Roughly 90% of foreign exchange transactions now involve the US dollar. That is the observation economist Barry Eichengreen opens with in his history of international money, as reviewed in The Conversation, and it raises a plain question: how did one country’s paper end up as the world’s default?
The short version is that it did not happen overnight. American Banker’s contributor Anne Eberhardt, a forensic accountant, put it flatly: the rise “was neither immediate nor inevitable.”
A slow build
Until the early 20th century, the US financial system was fragmented and prone to crises. Those crises led to the creation of the Federal Reserve in 1913. Then came the First World War. The United States supplied Britain and France with goods and credit, which put the dollar at the centre of international finance, while the UK was weakened. Eichengreen sees those years as the point when dollar use began spreading abroad.
Before the dollar, other coins had held the job. The Athenian “owls,” the Roman denarius, the Byzantine gold solidus, the Florentine florin, the Spanish real and the Dutch guilder each had their turn, until the British pound took over in the 18th century. The issuers had things in common: they were hubs of trade, politically stable, economically advanced and often had colonies. Currencies like the florin kept the same appearance and gold content for three centuries, a big part of why people trusted them.
Bretton Woods and Nixon
In 1944 the Allied powers met at Bretton Woods in the US to plan the postwar financial order. They agreed on an indirect gold standard: the price of gold fixed in dollars, other currencies pegged to the dollar. That put the US at the centre of the new arrangement.
It strained. By the mid-1960s the US was running persistent budget deficits to pay for the war in Southeast Asia, the Cold War and a war on poverty at home. Foreign governments swapped dollars for gold and American reserves dwindled. In 1971 Richard Nixon ended the dollar’s convertibility into gold.
The dollar stayed on top anyway. Eberhardt points to the petrodollar: a US-Saudi arrangement that emerged in the 1970s, with oil sold in dollars and the revenues reinvested in American markets.
What the privilege buys, and where it is slipping
Economists call the benefit an “exorbitant privilege.” Demand for dollar bonds lets the US government and companies borrow at lower interest rates. The dollar tends to be stronger, which helps Americans buying imports and hurts their exporters. It is also used to invoice about 40% of global trade.
The share held in reserves is slipping, though. Data cited by New York Fed researchers show the dollar at roughly 56% of global official reserves in 2025, down from 64% in 2015, a three-decade low. But the same research found the slide concentrated in a few big holders: China, Russia, Mexico and Morocco. And exchange rates distort the picture. The IMF reported the dollar’s share falling from 57.79% to 56.32% between the first and second quarters of 2025, then calculated that exchange-rate moves caused 92% of that drop. In the first quarter of 2026 the share rose to 57.13% from 56.42%.
The euro stood at about 20% in that quarter. China’s renminbi had 1.99%. Eichengreen’s warning is that “international currency status is not forever,” though historically currencies have kept it for a long time, sometimes centuries.
Sources
- This history of currencies suggests the US dollar’s dominance may fade – but it will happen slowly
- Dollar’s Global Reserve Share Hits 30-Year Low but De-Dollarization Threat Looks Overstated
- The history of the US dollar is the history of our country's growth | American Banker
