The silent de-dollarisation

MADAN SABNAVIS

Chief economist, Bank of Baroda

US TREASURIES ARE considered the

safest forex asset as the dollar continues

to be the main global currency. In fact, the

US virtually controls the Society for World-

wide Interbank Financial Telecommuni-

cation (SWIFT) payments system, as all

banks get linked to this set-up. When the

Ukraine war started, all payments to Rus-

sia were blocked by the US which had

imposed sanctions on the aggressor. The

blow was severe but also a signal to other

nations of such possibilities. US treasuries,

hence, are still preferred by all central

banks; but things have been changing.

The US's infallibility was questioned

when the debt ceiling issue emerged on

several occasions. These limits were then

raised, but discussion has focused on

exploring alternatives to the dollar. This

is why countries have been diversifying

their forex holdings, even as the dollar

remains dominant.

A look at the ownership pattern of US

treasury securities is interesting. Overthe

last 10 years or so, the US's total public debt

increased from $18.15 trillion in March

2015 to $36.21 trillion in March 2025-

an increase of almost 100%. The share of

foreign holdings, largely those held by var-

ious central banks, was as high as 34% in

2015. It has come down to 24.9% in

March 2025. This does reveal two things

that are reflections of each other. First,

central banks are diversifying their hold-

ings. Second, the US government is less

dependent on foreigners for subscribing

to their debt, which is compensated for by

domestic holders.

Further, the holdings of the Federal

Reserve has come down from 41.4% in

March 2015 to 31.8%. This can be

explained by the fact that when the Fed

went into the quantitative easing mode,

banks tended to sell their

treasuries to the Fed for liq-

uidity. As this process eased,

the Fed's share tended to

move downwards. Mutual

funds have increased their

treasury holdings-the

share has gone up from

6.4% to 12.2%. The sup-

port provided by the Fed is

still very significant, at

almost a little less than a

Countries have

been diversifying

their forex

holdings, even as

the dollar remains

dominant

third. This can be contrasted with the

Reserve Bank of India's holding of central

government debt-12-13%. Clearly, the

US government's dependency on the cen-

tral bank is greater.

The same also gets reflected when the

share of currencies in overall forex

reserves at the global level is considered.

Between 2016 and 2025, International

Monetary Fund data shows, the dollar's

share has come down from 65.5% to

Recent episodes of tariffs, sanctions, and interference

of the US in economic decisions of sovereigns would

only hasten the shift away from the dollar

57.7%. In contrast, there has been an

increase for other currencies like the euro

(19.6% to 20.1%), pound sterling (4.7%

to 5.2%), yen (3.7% to 5.1%), and ren-

minbi (from virtually nil to 2.1%). Such

diversification is also the result of the

gradual change in the balance of power

across the world economy. While the dol-

lar is still dominant, countries are invest-

ing in other hard currencies. The euro will

continue to be the second

most dominant currency as

all member countries hold

their forex assets in this

form. It will get progres-

sively popular as its accept-

ability has been growing,

given the orderly manage-

ment of the economy since

the 2011 euro crisis.

It has also been observed

that central banks have

been increasing their gold holdings as part

of their forex reserves over time. World

Gold Council data for June 2015-June

2025 shows some interesting patterns. All

big geconomies have increased the share of

gold in forex reserves. Covid-19 was the

turning point, followed by the Russia-

Ukraine war, leading to sanctions being

imposed by the US. With the tariff issue

causing further uncertainty, gold becomes

the natural safe haven.

Gold share in forex reserves rose from

5.9% to 13.1% for India, from 1.7% to

6.7% for China, 8.3% to 16.6% forthe UK,

10.1% to 19.4% for South Africa, and

6.3% to 13.2% for Australia. In a way,

there is a case to believe that countries are

de-risking their interests from the idio-

syncratic policies followed in the US. Even

developed countries like Germany, Italy,

and France have increased their share of

gold holdings by over 10 percentage

points during this period. It is not surpris-

ing that the price of gold has received an

impetus due to this demand factor.

The recent episodes of tariffs, sanc-

tions, and interference of the US in eco-

nomic decisions of sovereigns would only

hasten this shift away from the dollar. The

world has already started moving towards

more free trade agreements as well as eco-

nomic blocs that the US is opposed to. As

these agreements become stronger and

wider in terms of coverage of nations, it is

natural that the currencies used will tend

to change. The payments systems will also

see the rise of alternative channels to

SWIFT. The lesson is that the US needs to

be more flexible in taking on the role of the

anchor nation and currency vis-à-vis

developing and maintaining the global

economic order.

Views are personal