The function of the U.S. greenback in world bond markets has waxed and waned periodically over the previous 60 years, with no clear long-term pattern towards rising greenback dominance or de-dollarization, in accordance with a brand new Federal Reserve dialogue paper.
Utilizing the Financial institution for Worldwide Settlements’ (BIS) worldwide bond database, the authors establish three distinct “waves of dollarization” because the Nineteen Sixties and present that modifications in foreign money use have adopted a cyclical sample relatively than a gentle structural change in world finance.
“There isn’t any monotonous dollarization or de-dollarization pattern. As a substitute, the greenback share reveals a wavy sample,” the paper mentioned.
In line with the report, the newest wave emerged after the 2008 world monetary disaster, when the greenback regained market share in worldwide debt issuance, returning to ranges seen earlier than the surge in euro-denominated debt issuance within the early 2000s.
Proportion of worldwide debt issued by foreign money, 2000-2024. sauce: federal reserve system
The examine additionally discovered that as of 2024, rising market issuers will nonetheless rely totally on dollar-denominated debt, which accounts for about 80% of worldwide debt issuance, whereas China’s efforts to internationalize its foreign money, the renminbi, which started in 2010, have yielded solely modest positive factors.
“The greenback’s pre-eminence rests on a weak basis, however within the absence of viable options, the greenback’s primacy stays unchallenged,” the report mentioned.
Associated: Intuit to make use of Circle’s stablecoin for monetary platform
Stablecoins again U.S. Treasuries
The worldwide stablecoin market has expanded quickly over the previous yr, rising from $205.5 billion in December 2024 to roughly $309.6 billion, in accordance with information from DefiLlama.
Most of that progress has been concentrated in USD-pegged tokens, with Tether’s USDt (USDT) and Circle’s USDC (USDC) collectively accounting for about 85% of the whole stablecoin provide, or about $264 billion of the market on the time of writing.
Stablecoin market capitalization. sauce: Defilama
As dollar-pegged stablecoins have expanded, issuers have develop into vital holders of short-term U.S. Treasuries.
Tether mentioned in its second quarter 2025 reserves report that its publicity to U.S. Treasuries exceeded $127 billion, together with $105.5 billion of direct holdings and $21.3 billion of oblique holdings. This degree of Treasury holdings makes Tether one of many largest holders of U.S. authorities debt, the corporate mentioned.
USDC can be closely supported by U.S. authorities debt devices, together with $49.7 billion in in a single day reverse repos and $18.5 billion in short-term Treasury payments, in accordance with Circle’s newest transparency report (dated December 15).
Preliminary composition of the circle. December 15, 2025. supply: circle
The U.S. authorities sees dollar-pegged stablecoins as a technique to strengthen the greenback’s function because the world’s reserve foreign money and is supporting their progress by laws, in accordance with a July report from digital asset financial institution Sygnum.
Different nations are additionally paying consideration. Italian Economic system and Finance Minister Giancarlo Giorgetti warned in April that U.S. insurance policies supporting dollar-backed stablecoins posed a higher long-term danger to Europe’s monetary system than commerce tariffs, saying they may undermine the euro’s function in cross-border funds.
In December, a gaggle of 10 European banks introduced plans to launch a euro-pegged stablecoin within the second half of 2026.
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