A new discussion paper published by the US Fed finds that the US dollar’s role in global bond markets has fluctuated in recurring cycles over the past six decades, rather than following a steady path toward either stronger dominance or long-term de-dollarization.
The study analyzes data from the Bank for International Settlements international debt securities database and identifies three distinct waves of dollar usage in global debt issuance since the 1960s. According to the authors, changes in currency preference across international bond markets have followed cyclical patterns shaped by global financial conditions rather than permanent structural shifts.
“We find no monotonic dollarization or de-dollarization trend; instead, the dollar’s share exhibits a wavelike pattern,” the paper states.
The most recent dollarization wave began after the 2008 global financial crisis, when the US dollar regained market share in international bond issuance. This rebound followed a period in the early 2000s when euro-denominated bonds expanded rapidly and temporarily reduced the dollar’s share in global debt markets.
US Fed Study Shows Emerging Markets Still Depend on Dollar Debt
The US Fed paper also highlights the continued reliance of emerging market issuers on dollar-denominated borrowing. As of 2024, around 80 percent of outstanding international bonds issued by emerging economies remain denominated in US dollars, underscoring the currency’s central role in global financing.
Efforts by China to internationalize the renminbi since 2010 have resulted in only limited gains, according to the study. Despite policy initiatives and cross-border settlement experiments, the renminbi’s share of international bond issuance remains small compared to the dollar.
While the authors note that the dollar’s position rests on foundations that could be vulnerable over time, they conclude that the lack of credible alternatives has left its primacy largely unchallenged.
“While the dollar’s eminence rests on vulnerable foundations, the absence of viable alternatives has left the dollar’s primacy unchallenged,” the report said.
The findings come as dollar-linked digital assets grow rapidly in scale. Data from DefiLlama shows the global stablecoin market expanded to roughly $309.6 billion, up from $205.5 billion in December 2024. US dollar-pegged tokens dominate the sector, with Tether’s USDt and Circle’s USDC accounting for about 85 percent of total supply, or roughly $264 billion.
As these stablecoins have expanded, issuers have become major holders of short-term US government debt. Tether reported Treasury exposure exceeding $127 billion in its second-quarter 2025 reserve report, while Circle disclosed significant holdings through overnight reverse Treasury repos and short-term Treasurys in its December transparency update.
A July report from digital asset bank Sygnum said US policymakers increasingly view dollar-backed stablecoins as tools to reinforce the dollar’s global role, a stance now drawing attention from overseas regulators. European officials have warned that US support for dollar-pegged stablecoins could weaken the euro’s position in cross-border payments, prompting plans for a euro-denominated stablecoin launch in 2026.
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