On My Mind: The $ is dead, long live the $

The US dollar's obituary has been written many times—with increasing frequency over the past year. Each time we get a fresh round of analyses declaring that de-dollarization is accelerating, the world is reorganizing its financial architecture around alternatives and the greenback's reign is drawing to a close. Most recently, a Deutsche Bank (DB) Research Institute report¹ argues that the conflict in the Middle East represents a "perfect storm for the petrodollar." A catchy tag line, but the report exemplifies the weakness of most dollar-doom analyses: they focus on one side of the equation and miss the full picture.

The petrodollar argument—and why it misses the point

The “Petrodollar Thesis” in a nutshell goes as follows: the global dominance of the dollar rests, to a crucial extent, on the fact that global oil trade is denominated in US dollars (USD). This goes back to the petrodollar arrangement formalized between the United States and Saudi Arabia in 1974, which tied dollar invoicing of oil exports to US security guarantees. Because oil is central to global manufacturing, this arrangement boosted dollar demand across the entire global trading system—not just in energy markets. The DB report argues that this arrangement is now fraying: 85% of Middle Eastern crude oil goes to Asia rather than the United States; Saudi Arabia is localizing defense under Vision 2030; Iran's oil exports are increasingly priced in renminbi through agreements with China; and with the war in Iran, the United States has actually brought turmoil to the Middle East, undermining regional security.² Therefore, the argument goes, oil trade will be increasingly priced in currencies other than the dollar, and the dollar's decline will become inevitable.

This view is remarkably simplistic, in my view. In fact, it gets the causation partly backwards. Oil is not priced in US dollars simply because the United States has long acted as the world's policeman. Oil exporters have a strong self-interest in getting paid in USD, because of what dollars represent: access to the deepest, most liquid capital markets in the world, backed by an institutional and legal framework that protects property rights and enforces contracts, supported by a strong, dynamic, and innovative economy. Three pillars sustain this.

• The US economy's scale and dynamism. The United States produces roughly 25% of global gross domestic product (GDP) at market exchange rates. It remains the largest single destination for global capital flows. Even with elevated debt and fiscal concerns—which I take seriously—US nominal growth has consistently supported returns that attract foreign investment.
• Institutional credibility. The Federal Reserve (Fed) is among the most credible central banks in the world. US courts enforce contracts. The rule of law in US capital markets is not a platitude; it is a quantifiable factor that reserve managers price when deciding where to hold their savings. The European Central Bank's 2025 “international role of the euro” report underscores that the euro area, despite meaningful progress, remains constrained by fragmented capital markets and the absence of a unified safe-asset market at the scale of US Treasuries.
• Unmatched market depth. A reserve manager in Riyadh or Delhi who wants to park US$50 billion overnight has one serious option: dollar markets. The renminbi cannot absorb that flow—China's capital account remains substantially closed, renminbi-denominated assets have limited convertibility, and China's legal system does not provide the external-creditor protections that dollar markets do.

No credible alternative exists

These strengths are currently unrivaled. What is the alternative? The euro area cannot issue a unified safe asset at sufficient scale. The renminbi operates behind capital controls and lacks convertibility. Digital currencies—whether central bank digital currencies such as those underpinning Project mBridge, or private stablecoins—settle transactions but do not provide the store of value function that reserve currency status requires. A basket of currencies is not a reserve currency; it is an accounting convention. And most stablecoins are anyway denominated in US dollars.

The US dollar's real competition, in my mind, is not yet on the horizon. Not because alternatives are inconceivable in principle, but because building the institutional infrastructure required—deep markets, rule of law, full convertibility, a track record of macro stability—takes decades, not years.

Dollar dominance: what the data show

That is where most predictions of the dollar's demise fall short. Some have pointed to signs of weakness in the US economy. Others have argued that the weaponization of the dollar-based financial system in geopolitics provides an overwhelming incentive for countries to move away from the dollar. Others still argue that the current administration is terminally undermining the robustness of US institutions. Even though there might be a grain of truth in all of these observations, none of them moves the needle.

Consider the evidence across the four key functions that define reserve currency status.

1. According to the International Monetary Fund's Currency Composition of Official Foreign Exchange Reserves data for the fourth quarter of 2025—covering a total foreign exchange (FX) reserve pool of US$13.14 trillion—the dollar accounts for close to 57% of allocated reserves, with the euro at 20% and the renminbi at 2%. The dollar has drifted down from a peak of around 72% in 1999 but remains dominant by a wide margin.
2. In cross-border payments, according to Fed staff compilations of SWIFT (the Society for Worldwide Interbank Financial Telecommunication) messaging data, the US dollar's share of international payments rose from 31.8% in 2010 to hover around 50% by early-2026—while the euro fell from 40.4% to 22.8%. Trade finance remains even more concentrated: SWIFT's March 2026 Global Currency Tracker puts the dollar's share of documentary credits and collections at approximately 82%.
3. In FX markets, the Bank for International Settlements 2025 triennial survey finds the dollar on one side of 89% of over-the-counter FX turnover, compared to just 8.5% for the renminbi.
4. US Treasury markets—the deepest pool of safe assets in the world—stand at US$30.6 trillion outstanding as of February 2026, with average daily secondary-market trading around US$1.29 trillion, according to the Securities Industry and Financial Markets Association. No other sovereign bond market comes close.

These are not the metrics of a currency in decline. They are the metrics of a currency under mild pressure at the margin—pressure that has been simmering for two decades without producing a fundamental shift.

The dollar's weakness is cyclical, not structural

The USD has depreciated meaningfully over the past year, and some commentators have pointed to this as evidence of structural decline. I see it differently. In broad, real, trade-weighted terms, the dollar remains well above its troughs of the mid-1990s and the late 2000s—levels at which no serious analyst argued dollar primacy was ending. Some dollar softness is perfectly consistent with global reserve currency status. Unlike the renminbi, the dollar is a freely floating currency. It floats. Up and down.