October 2026: Dollar Dominance Under Pressure – Central Banks Reduce Foreign Exchange Reserves

For decades, the U.S. dollar has been at the center of the international financial system. But this dominant position is crumbling: Central banks around the world are reducing their holdings of dollar reserves. The chart shows that the U.S. dollar’s share of global currency and gold reserves has declined significantly since peaking around the turn of the millennium. The dollar’s share now stands at less than 40 percent—not exactly a sign of global strength.

Particularly striking is the accelerated downward trend in recent years (since 2022). A key factor here is that central banks are holding fewer and fewer reserves in U.S. dollars and are increasingly replacing them with physical gold. The main drivers behind this trend are geopolitical rivalries, mistrust of U.S. policy, and associated doubts about the long-term stability of the U.S. financial system. These developments are deterring global investors and accelerating the process of ongoing “de-dollarization.”

Relevance for Investors

The overall picture points to enormous upheavals in the global financial order and an erosion of the dollar’s dominance. Underlying this are structural strains on the U.S. financial system. Key concerns include spiraling government debt, chronic budget deficits, rapidly rising interest burdens, and increasing fiscal constraints.

For professional investors, this negative dynamic is of great relevance: a changing role for the U.S. dollar and increasing distortions in the U.S. financial system would have far-reaching implications for capital flows, exchange rates, and interest rates. Furthermore, massive fiscal constraints in the U.S. pose the risk of financial repression—especially for foreign investors.