In 2022, the U.S. dollar witnessed an 8% decline in its share of global reserves, sparking discussions about the potential waning of the dollar’s dominance on the global stage.

During a congressional hearing in June, Treasury Secretary Jannet Yellen shared her perspective on this issue, emphasizing that currently, there is no currency capable of displacing the greenback.

The United States’ employment of sanctions and foreign policy maneuvers has triggered reactions from countries like China, Russia, and other prominent nations, who may harbor ambitions of diminishing the dollar’s supremacy.

Yellen remains resolute in her belief that “it will not be easy for any country to devise a way to get around the dollar.” However, she cautioned that the dollar’s portion of global reserves might continue to decrease as countries explore opportunities to “diversify.”

The U.S. dollar’s historical dominance in global trade and capital flows spans at least eight decades, primarily attributed to the United States’ status as the world’s largest economy and the widespread pricing of essential commodities, such as oil, in the greenback.

Nevertheless, recent developments, including the Federal Reserve’s aggressive interest rate hikes to combat domestic inflation, the trade tensions with China, and the imposition of U.S. sanctions following Russia’s invasion of Ukraine, have prompted more countries to advocate for conducting trade in currencies other than the U.S. dollar.

Notably, influential nations like India and the United Arab Emirates (UAE) have initiated official trade transactions using their respective local currencies.

The Indian government announced a recent milestone where Indian Oil Corp., a leading petroleum refiner, utilized the local rupee to purchase one million barrels of oil from the Abu Dhabi National Oil Company, bypassing the use of the greenback.

At the 14th BRICS Summit held last year, Russian President Vladimir Putin unveiled initiatives aimed at establishing a new “international currency standard.”

Concurrently, China has been encouraging oil producers and major exporters to accept the yuan as a mode of payment, while significant oil exporter Saudi Arabia has expressed openness to the idea of engaging in trade with other currencies.

Even traditional allies, like France, have ventured into non-dollar transactions in response to the heightened U.S. sanctions.

In April, French President Emmanuel Macron emphasized the necessity for Europe to reduce its reliance on the U.S. dollar to preserve its “strategic autonomy” and prevent becoming “vassals” subordinate to the United States.

When questioned about the implications of these emerging trends before the House Financial Services Committee, Treasury Secretary Janet Yellen acknowledged that U.S. sanctions had incentivized some countries to explore alternatives to the dollar.

However, she remained steadfast in her assertion that the greenback will maintain its dominant position.

Speaking on the matter, Yellen said, “The dollar plays the role it does in the world financial system for very good reasons that no other country is able to replicate, including China,” she said. “We have deep liquid open financial markets, strong rule of law and an absence of capital controls that no country is able to replicate.”

Furthermore, Yellen asserted that she sees “virtually no meaningful workaround for most countries for using the dollar as a reserve currency.”

She concluded, “We should expect over time a gradually increased share of other assets in reserve holdings of countries — a natural desire to diversify. But the dollar is far and away the dominant reserve asset.”