Is the Dollar Era Over?

Ethan Ilzetzki and Marta Grzana

Tuesday, July 15, 2025

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Summary

The June 2025 CfM-CEPR survey asked the members of its panel for their opinions on the future of the US dollar as a global reserve currency. The vast majority of panellists believes that the dollar’s position as the global reserve, and primary currency for cross-border transactions, will decline over the course of the next fifteen years. However, most panellists believe that the dollar will be the largest reserve currency. A majority of the panel believes that the renminbi will increase its ‘market share’ in central bank reserves and cross-border payments the most in the next 15 years.

Background

The June 2025 CfM-CEPR survey asked the panel whether we are at a turning point in the role of the US dollar. The members were asked to estimate what proportion of global reserves will be composed of dollars in the year 2040. Members of the panel were also asked to estimate the proportion of global cross-border payments that would be executed in US dollars in 2040. Finally, the panellists were asked to estimate which currency would see the greatest increase in use as a global reserve during the next 15 years.

Will 2025 be the turning point for dollar dominance?

For close to a century, the dollar has been central to the international monetary system. It had a formal role as the anchor currency for the Bretton Woods system of fixed exchange rates in the post World War II monetary system but maintained its dominance even after the system unravelled. At the turn of the 21st century, many predicted a gradual move to a multi-polar system, or a more dramatic move supplanting the US dominant role (Eichengreen, 2012). Eichengreen & Flandreau (2008) document a diverse portfolio of foreign currency reserves before the Second World War as evidence for the plausibility of a multi-polar currency system. 

However, the US dollar has become even more entrenched as a dominant currency in the 21st century (Ilzetzki, Reinhart and Rogoff 2019). Dooley et al's (2009) ‘Bretton Woods II’ has been shaped into a system of stable exchange rates with central banks voluntarily anchoring to the dollar. Even high-income countries have seen relative stability viz the dollar due to correlated monetary policies (Ilzetzki Reinhart and Rogoff, 2020a). Dollar dominance manifests itself in trade invoicing (Gopinath 2015) and debt denomination (Maggiori, Schreger, and Neiman 2020; Ilzetzki Reinhart and Rogoff, 2020b) This phenomenon creates a self-reinforcing pattern where investors prefer dollar-denominated assets, firms invoice trade in dollars, and central banks anchor their currencies to the US dollar (Gopinath and Stein 2021; Ilzetzki, Reinhart and Rogoff 2022; Maggiori et al., 2023).

Some believe that this status quo is now changing. The Trump administration has expressed desire to weaken the dollar to make US exports more competitive. The policy was outlined by Stephen Miran, now Chairman of the Council of Economic Advisors, in the Mar-a-Lago Accord.  He proposes utilising the threat of a trade war to coerce countries into selling their U.S. Treasury bonds for their own currency in exchange for lower tariffs. This would weaken the dollar in a move similar to the Plaza Accord of 1985 (see Frankel 2015). Miran also proposes to decrease demand by imposing a ‘user fee’ on foreign holdings of US reserve assets (Patterson, 2025).

The dollar has depreciated by nearly 10% since the beginning of the year, but it is unclear whether this was due to any of the policy shifts. The US Dollar made up 57.8% of worldwide allocated reserves at the beginning of this year, still the majority, but a 7.3 percentage point decrease since 2014, and the lowest since 1994. This is mostly due to increased reserve holdings in emerging-market sovereign bonds: the Euro has remained stable at roughly 20% of global allocated reserves (Plassard, 2025). Some have speculated that the shift away from US dollar holdings combined with the Trump administration’s wariness with the dollar’s international roll may spark the beginning of the end of a century of dollar dominance.

Rogoff (2025) argues that the ultra-low US interest rates of the past few decades cannot be taken for granted and relied in part on US exorbitant privilege. He points out that China and other East-Asian countries have comprised a large share of the dollar block and a decline in dollar dominance will predictably follow form US-China decoupling. Rapidly rising debt deficits could result in further increases in inflation and interest rates globally (Rogoff, 2025).

Bluestein (2025) points, on the other hand, to the many times in the past century that that dollar’s dominant status was questioned. Its demise was predicted when Bretton Woods collapsed, following the Plaza accords, and with the advent of the euro. Bluestein argues that the dollar’s role in the global financial system creates a network effect that creates a natural monopoly for a single currency and high switching costs to another (Blustein, 2025).

If the dollar is dethroned, the natural question is what is are the viable alternatives? The EU is a central hub for international trade, but faces some structural challenges to dominant status. Portes and Rey (1998) and Papaioannou, Portes and Siourounis (2006) were early to argue that European capital market integration will be required if the euro is to gain prominence as an international reserve currency. Ilzetzki, Reinhart, and Rogoff (2021a) point to the fragmented nature of Eurozone debt capital markets and the limited availability of euro-denominated safe assets. Even euro-denominated corporate debt is in short supply due to the predominance of bank-based financing. The Eurozone crisis further hampered the internationalization of the euro. Blanchard and Ubide (2025) argue that increasing the euro’s global reach will require active measures to create a market for Eurobonds. China has emerged as an economy comparable in size to the US, but its financial system is still sheltered from the rest of the world, creating substantial barriers to internationalizing the renminbi. Even the government’s overseas loans are mostly denominated in US dollars (Horn et al., 2021). However, the People’s Bank of China is making conscious efforts to internationalize the renminbi, creating several overseas renminbi clearing centers network and expanding central bank swap lines. However, the PBoC renminbi swap lines have mostly been signed with smaller, politically-aligned countries (Bahaj et al., 2024). The renminbi network is still in its infancy, compared to the dollar and the euro. The currency still lacks a predictable macroeconomic environment, rule of law protection, and liquid capital markets which limit the currency from becoming globally dominant for now (Bahaj & Reis, 2020). Demertzis (2025) see a path for the euro and renminbi to increase market share, but the limitations of each of these alternatives will lead to a multipolar system.

Question 1: What will be the share of international central bank reserves held in US dollars in the year 2040? (The current figure is close to 60%.)