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 on the U.S. dollar dominance as a global currency. This paper presents empirical evidence suggesting that these concerns are misplaced, as the USD prevalence has been unchanged up until early 2023. 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. These findings have implications for reserve currency resilience, U.S. dollar dominance, international spillovers of U.S. monetary policy, and U.S. government borrowing costs.

Keywords: De-dollarization, Central Bank Reserves, Foreign Exchange Transaction Volume, Global Debt Securities Denomination, Currency Invoicing, trade