Is US dollar dominance in danger of being exchanged?

Foreign central banks are diversifying away from US Treasurys and the dollar. This shift, driven by geopolitical concerns and the rise of a multipolar world, suggests a long-term headwind for the dollar. It also points to potential tailwinds for international equities and bonds.

China's holdings of US Treasurys have fallen by over half since 2013, with gold and US equities favored instead. The freezing of Russian assets in 2022 likely amplified these fears, prompting countries like the Netherlands and France to repatriate gold from the New York Fed. Trade settlement outside the dollar system, though nascent, is also gaining traction, with China's CIPS system processing significant daily volumes. Investors should monitor the dollar's safe-haven status and the ongoing shift in reserve asset allocation.