Why Long-Term “De-Dollarization” Matters for U.S. Equity Investors

[OPINION]

The U.S. dollar has been the world’s reserve currency since the end of World War II, anchoring global trade, finance, and reserves. Often referred to as the backbone of the modern financial system, this privileged status has delivered enormous benefits to the U.S. economy. And while the dollar remains dominant, recent trends such as central bank diversification, rising gold purchases, U.S.-led geopolitical tensions, and China’s promotion of alternatives, have reignited discussion around “de-dollarization”- most recently in Davos.

This may sound academic, but even a gradual erosion of dollar dominance matters for U.S. equity investors.

The Dollar’s Enduring Role and Emerging Frictions

The Dollar’s dominance reflects the size, stability, and openness of the U.S. economy, supported by the world’s deepest and most liquid financial markets. It still accounts for roughly 58% of global foreign currency reserves (IMF COFER, Q3 2025), far ahead of the Euro (~20%). While this is down from its 85% peak in 1970, much of the long-term decline likely reflects exchange rate effects rather than active abandonment, though more recent diversification is real.

Central banks, for example, have increased gold purchases significantly since 2022. Some have viewed this as a hedge against geopolitical risks (and there certainly is evidence to suggest that), but most of the purchases were largely driven by emerging markets and geopolitical adversaries such as China and Russia, most of whom have raised concerns over the past few decades over American sanctions and currency weaponization. While we have yet to see a mass exodus from Dollars, Gold's rising share in global reserves (and the reasons behind that rise) have not gone unnoticed.

Fiscal dynamics add another layer. U.S. debt-to-GDP stands at approximately 124% according to the US Treasury, which could pressure long-term borrowing costs if confidence in America as a credit, erodes. For now, the Dollar’s safe-haven status and unmatched market depth continue to contain bond yields, but the system is not immune to change.

China’s push to internationalize the Renminbi (especially within BRICS* frameworks) has gained visibility, thanks to increased local-currency trading amongst the members of the group. Still, progress remains limited as the Renminbi represents less than 5% of global reserves, and coordination challenges and Dollar entrenchment constrain faster shifts.

Change Is Not Always Good (for Investors)

It is very likely that any threat to the Dollar’s reserve status would ultimately hinder America’s ability to borrow at lower cost, run larger deficits, and exert financial influence globally, since much of world trade and finance is Dollar denominated. A sustained erosion of this role could push U.S. interest rates higher, weaken the currency, and reduce confidence in Dollar assets.

For equity investors, this would likely show up through higher funding costs as foreign demand for Treasurys declines. Elevated rates could compress valuation multiples, tighten capital expenditure, and widen performance dispersion. While firms with strong balance sheets and low leverage would likely outperform, those which carry higher debt burdens or are otherwise exposed to exchange rates (i.e. run global operations in multiple currencies) could face greater pressure.

The good news is that no alternative currently matches the Dollar’s liquidity, safety, and institutional depth, making abrupt near-term shifts, unlikely. The obvious risk, however, is gradual change.

For investors, fiscal trends, central bank behavior, and geopolitical dynamics are all worth monitoring, since those very dynamics have sustained dollar primacy for decades. Any sustained and/or dramatic change in those areas are likely to have long-term implications for U.S. asset returns.

 *BRICS is an acronym that refers to Brazil, Russia, India, China, South Africa

Disclaimer: The content contained herein is provided for general informational purposes and does not constitute a recommendation, offer, or solicitation to buy or sell any securities. The content reflects the writer’s views and analysis as of the time of writing and are intended to support investment decision-making by providing an analytical perspective and context. The content does not address every factor relevant to any particular investor’s circumstances, and investors should evaluate their own facts and circumstances before making any investment decision. Past performance is not indicative of future results.