Indrani De, CFA, PRM
Robin Marshall
This insight examines the debate around the US dollar and Treasuries as global safe havens and reserve assets, following recent weakness. Gold ‘s strong performance, evidence of reduced foreign holdings of Treasuries, de-globalisation and some de-dollarisation have sharpened this debate. But despite the dollar’s recent weakness, the structural advantages of deep and liquid US financial markets, its dominant role in trade invoicing and as a monetary anchor, are sustaining its primary reserve currency status.
- Safe haven status under scrutiny – the dollar and Treasuries have shown relative weakness during recent market turbulence, while gold has surged
- Some evidence of de-dollarisation in FX reserves and payment systems, but viable global alternatives remain limited.
- Structural dominance remains – USD still dominates as a unit of account, in global trade, SWIFT transactions, currency pegs and central bank FX reserves.
A striking feature of the recent “ risk-off “ phase in markets has been the relative weakness of the US dollar, and US Treasuries, despite their traditional roles as safe haven assets, during crises, and support from interest rate differentials. In contrast, other traditional safe haven currencies, and assets, like the Swiss franc and Japanese yen, and gold particularly have performed well. The recent move has led to speculation that the dollar is at risk of rapidly losing its safe haven status[1].
However, despite recent weakness, we note a few structural factors, including dollar pegs and lack of alternatives as a reserve currency, which will reduce structural shifts away from the dollar in global portfolios. Chart 1 shows how the US dollar surged during the Global Financial Crisis (GFC) in 2008-09, Covid in 2020, and the Ukraine shock in 2022, as investors sought the safety and liquidity of US financial assets but has fallen back during the recent risk-off phase.
Chart 1: US dollar nominal broad index since 2005
Source: US Federal Reserve. Data to April 8th, 2025.
Evidence of the dollar’s increasingly negative correlation with gold can also be seen in Chart 2. Gold may now be a default safe haven and strategic asset for international investors, as we point out in our recent paper,[2] not least because of gold’s proven low correlation with other asset classes, and because it is a truly global asset, with no sovereign identity.
Chart 2: US dollar and gold price since Covid
Source: LSEG and Datastream, data to March 31, 2025.
Several factors may explain the diminishing role of the dollar as a perceived safe haven
Prima facie, a number of factors explain a change in the role of the US dollar and US Treasuries as safe havens (though we note that a reserve currency has broader uses as both a unit of account, and store of value). Firstly, globalisation and multilateralism have stalled since the rapid phase of globalisation of economies and markets from the mid-1980s to the GFC in 2008. The UK’s Brexit in 2016 from the EU single market and higher trade tariffs since 2018 are examples. A simple metric that shows this is the share of trade in world GDP, shown in Chart 3. Note the rapid growth in this trade share until 2008, and how trade shares have fallen since, led by China.
Chart 3: Trade shares in world GDP
Source; World Bank data to end-2023.
If globalisation and multilateralism do reverse, and trade becomes more focussed in regional trade-blocs, with less dollar denomination of international trade flows, the dollar’s role as a global trade invoicing and reserve currency may be diminished. A related factor is that there is some evidence of foreign central banks moving away from the dollar as a primary reserve asset, with foreign holdings of US Treasury debt falling, as Chart 4 shows.
Chart 4: Foreign holdings of US Treasuries
Source: IMF, latest data to end-Q2 2024.
A second, related development to the decline in the share of US federal debt held by foreigners may be the recent rise in the US term premium and US sovereign spreads relative to other G7 economies. US sovereign spreads have actually increased since the Fed easing cycle began in September 2024, unlike previous easing cycles[3]. In those cycles, US 10 yr spreads generally fell as the Fed eased faster than other central banks, whilst rising during Fed tightening. Chart 5 shows how US spreads have trended wider versus other G7 economies since Covid.
Chart 5: US sovereign spreads
Source: US Soverreign spreads is LSEG. Data to May 8, 2025.
