Dedollarization could be accelerated by the adoption of Bitcoin and other stablecoins.

It has been a long time since the US dollar was the primary currency of the world and the preferred choice in international trade. But its dominance is now facing growing scrutiny as shifting geopolitical and economic forces—and concerns over the potential weaponization of the greenback—push more countries to accelerate efforts to loosen their dependence on the dollar.

The US dollar is the dominant currency in the world economy. Although the country accounts for roughly 25% of global GDP, its currency reigns over nearly  60% of global foreign exchange reserves—far outpacing its nearest rival, the euro. 

This dominance, however, is becoming increasingly threatened, as the US president Donald Trump continues to threaten 100% tariffs to countries actively seeking to substitute the greenback, despite the fact that some countries have sought alternatives through the strategic use economic sanctions. 

Companies in Russia have used cryptocurrencies to circumvent restrictions. They use Bitcoin and other digital currencies to do cross-border transactions. While crypto was barred as illegal by the country´s central bank years ago, recent changes to the regulation have paved the way for corporations to embrace cryptocurrencies since late last year.

The country permitted It has also taken measures to legalize the mining of Bitcoin and other cryptocurrencies.

The Bitcoin sanctions and push towards dedollarization

Ever since Bitcoin was created, cryptocurrency advocates have become obsessed with “dedollarization,” The push is often described as a movement to decrease the US dollar dominance as a global reserve currency. This term refers broadly to the move away from using dollars in financial and trading activities. These include oil and commodities transactions (the “petrodollar” system), currency reserves, bilateral agreements and investments made in assets denominated in dollars.

Andrew Peel’s 2024 report by Morgan Stanley, the head of Digital Asset Markets at Morgan Stanley, pointed out that digital currencies are likely to become more prevalent in the near future. “opportunities to both erode and reinforce” It is possible that the dominance of the US Dollar will have a significant impact on the world currency market.

Still, while digital assets—most notably stablecoins— are increasingly gaining traction, the crypto market’s dedollarization expectations look premature.

Bitcoin may be seen more as a strategy reserve, but experts warn it is still early to declare it an alternative currency to the US dollar. El Salvador, for example, has embraced Bitcoin with a fervor that now accounts for 15%-20% of its total reserves. US officials have reportedly thought about similar steps, though widespread adoption is still limited. Questions remain as to whether these moves would actually undermine the dollar.

Bitcoin Depot CEO Brandon Mintz.

“For Bitcoin to become a true alternative to the USD, it would require broader mainstream adoption, clearer regulatory frameworks, and more scalable infrastructure.”

Bitcoin currently acts as a safe haven and store of value, rather than replacing the dollar. But its role may change with changes in global financial dynamics. Mintz believes that inflation and geopolitical tensions could be factors driving interest.

Mintz says that while institutional adoption is on the rise and there are signs of cross-border usage, it’s still too early to tell. “whether Bitcoin can genuinely challenge the dominance of the dollar as this will depend on how these trends develop over time.”

Related: 3 reasons why Bitcoin sells off on Trump tariff news

Bitcoin is volatile, despite the fact that its popularity continues to grow. According to the World Gold CouncilBitcoin has much higher volatility than Gold and a stronger correlation with Nasdaq Tech Stocks than other traditional safe-haven investments.

Eswar Prsad told Cointelegraph that he is a Cornell University professor who teaches trade.

“Decentralized cryptocurrencies such as Bitcoin still have highly volatile values, rendering them unsuitable as mediums of exchange or as reserve currencies.”

US dollar global foreign reserves decline

Around 88% of all global transactions will be conducted in 2024 using the US Dollar.

According to the World Bank, it is widely acknowledged that the US dollar is the most dominant international currency. According to International Monetary Fund, as of the third quarter of 2024, central banks held about 58 percent of their allocated reserves in US dollars—much of it in cash and US bonds. The euro is second, accounting for up to 20%. 

Central banks’ allocation of foreign exchange reserves. International Monetary Fund  

There are some signs that US dollars may not be as dominant in the future. This is due to their stability, acceptance, and role as the main reserve currency for the central banks. There are signs that the US dollar’s dominance is waning. This may be due to its stability, widespread acceptance in international trade and finance as well as status of a key reserve asset for central banks. percentage of global foreign reserves From over 70% of the total dollar value in early 2000, to less than 60% today.

In February 2022 the US decided to freeze $300 billion worth of Russia’s liquid reserves in US and NATO. Many US allies supported the decision, yet it was also a shock to global markets. It highlighted the possibility that Washington might weaponize its dollar not only against adversaries, or even allies with policies in conflict with American ones.

International Monetary Fund cites sanctions used by countries and the reaction of sanctioned states blog post In 2024, said

“We have found that financial sanctions when imposed in the past, induced central banks to shift their reserve portfolios modestly away from currencies, which are at risk of being frozen and redeployed, in favor of gold, which can be warehoused in the country and thus is free of sanctions risk.”

Does stablecoin actually promote dollarization?

Despite attempts by BRICS+ to challenge the dominance of US dollars, dollar value has remained stable in recent times. Over the last five years, the US Dollar Index has risen by approximately 8%.

Stablecoins, which are digital assets that have seen rapid growth in the crypto-sector, are often mentioned as potential solutions for trans-border transactions. The majority of stablecoins remain pegged to US dollars.

According to CoinGecko, stablecoins pegged in US dollars, such as Tether’s USDT, dominate 97% of this sector.

Digital assets could actually strengthen the dollar’s dominance if they are backed by stablecoins. “With USD-linked stablecoins at the core of this digital ecosystem, we have a unique chance to extend US financial influence globally—if policymakers act now,” Cody Carbone is the president of Digital Chamber in the US, an association that advocates blockchain technology. said On X.

By providing low-cost and efficient digital payment options, the emergence of and adoption of central banks digital currencies (CBDCs), could potentially disrupt certain cryptocurrencies.

“A widely accessible digital dollar would undercut the case for privately issued stablecoins, though stablecoins issued by major corporations could still have traction,” Prasad is a member of the Prasad family.

Prasad stressed that there is no alternative to the US Dollar as the global reserve currency. 

“The dollar’s strengths lie not just in the depth and liquidity of US financial markets but also in the institutional framework that underpins its status as a safe haven.”

The article does not provide legal advice or investment recommendations and it is intended for informational purposes only. These are solely the opinions, views, and thoughts of the author and may not reflect the opinions and views of Cointelegraph.