Digital authorities decisively rebuff proposals for digital currencies and related assets
In recent times, the US dollar's global dominance has been called into question, with central banks and investors exploring alternatives. The shift is driven by signs of the dollar's waning power, and several currencies are being considered as potential replacements.
The Euro (EUR), the second most used reserve currency, is one of the leading contenders. The European Union's large economy, strong central bank, and deep financial markets make the euro an attractive option. However, the lack of a unified fiscal policy and common treasury limits its full potential as a dollar replacement.
The Chinese Renminbi (RMB) is another contender, particularly within the BRICS bloc, where it is used in about 50% of intra-BRICS trade. Despite this growth, the renminbi still accounts for only about 2-7% of global forex payments, far below the dollar. Challenges include China’s reluctance to play a leading vehicle currency role and incomplete cross-border settlement systems among BRICS countries.
The Japanese Yen (JPY) and Swiss Franc (CHF) are also being considered. The yen, seen as Asia’s financial safe haven, often strengthens when the dollar weakens due to Japan’s large capital markets and trade surplus. The Swiss franc, valued for stability and Switzerland’s political neutrality, is another safe haven currency favored when confidence in the dollar falls.
Gold, a traditional store of value, is another option being considered by central banks as a hedge against dollar depreciation.
Other proposals include a potential BRICS shared currency, but this faces significant structural and political obstacles, making it unrealistic as a near-term alternative to the dollar.
Despite these diversification efforts, the dollar remains dominant, still involved in 88% of daily forex transactions as of 2022. This underscores the significant inertia and network effects sustaining the dollar’s global role.
Geoffrey Yu, senior EMEA markets strategist at BNY, writes that the dollar will remain the default currency, and other currencies will have to earn their higher status. On the other hand, central banks are turning back to gold, according to Michael Paulus, Alberto Torres, Sunil Kaushik, Natalie Tsui, Tobias Cheung, and unspecified colleagues at Citi.
In conclusion, the euro, renminbi, yen, Swiss franc, and gold are the primary alternatives being considered amid concerns of dollar dominance erosion. The euro and renminbi lead among potential currency challengers, although structural and geopolitical challenges constrain rapid shifts away from the dollar.
Sources:
- OMFIF's Global Public Investor series explores the investment strategies of central bank reserve managers, public pension funds, and sovereign funds across the world, engaging with over 160 global public investors with over $24tn in total assets.
- OMFIF's Global Public Investor 2025 found that no central bank surveyed holds any digital assets, and 93% have no intention of doing so.
- The senior economist at OMFIF writes that doubts are growing about the foundations of dollar dominance.
- Harold James writes that countries have historically turned to gold in periods of instability, and today’s environment is no different.
- Jesper Koll, global ambassador and expert director of Monex Group, Japan, writes that de-dollarisation provides an opportunity for Japan to move closer to the limelight.
- Mark Sobel, US chair at OMFIF, suggests that while the administration’s actions may erode the dollar’s dominance, it is not going anywhere soon.
- Aaron Hurd, senior portfolio manager at State Street Investment Management, writes that lower returns and higher risk mark a change in dynamics for the US currency.
- Pierpaolo Benigno and Edoardo Reviglio suggest that Europe has a strategic opportunity to develop its own safe asset.
- Max Castelli and Yara Aziz discuss the global reserve response after 2 April, a date proclaimed by President Donald Trump as Liberation Day.
- Cryptocurrencies, according to an unspecified author, may accelerate geopolitical shifts.
- Herbert Poenisch, senior research fellow at Zhejiang University, suggests that discussions about de-dollarisation fall short when it comes to finding a credible replacement for the dollar in cross-border transactions.
- Massimiliano Castelli, head of strategy and advice at UBS Asset Management, states that the dollar’s demise is greatly exaggerated.
- Nat Benjamin outlines key considerations to foster a steady-state liquidity environment that supports stability and growth.
- The shift in global currency dominance is being driven by concerns about the robustness of the US dollar and the exploration of alternatives by central banks and investors.
- In this context, the Euro is one of the leading contenders for global reserve currency status, due to the European Union's large economy, strong central bank, and deep financial markets.
- While the Chinese Renminbi also has potential, challenges such as China’s reluctance to play a leading role and incomplete cross-border settlement systems amongst BRICS countries pose obstacles for it to become a dollar replacement.
- The Japanese Yen and Swiss Franc are being considered too, given their roles as financial safe havens and Switzerland’s political neutrality.
- Gold, as a traditional store of value, is another option being considered by central banks as a hedge against dollar depreciation.
- Proposals for a potential BRICS shared currency face significant structural and political challenges, making it an unrealistic alternative in the near term.
- Despite diversification efforts, the dollar remains dominant, accounting for 88% of daily forex transactions as of 2022.
- Geoffrey Yu, senior EMEA markets strategist at BNY, suggests that other currencies will have to earn their higher status, and central banks are increasingly turning back to gold in response to concerns about dollar dominance.