Thirdly, the IMF’s data on the currency composition of foreign exchange reserves (COFER) shows the aggregate share of the US dollar globally in foreign exchange reserves has fallen from above 70% in 2000 to 58% in 2024, as Chart 5 shows. The more complete picture since China’s fx reserves were included confirms a decline in overall allocated dollar reserves from 61% in 2013 of the total to 58% in 2024. Furthermore, without the valuation effect of dollar appreciation of approximately 38% over the period, this would amount to a more sizeable decline, at constant exchange rates[4]. However, the share of euro reserves has also fallen, from 24% to 20%, as Chart 6 shows, and euro reserves fell sharply after the Eurozone debt crisis broke in late-2009, and continued intermittently until 2016, from 28% in 2009, to only 19% of reserves in 2016, as the future and stability of the euro were called into question.
Chart 6: Currency composition of central bank forex reserves
Source: IMF, Currency composition of official foreign exchange reserves, March 31, 2025.
Fourthly, alongside the decline in the share of the dollar in global fx reserves, there is some evidence of de-dollarisation in commodity markets, with more transactions denominated in other currencies, notably involving Russian oil exports to EM economies. Indeed, Russia sharply reduced holdings of US Treasuries in fx reserves in 2018, by about $81bn.[5], reflecting geo-political tensions. But note that Russian holdings of US Treasury debt are modest and currently stand at only $15bn.
Fifthly, de-dollarisation is evident in some regional cross-border payment systems, like Project mBridge. This is a multi-central bank digital currency platform which links central and commercial banks in China, Hong Kong, Thailand, the UAE and Saudi, and does not use the US dollar.
But despite the decline in the dollar share of reserves, global reserve alternatives are hard to find
Reflecting the decline in Euro and US dollar shares in global fx reserves, the share of non-traditional currencies, like the Chinese renminbi has risen modestly in recent years, but as Chart 7 shows, the US dollar still dominates as a global reserve currency, despite the recent decline. The longer time frame also reduces the impact of the dollar appreciation and valuation effect since 2014. Although the Chinese renminbi has been included in the IMF’s Special Drawing Rights basket since October 2016, and the Chinese government has been promoting internationalisation via Project mBridge, swap lines and a central bank digital currency, the overall renminbi share of fx reserves was barely over 2% at end-2024. Similarly, note that the Euro’s share has barely risen overall since 2000, partly reflecting the dollar’s monopoly advantage as a reserve currency.
Chart 7: Current composition of fx reserves versus 2000
Source: IMF, Currency composition of official foreign exchange reserves, March 31, 2025.
And Swift data shows the dollar remains dominant globally as a medium of exchange
Further evidence of the dollar’s dominant role as a medium of exchange may be found in the share of SWIFT payments, which exceeded 50%[6] for the first time in January 2025, with the Euro’s share at 22% and sterling at 7%, though we note the renminbi’s share has risen to nearly 4%.
Reserve currencies have wider uses and may benefit from the dominant currency paradigm
Finally, we note that once a currency assumes global reserve currency status, its wider uses often means its share in global fx reserves and usage comfortably exceeds the currency provider’s share of GDP in global GDP[7]. This may extend the lifespan of a global reserve currency, even if the main provider might be in economic decline, which was the history of sterling as a global reserve currency before the dollar succeeded it. Comparison of GDP size alone would suggest the dollar’s share in fx reserves versus the Euro should be in a ratio close to 1:1, rather than the 3:1 ratio shown in Chart 7. Broader use cases for reserve currencies for both official purposes and commercial trade range from currency pegs for other central banks, fx intervention currencies, invoicing of trade and external debt denomination.
As of 2023, the US dollar was the anchor for 38 country exchange rates at the end of 2023, compared to 25 for the Euro (see Appendix below). These frameworks include currency board arrangements, pegs (or stabilized arrangements) with or without bands, crawling pegs (or crawl-like arrangements), and other managed arrangements. In addition, the dollar is the trade invoice currency in over 50% of global trade; the so-called “ dominant currency paradigm“ effect.[8] Indeed, recent empirical work has found a strong correlation between the currency-denomination of trade, and the composition of fx reserves.
