Amirmohammad Galavani
Recent discussions about China’s rising share in international transactions and the so-called “de-dollarization” of its economy have sparked claims that the era of US dollar hegemony is ending. Similar debates have emerged in the context of BRICS currency initiatives and China’s growing economic influence. Yet, a closer look reveals that these conclusions are often exaggerated.
It is crucial to distinguish between economic power and financial dominance. While a strong economy is necessary to exert influence internationally, an increase in GDP or trade share does not automatically translate into the global use of a nation’s currency. To assess a currency’s true standing, one must look at the Index of International Currency Usage, which measures the share of a currency in global reserves, cross-border transactions, debt issuance and banking operations.
Despite China’s growing economy and trade volume, the US dollar remains overwhelmingly dominant. The dollar’s international usage index exceeds 60%, far surpassing America’s 25% share of global GDP and 15% of global trade. In comparison, the euro accounts for roughly 25% of international currency usage, even though the Eurozone contributes 15% of global GDP and 17% of trade. Meanwhile, China, despite holding 18% of global GDP and 13% of trade, has an international usage index of less than 5%. Only 2.2% of global reserves are held in yuan, while the dollar and euro still account for 58% and 20%, respectively.
These figures indicate that China’s financial influence lags far behind its economic power. Even as China has expanded its trade surplus and integrated into global commerce since joining the WTO in 2003, it has yet to establish a comparable global presence in the financial system. Political and institutional factors — such as trust in governance, geopolitical risk, deep and stable financial markets, low inflation, capital mobility and adherence to the rule of law — remain critical determinants of a currency’s international role. On many of these fronts, China faces significant hurdles.
Moreover, the US dollar benefits from an additional advantage: its use as a financial instrument of influence. Former treasury secretary Janet Yellen and other policymakers have highlighted the dollar’s role in global sanctions and financial leverage, a factor that simultaneously strengthens the dollar’s position and motivates alternative currency strategies.
While the intensity of dollar hegemony has modestly declined over the past 25 years, the dollar remains the world’s dominant currency. China’s economic rise does not automatically translate into yuan dominance. Achieving comparable influence will require overcoming structural, institutional and geopolitical barriers — a challenge that goes far beyond simple trade or GDP statistics.
