The US dollar’s share of global foreign exchange reserves fell to 56.8% in the fourth quarter of 2025, the lowest level since 1994, according to IMF data on Currency Composition of Official Foreign Exchange Reserves released Friday.
The reading extends a long-running decline. The dollar’s share has dropped from roughly 72% in 2001 as central banks have steadily added non-dollar assets — particularly nontraditional currencies such as the Australian and Canadian dollar — to their holdings. The euro held steady at around 20%, while the Chinese yuan stood at 1.93% in the most recent data.
Not a straight confidence vote
The drop, however, is not straightforwardly a vote of no-confidence in the dollar. The IMF has flagged that a significant portion of the reported decline in dollar share in any given quarter reflects exchange rate movements rather than active selling: when the dollar weakens against other currencies, non-dollar holdings appear larger in dollar terms, mechanically reducing the dollar’s reported share even if no central bank changes its portfolio. The dollar index has fallen toward 95 in recent months, its weakest level in years.
Steven Kamin, a senior fellow at the American Enterprise Institute and former Federal Reserve international economist, told Anadolu Agency that much of the dollar’s reserve decline reflects diversification into smaller currencies rather than a structural loss of confidence. He said the dollar is expected to maintain its leading position in the foreseeable future, and that no currency — including the euro and the Chinese yuan — is positioned to replace it.
Olu Sonola, head of US economic research at Fitch Ratings, pointed to policy uncertainty as an additional driver — tariff escalation, questions over Federal Reserve independence, and geopolitical instability feeding a broader reassessment of dollar-denominated assets at the margin.
The dollar’s dominance in global finance remains intact by other measures. It is involved in 89% of foreign exchange market transactions, according to the Bank for International Settlements, and US Treasuries remain the deepest and most liquid sovereign bond market in the world.
Outstanding foreign exchange swaps — in which global firms hedge against currency risk — exceed $100 trillion, with roughly 90% denominated in dollars, a structural anchor that oil pricing alone cannot easily dislodge.
The Iran War adds a new pressure point
The Iran war, now in its fifth week, adds a new and distinct pressure point. A senior Iranian official told CNN that Tehran is conditioning passage through the Strait of Hormuz on tankers agreeing to settle oil trades in Chinese yuan rather than dollars — a direct challenge to the petrodollar architecture that has underpinned dollar dominance since a 1974 agreement between the Nixon administration and Saudi Arabia linked oil pricing to the US currency.
Read: Yuan, Not Dollars: Iran’s Hormuz Toll Booth Picks Its Currency
Deutsche Bank analysts warned in a recent note that the conflict “could be remembered as a key catalyst for erosion in petrodollar dominance, and the beginnings of the petroyuan.”
The short-term picture runs in the opposite direction. As energy prices surged and investors sought safety, the dollar index crossed 100 on March 13 — its strongest level since November 2024 — reflecting the dollar’s enduring role as a crisis refuge even as its reserve share declines.
The US national debt crossed $39 trillion on March 18, however, adding fiscal weight to longer-run credibility concerns.
Read: US National Debt Crosses $39 Trillion as Iran War Costs Mount
“The factor I think gets underweighted in the discussions about de-dollarisation is confidence in US fiscal discipline,” Josh Katz, founder of Universa Tax Professionals, told the CIO Investment Club. “Foreign investors don’t just hold dollars because of inertia. They hold them because they trust the underlying system.
Information for this story was found via the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
