With the weakening of the US dollar relative to a basket of other currencies so far in 2025, we have received questions about whether the US dollar is in jeopardy of losing its reserve currency status.
First, let’s start by asking the question, “What does it mean to be a reserve currency?” It means many things, including that the currency is held in large amounts by central banks worldwide. Additionally, major transactions, including those involving commodities such as oil and gas, are typically priced in the reserve currency. Another important feature is that, for a currency to function as a reserve currency, it requires liquid and open capital markets, as well as widespread confidence in its stability among market participants.
It is safe to say all these boxes can be checked for the US dollar, but contrast it against the Chinese yuan renminbi (or simply, the yuan), for example, which has been mentioned as a possible replacement; its markets are not fully open, and it does not have the full confidence of global investors. Similarly, one could argue that Bitcoin, which has also been suggested as a replacement for the US dollar, does not meet the criteria mentioned above.
Let’s remember that if the US were to lose its status as the reserve currency, another currency would need to take its place. What currency would replace the US dollar as the reserve currency? This is an important question that needs to be answered if there is serious consideration for the US dollar to lose its reserve status. As of 2024, the USD comprised 58% of global foreign currency reserves with about 20% in euro, 6% in Japanese yen, 5% in British pound, and 2% in the Chinese renminbi. In short, while it is plausible that it could happen in the future, there is no currency close to replacing the US Dollar as the global reserve currency in the imminent future.
East Bay Investment Solutions, a Registered Investment Advisory firm, supplies investment research services under contract.
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