New Delhi.
