A new Federal Reserve discussion paper reveals that the role of the U.S. dollar in global bond markets has risen and fallen in cycles over the past six decades, with no clear long-term trend toward greater dollar dominance or dedollarization.
Using the Bank for International Settlements (BIS) International Debt Securities Database, the authors identify three distinct “dollarization waves” since the 1960s, showing that changes in currency use have followed cyclical patterns rather than a constant structural shift in global financing.
“We do not find a monotonic trend toward dollarization or dedollarization; instead, the dollar share exhibits a wave-like trend,” the report said. paper said.
The most recent wave emerged after the 2008 global financial crisis, when the dollar regained market share in international bond issuance, returning to levels seen before the surge in euro-denominated bond issuance in the early 2000s, according to the report.
The study also finds that in 2024, emerging market issuers still rely mostly on dollar-denominated debt, which represents about 80% of their outstanding international bonds, while China’s efforts in 2010 to internationalize its currency, the renminbi, have produced only modest gains.
“While the primacy of the dollar rests on vulnerable foundations, the absence of viable alternatives has left the primacy of the dollar unchallenged,” the report said.
Related: Intuit to use Circle stablecoin for financial platforms
Stablecoins support US Treasuries
The global stablecoin market has grown significantly over the past year, growing to approximately $309.6 billion from $205.5 billion in December 2024, according to DefiLlama. data.
Most of this growth has been concentrated in US dollar-pegged tokens, Tether’s USDt (USDT) and Circle’s USDC (USDC) together representing approximately 85% of the total stablecoin supply, or approximately $264 billion in the market at the time of writing.
As dollar-pegged stablecoins have grown, issuers have become significant holders of short-term U.S. government debt.
In its second quarter 2025 reserves report, Tether said its exposure to U.S. Treasuries exceeded $127 billion, with $105.5 billion held directly and $21.3 billion held indirectly. According to the company, this level of Treasury securities places Tether among the largest holders of US government debt.
Circle’s latest transparency report, dated December 15, watch USDC is also largely backed by U.S. government debt instruments, including $49.7 billion in overnight Treasury repos and $18.5 billion in short-term Treasury bills.
A July report from digital asset bank Sygnum said the US government is considering dollar-pegged stablecoins as a way to strengthen the role of the dollar as the world’s reserve currency and supports their growth through legislation.
Other countries have taken note. In April, Italian Economy and Finance Minister Giancarlo Giorgetti warned that US policies supporting dollar-backed stablecoins posed a greater risk. long-term risk for the European financial system than customs duties, citing their potential to erode the euro’s role in cross-border payments.
In December, a group of 10 European banks announced plans to launch a stablecoin pegged to the euro in the second half of 2026.
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