A Brazilian President's Question, Yet the Answer Remains

In April 2023, Brazilian President Lula posed a question in Shanghai: "Why should global trade depend on the U.S. dollar?" After all, dollar hegemony was not decided by democratic vote.

Two years later, while the term 'de-dollarization' frequently appears in the media, the fundamental reality has not changed. Dollar dominance stems from liquidity, scale, and an unparalleled supply of trusted assets.

According to Paul Blustein's book "King Dollar" (2025), approximately 60% of global central bank foreign exchange reserves are held in dollars, mostly in U.S. Treasury securities. Over 75% of global trade outside Europe is conducted in dollars, reaching 96% in the Western Hemisphere.

60% of cross-border deposits and loans, 70% of international bonds, and roughly 90% of foreign exchange transactions are conducted in dollars. Even transactions between unrelated currencies, such as between Nigeria and Chile, use the dollar as an intermediary currency.

Why Does the Dollar Remain Dominant?

Exporters receive payments and borrow in dollars to reduce exchange rate risk. When they receive dollars, they must convert them to local currency, creating continuous foreign exchange demand. Global risk management systems are built around dollar-based financial instruments.

According to the Bank for International Settlements (BIS), as of April 2025, daily foreign exchange trading volume reaches $9.6 trillion, with the dollar involved in 89% of transactions.

The U.S. Treasury market, at $18 trillion, is the world's largest, with $600 billion traded daily. This means liquidity that allows trading massive volumes without price fluctuations. David Mulford, a long-time advisor to Saudi Arabia, noted that "in other markets, trading just $5-10 million moves prices."

U.S. financial markets maintain their safe-asset status thanks to strong property rights protection, reliable contract enforcement, and monetary policy independence.

What About the Euro and Yuan?

Limitations of the Euro

The euro's global ambitions are blocked by structural and policy barriers. European Central Bank (ECB) President Christine Lagarde pointed out in June 2025 "Europe's slow growth, fragmented capital markets, and shortage of high-quality safe assets."

European government bonds rated AA or higher represent less than 50% of EU GDP, compared to over 100% in the United States. Eurozone government debt is fragmented by country, limiting the depth and liquidity of bond markets.

For the euro to grow as a global currency, Europe must complete its single market, simplify regulations, and integrate capital markets.

Gradual Expansion of the Yuan

China is gradually expanding the yuan's role. The Cross-Border Interbank Payment System (CIPS) now processes $90 billion daily. While a major leap from 2020, this remains small compared to CHIPS, the dollar system that processes $1.8 trillion daily.

The yuan accounts for only about 4.5% of international payments and roughly 2% of global foreign exchange reserves. Due to capital controls, limited legal protections, and government transaction oversight, the yuan cannot provide the versatility of the dollar.

Lessons from Past De-Dollarization Attempts

Past attempts have revealed critical limitations.

In 2018, Xi Jinping recommended that Saudi Arabia price oil sales in yuan, but the fundamental problem arose: "What do we do with the remaining yuan?"

Similarly, when Russia sold oil to India in rupees in 2023, Foreign Minister Sergei Lavrov admitted "these funds cannot be easily used."

Implications for Africa [AI Analysis]

For African nations, de-dollarization is a double-edged sword.

1. Need for Realistic Approach While efforts to reduce dollar dependence are understandable, without liquidity and credibility backing, they are likely to fail. Building alternative currency systems for regional trade settlement requires sufficient transaction volume and legal infrastructure first.

2. Strengthening Regional Financial Markets For African countries to reduce dollar dependence, they must develop their own bond markets with depth. This simultaneously requires property rights protection, contract enforcement capability, and monetary policy credibility.

3. Diversification Strategy Rather than complete de-dollarization, a currency diversification strategy is more realistic. Gradually use alternative currencies in trade with China, Europe, and regional partners, while the dollar's role as the global trade reserve currency will be maintained in the short term.

Dollar hegemony exists not simply because of American power, but because the entire global financial infrastructure is designed around the dollar. Changing this structure will require decades of time and enormous adjustment costs.