Questions about the future of the US dollar have resurfaced as geopolitics intensify and concerns grow around the independence of America’s central bank – but the greenback remains firmly entrenched at the centre of the global financial system with no realistic alternative emerging in the near term, according to CommBank Senior Economist and Currency Strategist, Kristina Clifton.
The US dollar has been the world’s primary reserve currency for around 80 years, but concerns about its long-term role have intensified in recent years.
Speaking on the latest episode of the CommBank View: Economics and Markets podcast, Clifton says a key driver has been growing unease about the independence of the US Federal Reserve, particularly amid sustained public pressure from President Donald Trump for lower interest rates.
“If markets become worried that monetary policy is being influenced by political priorities rather than inflation control, that can undermine confidence in US dollar assets,” she said.
Geopolitics has also played a role. The freezing of Russian reserve assets following the war in Ukraine has prompted some countries to reconsider how concentrated their reserves are in US dollars and euros, accelerating moves – at the margin – towards diversification, as some countries seek to reduce exposure to the risk of sanctions or asset freezes.
Gold, yuan and diversification – small shifts, not seismic change
Some emerging market central banks, including China and Russia, have responded by increasing their holdings of gold and marginally reducing purchases of US dollar assets, though these shifts remain modest in the context of global reserve allocations.
China has also sought to increase the use of its own currency in trade settlement and commodity transactions, encouraging counterparties to accept payments in renminbi.
But Clifton cautions these developments should be kept in perspective.
“While the use of the Chinese renminbi in trade and commodity markets is rising, it still represents a very small share of global transactions,” she said.
China’s currency is often cited as a potential challenger to the US dollar, reflecting the scale of the Chinese economy and its growing geopolitical influence.
However, Clifton says structural barriers remain significant, meaning the yuan is not yet a viable contender for global reserve currency status.
“These include capital controls, a managed exchange rate and limits on investors’ ability to freely move funds in and out of China,” she said.
China’s economic model also poses challenges. As a major exporter running persistent trade surpluses, it is less suited to issuing the large volume of safe, liquid assets the global financial system needs from a dominant reserve currency issuer.
While usage is growing, the renminbi remains far from challenging the US dollar’s global role.
