.

The U.S. dollar has long been the world’s dominant currency, but recent events have put its status under scrutiny. Rivalry with China, fallout from Russia’s war in Ukraine and wrangling in Washington over the U.S. debt ceiling have all contributed to speculation that non-U.S. allies would diversify away from dollars.

The dollar share of official FX reserves fell to a 20-year low of 58% in the fourth quarter of 2022, according to International Monetary Fund data. This shift was more pronounced when adjusted for exchange rate.

The almighty dollar has had a lock on commodity trading, allowing Washington to hinder market access for producer nations from Russia to Venezuela and Iran. But trade is shifting, with India purchasing Russian oil in UAE dirham and roubles, and China switching to the yuan to buy some $88 billion worth of Russian oil, coal and metals.

De-dollarisation would require a vast and complex network of exporters, importers, currency traders, debt issuers and lenders to independently decide to use other currencies. This is unlikely, as the dollar is on one side of almost 90% of global forex transactions, representing about $6.6 trillion in 2022.

The dollar’s status is underpinned by the $23 trillion U.S. Treasury market, viewed as a safe haven for money. International holdings of Treasuries are vast and there’s no credible alternative yet.

While there may not be a single dollar successor, mushrooming alternatives could create a multipolar world. Global central banks are looking at a wider variety of assets, including corporate debt, tangible assets such as real estate, and other currencies.

The U.S. dollar is still the world’s dominant currency, but its status is being challenged as nations look to diversify away from it.