Morgan Stanley: Dollar Still Dominates Foreign-currency Debt Issuance Globally despite Rising Gold Reserves

The U.S. dollar continues to dominate the global financial system despite mounting debate over “de-dollarization,” with no serious challenger emerging beyond gold, according to a new report from Morgan Stanley.

In a report titled “De-Dollarization: Myth or Reality?”, the investment bank said the dollar still accounts for between 60% and 70% of global currency usage, based on a Federal Reserve measure that includes foreign exchange reserves, FX trading volumes, foreign-currency debt issuance and cross-border banking activity.

Morgan Stanley noted that the dollar’s share has remained broadly stable for roughly 25 years, compared with around 24% for the euro. Meanwhile, both the Japanese yen and Chinese yuan have made only limited gains from relatively low levels, underscoring what the bank described as the dollar’s enduring structural advantage over other currencies.

The report acknowledged a gradual decline in the dollar’s share of global foreign exchange reserves, which fell to 56% by the end of 2025, down seven percentage points from its 2016 peak.

Competing reserve currencies such as the euro, yen and yuan recorded only modest increases. Gold, however, emerged as the main beneficiary of reserve diversification trends.

According to Morgan Stanley, gold’s share of global reserves surged by nearly 20 percentage points to approximately 27%, driven by aggressive central bank purchases and rising global bullion prices.

Despite the decline in reserve holdings, the bank emphasized that the dollar simultaneously appreciated by roughly 5% on a trade-weighted basis during the same period, reaching nearly 15% by early 2025, reflecting sustained investor confidence and continued demand for dollar-denominated assets.

Morgan Stanley said the dollar still accounts for nearly 60% of all foreign-currency debt issuance globally, representing an increase of around 20 percentage points since the global financial crisis.

By contrast, the euro’s share of foreign-currency debt issuance declined from 35% to 26%, according to the report.

The bank also highlighted the dollar’s overwhelming role in global commerce, noting that the currency is used in approximately 96% of global export pricing and 47% of international payments, up from 32% in 2010.

The report further pointed to the dollar’s growing influence within the rapidly expanding stablecoin market, now valued at more than $250 billion, reinforcing demand for the currency beyond the traditional banking system.

While dismissing near-term threats to dollar supremacy, Morgan Stanley warned that the most significant long-term risk may stem from the gradual deterioration of U.S. fiscal conditions.

Foreign ownership of U.S. government debt has declined to 34%, down from 48% in 2014, bringing it closer to levels seen in the eurozone.

The bank said overseas demand for Treasuries has not collapsed, but has failed to keep pace with the surge in debt issuance following the fiscal expansion triggered by the COVID-19 pandemic.

As a result, domestic investors have absorbed a larger share of government borrowing. Morgan Stanley noted that these investors tend to be more price-sensitive and demand higher yields, contributing to rising risk premiums and borrowing costs.

The report warned that, over time, these pressures could gradually weaken one of the core pillars underpinning the dollar’s global dominance.