Which currency will be dominant in the future? The rivals of the dollar in the global reserve system

Just five years ago, in 2021, analysts began asking a question that seemed taboo: what will be the dominant currency in the coming decade? The US dollar had dominated the global financial system for nearly a century, but that reign showed cracks. Post-pandemic inflation rekindled concerns about its reserve status decline, a trend that goes beyond numbers: in 2021, the dollar’s share in central bank reserves fell to 59%, its lowest level in 25 years.

This shift reflects a deeper geopolitical reality. After the gold standard was suspended in 1971—when Richard Nixon ended dollar-gold convertibility—a floating exchange rate system emerged that consistently favored the dollar. But now, that monopoly faces genuine rivals, each with its own strengths and limitations.

The Euro: the closest competitor

If there is a currency that could overshadow the dollar as the main store of value, it is the euro. The Eurozone combines fundamentally strong economies, with a collective GDP slightly higher than China’s. The European Central Bank, though not without flaws, maintains relatively stable and predictable governance.

The euro is already the second-largest reserve currency worldwide, with approximately €2.5 trillion ($2.94 trillion) held in central banks. However, it faces significant political obstacles. Decentralized monetary control among 19 national central banks creates risks of paralysis in case of major disagreements, a stark contrast to the unified structure of the U.S. Federal Reserve.

Until recently, another critical obstacle existed: the absence of jointly issued eurobonds by the eurozone. Individual country bonds have independent yields, complicating the holdings of central banks seeking reliable reserves. This changed during the pandemic when the European Union announced in 2020 the issuance of joint European debt to fund recovery. The European Commission now plans to borrow €900 billion in the coming years, a volume that could significantly displace dollar-denominated bonds in global reserve portfolios.

The Yuan: ambition trapped by its own rules

China has aspired for a decade to make the yuan attractive as a reserve currency. As the world’s second-largest economy, it has the economic muscle to achieve this. But its efforts clash with an irreconcilable dilemma: strict control of the yuan was essential for its rise as an economic power, but it is incompatible with global reserve currency status.

To be functional as a reserve, the yuan would need to be freely tradable and convertible. Central banks require highly liquid reserves available to face sudden market changes. This would require China to “open its capital accounts,” allowing free flow of capital in and out of its borders. That is precisely what the Chinese government resists: fearing such openness could trigger massive capital outflows, especially from investors seeking better returns abroad.

China has tried creative solutions. In 2010, it launched a two-tier system with offshore yuan markets. That initiative collapsed in 2015 during a massive stock market correction. More recently, the digital yuan—fully controlled by the central bank—represents another attempt to bypass mandatory convertibility. However, global distrust in China’s political stability and its history of arbitrary regulatory repression (such as the fintech sector in 2021) have undermined its credibility. Currently, the yuan accounts for just 2.3% of global reserves, barely above the Canadian dollar.

The Yen: an economy that doesn’t need to be a reserve currency

The yen presents an instructive paradox. Despite being the third-largest economy with a robust financial system, Japan has never sought to make its currency a global reserve. A country with a current account surplus—like Germany and Japan—does not need to attract international reserves in the same way as deficit nations.

Japan’s high internal savings rate, averaging 30% over the past four decades, means government bonds are in abundant demand domestically. National capital is reinvested locally, limiting the supply of yen reserves available to the world. Ironically, this contrasts with the dollar: a key reason for its dominance is that Americans have historically spent more than they earned, creating an abundant supply of bonds that needed external financing.

Cryptocurrencies and CBDCs: the future of reserves?

While traditional actors debate their limitations, unconventional competitors have emerged. Bitcoin is defended by some as a “hard asset” that could serve as backing in the event of sovereign bond collapse. The fact that El Salvador became in 2021 the first country to adopt bitcoin as an official currency was symbolic for crypto advocates as a future reserve instrument.

However, bitcoin faces significant flaws for this role. Its double-digit volatility—with extreme daily swings—is incompatible with the stability needed for a serious reserve instrument. Additionally, its dependence on miners and developers introduces vulnerabilities: if a critical problem arose, who would resolve protocol forks? What legal recourse would exist?

For most analysts, the true future candidates are central bank digital currencies (CBDCs). Unlike cryptocurrencies, CBDCs would be fully controlled electronic currencies issued by monetary authorities. They offer the speed and efficiency of digital technology without sacrificing the control governments demand.

A particularly intriguing possibility is creating a “synthetic CBDC” composed of a basket of multiple currencies, a concept proposed years ago by former Bank of England governor Mark Carney. This could stabilize international trade without any single currency gaining hegemonic power.

Who will be the dominant currency in the coming years?

The question of which currency will be dominant in the future has no definitive answer. The euro emerges as the most likely short-term rival, built on established institutions and ongoing political integration. However, alternative scenarios remain open.

China could, though unlikely, abandon its current balancing act and allow the yuan to float freely. A resurgence of the British economy could rehabilitate the British pound. Widespread adoption of CBDCs could radically transform the architecture of international reserves in unpredictable ways.

What is clear is that the dollar’s monopoly is coming to an end. For five decades after 1971, the dollar maintained its dominance despite seismic economic changes. But this new era—where multiple currencies, cryptocurrencies, and digital solutions compete—suggests that the next dominant currency may not be a single one, but a plural and distributed system. Fundamental geopolitical forces indicate there will be room for neutral and non-state currencies, as long as major powers allow it.

Note on Bitcoin (February 2026): Bitcoin recently fluctuated around $68,600, reflecting both institutional interest and its characteristic volatility that limits its viability as a traditional reserve instrument. Regulated alternatives—such as the CBDCs currently being developed by various countries—seem to be the most likely path toward transforming the global reserve system.