Fed Reveals: US Dollar Dominance in Global Bond Markets Isn’t Steady—It Fluctuates in Cycles

The greenback's grip on the world's debt isn't a constant. It ebbs and flows, and the Federal Reserve just mapped the tides.

The Rhythm of Reserve Currency

Think the dollar's throne is permanent? Think again. The Fed's latest research paints a picture of cyclical dominance—periods where the dollar tightens its stranglehold on global bond issuance, followed by stretches where its share... well, doesn't. It's a reminder that in global finance, even supremacy has a sell-by date.

What Fuels the Cycle?

Forget simple narratives. This isn't just about interest rates or trade deficits. The cycles are driven by a complex cocktail: shifting global risk appetites, the hunt for yield in a low-rate world, and the perennial dance between safety and speculation. When fear spikes, everyone runs to dollar-denominated safety. When greed takes over, the search for returns looks elsewhere. It's the market's heartbeat, measured in Treasury bonds.

The Unspoken Reality for Traders

Here's the kicker for anyone with skin in the game: betting on perpetual dollar strength in bonds is a sucker's bet. These cycles create windows—moments when alternative currencies, or even entirely new asset classes, can gain a foothold. It's the financial equivalent of plate tectonics: slow-moving, immensely powerful, and capable of reshaping the landscape when you least expect it. Just ask any currency trader who's been on the wrong side of a cycle shift (and then buy them a drink—they'll need it).

The ultimate finance jab? This cyclicality proves that in the bond market, the only true constant is the fee collected by the intermediary. The Fed's findings don't just chart currency flows—they highlight the recurring, expensive lesson that no hegemony, monetary or otherwise, lasts forever without a few cracks in the foundation.

In brief

• Over the past six decades the US dollar’s role in global bond markets has moved in cycles with no clear long-term trend toward greater dominance or de-dollarization.
• Federal Reserve analysis of international debt securities shows three waves of dollarization reflecting recurring shifts in global currency preferences.
• Since 2000 the dollar’s share of outstanding international debt fell to around 43% by 2008 before climbing back to approximately 60% in the late 2010s.

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.

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