Dollar supremacy in bond markets goes through cycles, says Fed

The U.S. dollar has long acted as the central pillar of global trade and finance, facilitating cross-border investments and transactions. A recent Federal Reserve discussion paper sheds light on the historical role of the dollar in international bond markets. The analysis reveals that, over the past six decades, the dollar's influence has not followed a linear path of growth or decline. Rather, its importance has fluctuated in cycles, without showing a long-term trend toward enhanced dominance or widespread de-dollarization.

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 distinct waves of dollarization, showing that changes in global monetary preferences take place in recurring cycles rather than a single, permanent transformation.

The final phase of this cyclical pattern occurred after the economic turmoil of 2008, when the U.S. dollar regained much of its share in international bond markets. During this period, its market presence returned to levels comparable to those seen around the introduction of the euro in 2000.

US dollar trends and global dependence since 2000

According to the analysis, here is how the role of the dollar in international debt markets has fluctuated since 2000:

• Its share of outstanding international debt securities fell from around 60% in the early 2000s to around 43% in 2008, reflecting a notable decline during this period.
• The dollar then rose to around 60% at the end of the 2010s, excluding euro debt issuance in the euro zone.
• Similar trends appear in gross bond issuance over time, and in 2024 the dollar's share remains broadly in line with its level in the early 2000s

Furthermore, in 2024, countries with developing economies continue to rely heavily on debt issued in US dollars, which represents approximately 80% of their total international bonds. Previous attempts to challenge the dollar, including the introduction of the euro in 1999 and efforts to promote the Chinese renminbi internationally since 2010, seem 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, with no other currency having yet emerged as a fully viable alternative.

Stablecoins expand while strengthening the global role of the dollar

Meanwhile, 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 dominates the market with 60.32%, followed by Circle's USDC with 25.08%. Sygnum, a digital asset bank, noted in July that the US government is considering dollar-denominated stablecoins as a tool to help support the status of the dollar as a reserve currency and encourages market expansion through legislative measures.

This growing support for dollar-backed stablecoins has attracted international attention. Italian Economy and Finance Minister Giancarlo Giorgetti warned in April that U.S. support could weaken the euro's role in global transactions, creating potential risks for the European financial system. Following this, in December, several European banks announced plans to launch a euro-pegged stablecoin, aiming for a market launch 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 approximately $50 billion in very short-term repurchase agreements in Treasury securities and $18.5 billion in other short-term Treasury instruments. These holdings illustrate how the stablecoin market manages liquidity while strengthening the global role of the dollar.