“US Dollar Dominance in Trade Invoicing and Cross-Border Investments in SEACEN Economies

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3. Estimating Dollar-to-Dollar Dominance in International Trade

The most prominent role of USD is trade invoices or payments. Gopinath (2015) points out the major role of the dollar in paying half or more of international trade. Figure 1a shows the dollar shares in the export invoices or payments of individual countries (i-axis) compared to the shares of their total exports directed to the United States (x-axis). This figure shows how economies rely more on the dollar for international trade than their trade relationship with the United States might suggest. If the dollar did not play a major role, one would expect its share of invoicing/payment of economic export transactions to equal the share of the United States as an economic export destination. The figure clearly shows that the economic invoice pays or pays for its exports in dollars much more than the balance according to the share of its exports to the United States.

Source: Author’s compilation, using data from Boz et al. (2020) for panel a, and from SWIFT, RMB Tracker, various issues, for panel b. Figure 1b shows the capital structure of all international settlements reported by the Society for Worldwide Interbank Financial Telecommunication SC (SWIFT). It is clear that the dollar is used the most in international settlements, followed by the euro, while other major currencies such as the UK pound and the Japanese yen are less important. Although the dollar is the most important currency for international settlement, it is not as strong and in fact less important than the euro in the early 2010s. Since then, the euro has been the second most important hard currency for international settlement.

International Currencies in Foreign Trade and as Foreign Currencies

Figure 2a summarizes the composition of foreign exchange traded funds in the world’s major markets from 1989 to 2023, based on the Bank for International Settlements (BIS) annual survey. The figure shows that the USD has been used in 80–90% of foreign currency trading in the last 30 years, which will record 88% in 2024. The share of the euro has fallen from 38% in 2001 to 32% in 2022, possibly due to the Euro Area’s debt and banking crisis in 2011-2015. The share of the yen has also fallen from 27% in 1989 to 17% in 2022, a level below the previous trough in 2007. That share is still higher than the pound sterling, which was 13% in 2022. The share of the Chinese renminbi in global currency markets has risen from around 20% in the mid-2000s.

Figure 2b reports the currency composition of the foreign exchange reserves held by all IMF reporting member countries. It shows that the share of USD has been very high at 50-70% as the main reserve currency, recording 58% in 2024. The share of the euro has been in the range of 20-30% and is registered at 20% in 2024. The shares of other reserves were very low against those of the dollar and the euro. The share of the yen was 4-9% and was recorded at 6% in 2024, but the yen still holds the third place. The pound sterling continues to play a role as a reserve currency, accounting for 5% in 2024. The RMB was the only emerging economy reserve currency included in the IMF’s special drawing rights basket in 2016, accounting for 2% of global FX reserves by 2024. Therefore, RMB is not yet one of the currencies, those major currencies of Cadinaan are now its biggest share in the world. Australian dollar, and Swiss franc.

US Dollar Dominance in the Global Economy International Currencies for Cross-border Bank loans and Debt Securities

Figure 3a presents the currency composition of cross-border bank loans based on local BIS bank statistics. It shows that the share of USD was more than 60% in the early 1980s, and although this started to decline in the last half of the 1980s, it still maintained a share of 45-55% in the last 30 years, reaching 48% in 2024. The euro share is the second highest and seems to have risen by 0 yen to 314 in a short period of time. at the beginning of the 1980s, it started to rise in the second half of that decade, it was maintained at a high average consumption of more than 10% in the 1990s but it has declined since then, falling to 3% in 2024, which was slightly less than the share of the pound. No data is reported for renminbi.

Figure 3b shows the capital structure of the stock of international debt securities issued. It shows that the share of debt issued in euros was higher than in the dollar between the early 2000s and the early 2010s and was overtaken by the dollar in the mid-2010s. In recent years, the share of the dollar has been high but weak at 46% while the share of the euro was 40% in 2024. The share of the yen was relatively high in the mid-1990s, reaching almost 15%, but has declined to 1% by 2024. The share of the pound is high from 00% at the beginning of 2 yen 2024. The share of renminbi remains low below 1%, at 0.8% in 2024.

Dominance of the US Dollar Zone

In the international macroeconomics literature, many researchers have attempted to measure the extent to which an economy attempts to stabilize its currency against major currencies. Those ratios can be considered weights in a currency basket. By combining the weights across economies, the shares of major currencies (ie, USD, EUR, GBP, JPY, and RMB) can be used to estimate the economic size (eg, GDP) of each currency area. In this paper, we use areas of economic capital from Ito and Kawai (2025).2

Figure 4 shows the calculated shares of currency areas made up of the USD, EUR (or DEM until 1998), GBP, JPY, and RMB, excluding major currency countries or regions. This means that the core countries of the currency areas are not included. Figures 4a and 4b show the shares of the currency area without and with the adjustment of ERS, respectively, where ERS represents how much the economy of concern stabilizes the exchange rate of the capital or the basket of capital currencies in a tight or loose manner.3 It is not surprising that the capital shares are high or at least not low in Figure 4b. The share of the USD zone is very high except for a short period until the early 1990s when the EUR (more precisely the DEM) exceeded the share of the USD zone. This happened because many European countries and other economies around the world have stabilized currencies against the DEM and the total size of these economies exceeds the size of the USD economic zone. The share of the EUR zone decreased significantly from 1998 to 1999 as 11 European countries, which were more or less stable compared to the DEM, formed the Euro Area as core countries. The share of the global economy of the EUR areas outside the Euro Area has not increased significantly since then, at around 5%. Another highlight is that the RMB zone has grown since the global financial crisis and sometimes exceeds the size of the EUR zone. By 2023, the RMB’s position is roughly comparable to the euro’s by 3% in relative economic size. 2. See Appendix I of Ito and Kawai (2025) for a more detailed description of the Frankel-Wei and KawaiPontines methods. 3. The ERS index is usually constructed by the root of the squared error (RMSE), which is inversely related to the explanatory power of the Frankel-Wei or Kawai-Pontines regression equation, so that its value is between zero (absolute currency volatility) and unity (absolute capital concentration).

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