The debate over de-dollarization has intensified in recent years, particularly after Russia’s military operation in Ukraine led to sweeping sanctions, highlighting the risks of relying on the US dollar centric global financial system. While Swiss bank UBS argues that the dollar’s dominance will persist “for years to come,” analysts suggest that gold and other currencies may play critical roles in a shifting world currency regime.
The dollar’s strength lies in its deep entrenchment in the global financial system, exceptional liquidity, and extensive derivatives markets. It is used in approximately 50% of all global payments and 84% of trade finance contracts, far outpacing its closest competitor, the euro. Moreover, the US currency still accounts for the lion’s share of global foreign exchange reserves, with 60% of central banks’ FX holdings.
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However, the trend of de-dollarization is gaining momentum. Gold, in particular, has emerged as a standout competitor, with its spot price trading at record highs and global reserves doubling in just over five years. As a safe-haven asset, gold is seen as better insulated from financial sanctions and credit risks. According to UBS, gold’s appeal lies in its ability to carry no credit or counter-party risk, making it an attractive alternative for investors seeking to diversify their portfolios.
While the dollar’s position as the world’s reserve currency appears secure, concerns about political risks in the US, particularly during election season, have sparked fears among investors. The US political atmosphere and large fiscal deficit are experiencing serious issues, which could potentially erode confidence in the dollar. Nevertheless, UBS argues that the US still ranks highly in terms of market openness, regulatory quality, and innovation, cementing its reputation as a hub for foreign capital.
However, the landscape is not static. Rising geopolitical tensions and potential shifts in the global currency order could trigger quicker adjustments. A potential second Trump term, for instance, could hasten a global currency regime change, according to Bloomberg Intelligence. As investors watch the US electoral race with angst, the dollar’s dominance is likely to face increasing scrutiny.”
