Dollar decline warnings remain overstated, analysis says
A BCG Institute analysis says reserve-currency status depends less on exchange rates than on rivals’ ability to carry the costs of global demand.
By Sofia Marchetti · World Affairs Correspondent
3 min read
Predictions that the U.S. dollar is losing its role at the center of global finance remain overstated, according to a BCG Institute analysis published by Fortune. The argument matters because recent concern over a weaker dollar, China’s currency gains and shifting market behavior has renewed debate over whether the greenback’s reserve status is at risk.
The analysis says warnings about the dollar’s demise have appeared regularly since at least 1971, when President Richard Nixon ended the dollar’s convertibility into gold. Despite repeated forecasts of decline, the dollar has retained its dominant role through several economic and geopolitical cycles.
BCG Institute argues that the dollar’s exchange rate is a poor measure of America’s reserve-currency position. Executives and investors have reason to track the dollar’s value because it affects revenues, assets, debts and competitiveness, the analysis says, but currency price moves mostly reflect relative growth, inflation and interest rates.
The analysis points to several historical comparisons. It says the dollar was 24% lower than today in 1990, 14% lower in 2000 and 11% lower in 2015. It also notes that the dollar reached a 37-year high in October 2022, during a period when debate over U.S. decline was intense.
Reserve status brings costs as well as advantages
BCG Institute says the stronger test is whether another currency can meet the demands of reserve leadership. A reserve-currency issuer needs a large economy, open and deep markets for safe assets, free movement of capital, legal reliability, predictable policy and geopolitical influence, according to the analysis.
Those advantages come with burdens, the analysis says. Other countries can build reserves only if the reserve issuer absorbs persistent deficits over time, meaning it buys more from the world than it sells. Heavy foreign demand for its assets can also lift the currency, weaken exporters, loosen credit and expose the economy to capital-flow swings.
The euro has some of the needed characteristics, BCG Institute says. It represents economies only somewhat smaller than the United States, has open capital markets and carries strong legal and institutional credibility. The analysis says about 20% of allocated official reserve assets are held in euros.
But the euro does not yet offer anything comparable to the scale and depth of the U.S. Treasury market, according to the analysis. Europe has taken limited steps toward shared liabilities, including during the Covid period, but BCG Institute says a full alternative would likely take decades.
China faces limits on currency openness
The renminbi has gained more use in trade settlement, especially as a larger share of China’s trade is paid in its own currency. BCG Institute says that development does not make the renminbi a near-term reserve rival because China does not allow full capital mobility.
The analysis says China faces a standard policy trade-off: it can maintain only two of three goals at once — a managed exchange rate, independent monetary policy and free capital movement. BCG Institute says Beijing has chosen exchange-rate control and monetary-policy flexibility over open capital flows.
Renminbi settlement in China’s trade has grown from effectively zero to around 50% over the past 15 years, according to a 2025 International Monetary Fund research paper cited in the analysis. But the paper says invoicing matters more than settlement: China’s currency is used less in invoicing than China’s share of global trade, while the dollar’s invoicing role exceeds the U.S. share of trade.
BCG Institute says China has promoted the renminbi through reserve-basket inclusion, central-bank swap lines and its own payment system. Still, the analysis says China’s closed capital account keeps it from competing directly for reserve primacy.
The analysis also says the end of dollar dominance, if it came, would not necessarily produce a sudden crisis. It cites the British pound’s long decline as a reserve currency as a precedent: Britain kept growing and the pound remained internationally used, though the country lost policy flexibility tied to reserve leadership.
This story draws on original reporting from Fortune.