US Dollar Dominance in Global Bond Markets Fluctuates in Cycles, Fed Finds

The US dollar has long acted as the central pillar of global trade and finance, facilitating cross-border investments and transactions. A recent discussion paper from the Federal Reserve sheds light on the dollar’s historical role in international bond markets. The analysis reveals that over the past six decades, the dollar’s influence has not followed a straight path of growth or decline. Instead, its importance has fluctuated in cycles, showing no long-term trend toward either strengthened dominance or widespread de-dollarization.

Waves of Dollarization Over the Decades

The study draws on the Bank for International Settlements (BIS) international debt securities database, tracing the role of the US dollar in global bond markets back to the 1960s. It identifies three separate waves of dollarization, showing that changes in global currency preferences unfold in recurring cycles rather than through a single, permanent transformation.

The last phase in this cyclical pattern occurred in the aftermath of the 2008 economic turmoil, when the US dollar restored much of its share in international bond markets. During this period, its market presence returned to levels comparable to those observed around the introduction of the euro in 2000.

US Dollar Trends and Global Reliance Since 2000

According to the analysis, here is how the dollar’s role in international debt markets has fluctuated since 2000 :

• Its share of outstanding international debt securities fell from around 60% in the early 2000s to roughly 43% by 2008, reflecting a notable decline during this period
• The dollar then climbed back to approximately 60% in the late 2010s, excluding issuance of euro-denominated debt within the euro area
• Similar trends appear in gross bond issuance over time, and by 2024, the dollar’s share remains broadly in line with its early 2000s level

Meanwhile, as of 2024, countries with developing economies continue to rely heavily on debt issued in US dollars, which accounts for about 80% of their total international bonds. Earlier efforts to challenge the dollar, including the introduction of the euro in 1999 and attempts to promote the Chinese renminbi internationally from 2010 onwards, appear to have lost momentum. According to the report, these challenges have weakened over time, allowing the US dollar to remain the primary choice in global finance, as no other currency has yet become a fully viable alternative.

Stablecoins Expand While Reinforcing the Dollar’s Global Role

At the same time, the global stablecoin market has grown rapidly, reaching a market capitalization of $308.606 billion, up from $205.5 billion in December 2024, according to DefiLlama. Tether’s USDT leads the market with 60.32%, followed by Circle’s USDC at 25.08%. Sygnum, a digital asset bank, noted in July that the US government views dollar-denominated stablecoins as a tool to help sustain the dollar’s status as a reserve currency and is encouraging the expansion of the market through legislative measures.

This growing support for dollar-backed stablecoins has drawn attention internationally. Italy’s Economy and Finance Minister Giancarlo Giorgetti warned in April that US backing could weaken the euro’s role in global transactions, creating potential risks for Europe’s financial system. Following this, in December, several European banks announced plans to launch a euro-linked stablecoin, aiming for a market debut in mid-2026.

Alongside these international developments, stablecoin issuers hold substantial amounts of US government debt. Tether reported in Q2 2025 that its combined direct and indirect exposure to Treasury securities exceeded $127 billion. Circle’s December 15 update indicates that USDC is largely backed by government debt, including roughly $50 billion in very short-term Treasury repurchase agreements and $18.5 billion in other short-term Treasury instruments. These holdings demonstrate how the stablecoin market manages liquidity while reinforcing the dollar’s global role.