Conclusion
Recent dollar and US Treasury weakness, during a risk-off phase in markets, and the strength of the gold price have driven a popular narrative that the US dollar and Treasuries are no longer “ safe havens” (in an undefined sense), and that the dollar is in terminal decline as a global reserve currency. But closer examination of the underlying data and dominant dollar role in both monetary policy frameworks and trade invoicing suggest these fears may be exaggerated, even if there are some signs of de-dollarisation in payments systems, and commodity invoicing.
Despite US GDP falling as a share of global GDP from 20% to 15%[9] in the last 20 yrs (based on PPP) and a period of de-globalisation, the dollar’s weighting in global fx reserves remains near 60% and the Euro’s near 20%, and the lack of an obvious alternative remains a key structural factor sustaining the dollar’s primary reserve currency status.
US Treasury spread widening during a Fed easing cycle, and reduced foreign holdings of US Treasuries may also be early evidence of a regime shift away from the dollar and Treasuries as default safe havens (and reflected in a higher US term premium). But the scale, depth and liquidity in US financial markets remain unrivalled and are major structural factors sustaining the dollar and Treasuries in their safe haven role (which does not mean, of course, that they cannot fluctuate significantly in value over time).
Appendix
Other currencies pegged to the US dollar and Euro
| Exchange rate arrangements | Anchor currency US dollar (38 countries in total) |
Anchor currency Euro (25 countries in total) |
|---|---|---|
| No separate legal tender | Ecuador, El Salvador, Marshall Islands, Micronesia, Palau, Panama, Timor-Leste (7 countries) | Andorra, Kosovo, San Marino, Montenegro (4) |
| Currency board | Djibouti, Hong Kong SAR, ECCU – (Eastern Caribbean Currency Union) Antigua & Barbuda, Dominica, Grenada, St. Kitts and Nevis, St Lucia, St Vincent and the Grenadines (8) |
Bosnia and Herzegovina, Bulgaria (2) |
| Conventional peg | Aruba, The Bahamas, Bahrain, Barbados, Belize, Curacao, Sint Maarten, Eritrea, Iraq, Jordan, Oman, Qatar, Saudi Arabia, Turkmenistan, United Arab Emirates (15) |
Cabo Verde, Comoros, Denmark, Sao Tome and Principe, WAEMU – (West African Economic & Monetary Union) Benin, Burkina Faso, Cote d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, Togo CEMAC – (Central African Economic & Monetary Community) Cameroon, Central African Rep., Chad, Rep.of Congo, Equatorial Guinea, Gabon (18) |
| Stabilised arrangement | Guyana, Honduras, Lebanon, Maldives, Trinidad & Tobago, Ukraine (6) | North Macedonia (1) |
| Crawling peg | Nicaragua (1) | |
| Crawl-like arrangement | Cambodia (1) |
Source: IMF Annual Report on Exchange Arrangements and Exchange Restrictions, Dec.2024. Past performance is no guarantee of future returns. For professional investors only…Please see the end for important legal disclosures.
[1] US dollar:how to lose a safe haven status in 10 days? Capital Economics, April 2025.
[2] “Gold in a fragmented world - Safe haven and strategic asset “, LSEG, April 2025.
[3] Also see “ Time to leave US Treasuries for the duration”, LSEG, April 2025.
[4] See “ Dollar dominance in the international reserve system: an update, S.Arslanalp, B.Eichengreen, C.Simpson-Bell, IMF blog, June 2024
[6] SWIFT (Society for Worldwide Interbank Financial Telecommunication ) data.
[7] See “ The Currency Composition of Foreign Exchange Reserves “, Ito and McCauley, BIS Working paper 828, December 2019.
[8] See Gopinath, G and J Stein (2018a): “Banking, trade, and the making of a dominant currency,” NBER Working Paper Series no 24485.
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