US Dollar Dominance and the Global South

The preeminent status of the U.S. Dollar in the global financial system presents a significant challenge for countries in the Global South, according to an analysis by Janak Raj. While the currency’s dominance is not expected to last forever, Raj argues that developing economies cannot afford to wait for its influence to fade naturally and must instead adopt a strategic approach to reduce their dependence on the greenback to mitigate financial risks.

The share of the U.S. Dollar in global foreign reserves reached its peak in 2001 and has been in decline since then. However, this downward trend is progressing slowly, ensuring that the dollar will maintain its relative dominance for years to come. This persistence means that the Global South remains exposed to the consequences of U.S. Policy.

The Structural Dominance of the Dollar

The global financial order was largely shaped by the 1944 Bretton Woods system, a postwar compromise that granted the United States control over the world’s financial infrastructure. Even after the gold standard ended in 1971, the dollar retained its status as the primary reserve currency.

The scale of this dominance remains substantial. According to reporting from the Global South Forum, the U.S. Dollar accounts for approximately 58 percent to 60 percent of worldwide foreign exchange reserves. Its role in international trade is even more pronounced, with estimates indicating that over 80 percent to 88 percent of cross-border transactions and international trade invoices are denominated in dollars.

The Federal Reserve noted in a July 18, 2025, edition of its research that the dollar remains the most frequently used currency in global trade. Similarly, J.P. Morgan reported on July 1, 2025, that while the United States’ share of global output and exports has declined, the transactional dominance of the dollar remains evident in foreign exchange markets.

The Dollar Dilemma and Economic Sovereignty

For nations in the Global South, the reliance on the U.S. Dollar functions as both a lifeline and a leash, as described by Abdul Akbar of the Global South Forum. While the currency facilitates access to capital markets and simplifies trade, it simultaneously exposes these economies to several critical risks:

• Exposure to U.S. Monetary policy shifts.
• Vulnerability to U.S.-led sanctions.
• Risks associated with capital flight.

This dependency is increasingly viewed not as a source of stability, but as a constraint on economic sovereignty. The Global South Forum characterizes the current movement toward de-dollarization as a political awakening and a reclamation of autonomy from the financial order established in 1944.

This shift represents “a tug-of-war” between a West-dominated financial system and an emerging multipolar currency world.

Bhattarai & Adhikari (2025), via Global South Forum

Pathways to De-dollarization

Efforts to reduce dollar dependence, referred to as de-dollarization from below, are manifesting through several strategic initiatives across Asia and Africa. These include experiments with digital currencies by central banks and coordinated efforts during BRICS summits to create alternative financial arrangements.

The oil trade has historically reinforced the dominance of the dollar. However, geopolitical shifts may alter this dynamic. Reports indicate that the war in Iran could potentially give rise to the petroyuan, as countries seek alternatives to dollar-denominated energy contracts.

By reducing their exposure to the U.S. Dollar, Janak Raj suggests that countries in the Global South can foster a more resilient and balanced global financial landscape, reducing the ability of U.S. Policy to dictate the economic stability of developing nations.