For decades, the dollar’s dominance rested not only on the size of the U.S. economy and the depth of its capital markets, but also on the expectation that access to the dollar-backed system was broadly predictable. The scale of sanctions on Russia, Iran, and other adversaries have challenged that assumption. Since then, governments have begun reassessing their exposure through reserve diversification, gold accumulation, and the development of alternative payment arrangements.
Central banks have accelerated gold accumulation since 2022, with official purchases reaching unprecedented levels in the modern monetary era. Drawing on World Gold Council and IMF data, central banks accounted for over 20% of global gold demand in 2024, approximately double their average share in the preceding decade. By the end of 2024, gold had become the second-largest global reserve asset by market value, surpassing the euro. Part of this increase reflects rising gold prices, although sustained central bank purchases remain the primary driver. These purchases signal a shift in reserve management toward assets that sit outside dollar-denominated infrastructure. Research by the IMF finds that countries exposed to financial sanctions tend to increase the share of gold in their reserves, with sanctions episodes associated with an average rise of two percentage points in gold holdings.
Adjustments in the currency composition of reserves, by contrast, have been gradual. IMF COFER data show the dollar’s share of allocated foreign exchange reserves declining from about 72% in 2001 to roughly 56% by mid-2025. This is a long-running shift that predates recent geopolitical shocks. Federal Reserve analysis finds little evidence that this trend accelerated after 2022. This pattern suggests cautious hedging at the margins rather than a rapid exit, with gold emerging as the primary vehicle for diversification. Notably, this adjustment has not led to a significant expansion of the renminbi's use as a reserve currency, reflecting persistent structural constraints such as capital controls and limited financial openness.
Bilateral trade settlement agreements represent another dimension of this adjustment. In July 2023, India and the UAE signed a Local Currency Settlement framework covering all current account transactions, executing their first crude oil trade under the agreement within weeks. ADNOC, the UAE’s state oil company, sold to Indian Oil Corporation, India's largest state-owned refiner, in rupees and dirhams, bypassing the dollar entirely. In March 2023, China and Brazil formalized a yuan-real clearing arrangement, with Brazilian bank BOCOM BBM becoming the first direct participant in South America in China's Cross-Border Interbank Payment System, or CIPS, Beijing's alternative to the Western-dominated SWIFT messaging network.
Most strikingly, China's yuan share in settlements for Russian goods rose from 4% to 23% in 2022 alone, illustrating how rapidly sanctions pressure can redirect financial flows at scale. These agreements reflect a deliberate sovereign logic: reduce transactional exposure to dollar infrastructure before the next shock arrives. In practice, this reduces reliance on intermediary currencies and lowers exposure to potential disruptions in dollar-based settlement channels. These strategies vary across actors. While China and Russia are actively developing alternative infrastructure, other states such as India, the UAE, and other Gulf economies are primarily hedging their exposure within the existing system.
At the infrastructure level, CIPS processed 175 trillion yuan in 2024, a 43% year-on-year increase, and its volume has tripled since 2020. A significant portion of this increase reflects the redirection of Russia-China trade away from SWIFT following the 2022 sanctions rather than a fully global shift toward alternative infrastructure. In April 2025, an upgraded version integrated the digital yuan, enabling real-time cross-border settlement in approximately seven seconds, compared to the several days typically required under conventional correspondent banking. Project mBridge, a platform that allows central banks to transact directly with one another using digital currencies without passing through dollar-based clearing systems, reached operational readiness in late 2024, involving China, Hong Kong, Thailand, the UAE, and Saudi Arabia. The Bank for International Settlements withdrew from the project in October 2024, signaling that participating states were prepared to move forward independently. The Western equivalent, Project Agora, remains at an earlier stage of development.
Taken together, these developments do not constitute a collapse of dollar primacy. The dollar remains the dominant reserve currency, and SWIFT continues to process the majority of global transactions. No alternative currency has emerged that could plausibly replace its role in the international monetary system. What has changed is how governments evaluate and manage their exposure to that system. The 2022 reserve freeze demonstrated that access to dollar-based financial infrastructure is politically contingent. As a result, many states have begun to adjust how they manage monetary risk. Gold accumulation, gradual shifts in reserve composition, and the development of an alternative payment infrastructure suggest a strategy of diversification rather than exit, with governments seeking to retain access to the existing system while expanding the range of instruments available to them.
