There has been a lot of hue and cry about De-dollarization post reckless tariffs imposed by the Trump Administration, but de-dollarization is still in the realm of rhetoric, and not in reality. The demand for US bonds is increasing, especially in the wake of the rise in geopolitical tensions and uncertainty.
Dollar's Enduring Dominance
The US dollar is the most dominant reserve currency in the world. It constitutes 58% of the total reserves. Presently, nearly 90% of the total Forex transactions are denominated in the US dollar. This is a position that has remained unchanged since the Bretton Woods agreement. Statistics indicate that the total amount of US bonds held by foreign countries has hit a record high of nearly $9.4 trillion by the end of 2025. Japan remains the largest creditor at $1.2 trillion end-2025, unchanged from 2020 levels, with many countries like the UK have increased their dollar holdings. De-dollarization efforts by the BRICS countries, fuelled by China and buzz-town in India, like the RBI's efforts to link digital currencies seems more like a media creation, and the efforts are yet to come to fruition. However, on the other hand, the policies adopted by President Trump are increasing the chances of diversification, fuelling the speculation about de-dollarization.
Treasury Holdings Trends
Foreign holdings of the US treasury bonds increased by 31% from $7.1 trillion in 2020 to $9.4 trillion in 2025, contrary to the narrative of de-dollarization. However, China's share has declined from over $1 trillion to $683 billion during this period and is the lowest since 2008. Japan's holdings were volatile during the period but stable at high levels, offsetting much of the sales from China; other official institutions hold 42% of the total US treasury holdings. The annual data shows the resilience of the holdings, with net purchases in 2025 despite volatility, driven by Norway and Canada offsetting sales from China. Chinese efforts to cut its US dollar holding has been driven by the diversification into gold and Yuan-based deals post the US forfeiting Russian US dollar holdings post the Russia-Ukraine war.
Global Impacts Assessed
A true de-dollarization move would increase US borrowing costs by 100+ basis points, reducing the deficit but risking the economy into recession. Emerging markets would experience currency chaos without dollar anchors, as evidenced by the risks of re-dollarization in Argentina. Trade fragmentation has increased, but the dollar's liquidity for commodities and SWIFT usage is still unmatched. And the US control over the financial network is still intact. India’s efforts of decreasing its dependence on the US-controlled payment networks have drastically gone down post its successful integration of the RuPay payment network into its domestic financial system. But in global trade, RuPay still has a very long path to walk before its presence is felt.
Realistic Outlook
The "possibility" of de-dollarization depends on the viability of alternatives, as the Yuan’s 4% reserve share is still lagging significantly. The rupee is yet to become a currency of global trade. Despite increasing Rupee Vostro accounts, the Rupee wouldn’t become a global currency until India starts having a trade surplus with other countries, including China. BRICS swaps, for instance, while useful, are an attempt to address the issue, but cannot compete with network effects. Trump's trade and tariff policies have significantly increased the odds of sanctions. This may in the future increase the sales of the US Treasury, but as of now, the holdings statistics indicate business as usual. Multi-polarity is still gradual, but the dollar is experiencing fatigue without death. So, any speculation on de-dollarization seems like another gossip in the town. Sometimes, it feels that the US President Donald Trump himself wants this speculation to continue so that he can continue enjoying the support of American citizens without any change in his trade and tariff policies stance.
Rajeev Upadhyay
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