Illustration: Xia Qing/GT

The US dollar's role in the global monetary system is gradually shrinking. Data from the International Monetary Fund (IMF) indicates that the dollar's share of global foreign exchange reserves has declined from 65 percent a decade ago to less than 58 percent today. In addition to changes in official foreign exchange reserves, the dollar's standing worldwide is also measured by other indicators including how different currencies are used for global investment and settlement. Overall, trends point to a clear conclusion: although the dollar has not yet lost its role as the world's dominant currency, its position is steadily weakening. 

The dollar's position essentially reflects the effectiveness of the US domestic governance. A decline in the dollar's global standing indicates political and economic issues within the country. The US faces mounting domestic challenges, characterized by intense political polarization and deepening partisan strife, alongside persistent economic issues. The US national debt, in particular, has repeatedly hit record highs, while its budget deficits remain difficult to balance, undermining the global confidence in US fiscal health.

As the linchpin connecting the US to the global economic system, the dollar's declining international status reflects the country's troubled engagement with the world. The US has increasingly weaponized the dollar to pursue its foreign economic and diplomatic goals - undermining both the legitimate interests of other nations and their confidence in holding dollar-denominated assets. The US administration's recurrent imposition of tariffs and "maximum pressure" against international partners has eroded trust in US economic leadership. The dollar's declining global status mirrors an erosion of global trust placed in the US. 

This paradox has already manifested itself. For instance, the current US administration asserted that the BRICS countries would unite to undermine the status of the US dollar. Therefore, it threatened that any actions detrimental to the dollar's status would result in the imposition of punitive tariffs and other retaliatory measures. Meanwhile, the BRICS countries believe that reasonable currency diversification is both legitimate and an expression of national economic sovereignty. The US government's coercion to use the dollar precisely demonstrates its weaponization of the currency, thereby further validating the legitimacy of the diversification process.

Faced with US' hegemonic impulse to preserve the dollar's status and the potential for significant harm, other countries have no alternative but to diminish their reliance on the dollar. This necessitates expanding the use of non-dollar currencies in areas such as trade settlements, investment financing and foreign exchange reserves. Given that the dollar's share in international trade settlements far exceeds its share in global trade, expanding trade settlement is a feasible approach. 

The primary reason for "de-dollarization" lies with the US itself. Other countries reducing their reliance on the dollar would not be a deliberate challenge to the dollar, but rather a pragmatic response to an increasingly uncertain international monetary order - a move to better safeguard their own interests.

Furthermore, alongside the effort to reform international financial institutions like the IMF to enhance their representativeness, new international financial mechanisms must be established to meet the funding needs of more countries. 

China has played a pivotal role in this process. Through concerted efforts among China and its partners, the New Development Bank for BRICS countries was established in 2014, followed by the Asian Infrastructure Investment Bank in 2015. 

These two multilateral banks provide robust financing guarantees for relevant countries and regions. At the Shanghai Cooperation Organization (SCO) Summit 2025 in Tianjin, relevant parties decided to establish the SCO Development Bank to provide loans. 

A more equitable, stable and predictable international monetary order represents the shared aspiration of the international community and the prevailing trend of historical development. The US dollar is not just US' currency but, in a sense, a global monetary public good. The US must adopt a more responsible perspective toward the evolving international status of the dollar. When the US domestic governance fails and its foreign policy becomes more self-interested, it will only accelerate the global shift away from the dollar.

The author is a professor at the Center for American Studies of Fudan University. opinion@globaltimes.com.cn