US Dollar Demand Soars: De-dollarization Was a Fabrication of the Bull Market

Commentary

“De-dollarization” became one of the biggest stories in markets in 2024 and 2025, not because it was true, but because it sounded plausible enough to scare people out of the very assets the world demands the most. The reality was much simpler. The U.S. dollar remains the world’s global reserve currency because there is no fiat alternative.

The U.S. dollar index is rising, and global demand for U.S. dollar assets soars because there is no better option in the fiat world. For a currency to be a world reserve asset, it needs to operate with ample liquidity, a transparent financial system, economic freedom, and independent institutions. The idea that currencies with capital controls, opaque financial systems, and even exchange fixing will substitute for the U.S. dollar is a fantasy promoted by people who do not understand money.

The world has lived not de-dollarization, but a flight out of fiat currencies overall. In the fiat money system, the U.S. dollar crown remains unchallenged.

Look at the price, not the narrative. The U.S. Dollar Index (DXY), which measures the U.S. currency against a basket of peers, especially the yen and the euro, has been rising recently and has remained strong in the past years, trading above its 15- and 20-year averages rather than breaking down. A currency that is allegedly in terminal decline does not trade like a scarce asset in difficult times, where rallies coincide with every instance of global stress. It trades like the dollar did in the 1970s or early 2000s.

Behind the DXY’s strength lies a fundamental element. There is a global bull market in U.S. assets. Foreign investors are not “escaping” the dollar system; they are embracing it.

The most recent data show record net purchases of long-term U.S. securities by nonresidents, taking combined flows into Treasurys, corporate bonds, and U.S. equities to historic highs. This is not the pattern of a system that is being abandoned, but the evidence of a key asset class in a volatile world.

Foreign ownership of U.S. government debt has climbed to record nominal levels, with overseas investors holding more than $9 trillion of Treasurys, led by Japan, Canada, and the UK. Even after adjusting for inflation and issuance, the stock of foreign-held U.S. government paper is rising, not falling, as shown by Apollo Research.

The same pattern can be seen in equities. Foreign buyers have been accumulating U.S. equities at a record pace. For all the talk of “de-dollarizing” portfolios, the world’s savings are being recycled into U.S. equities, the U.S. bond market, and the Treasury market.

The stock of dollar reserves has grown. Central banks today hold trillions of dollars in U.S.-denominated assets, even as they diversify a part into gold but not other fiat currencies.

When emerging markets borrow abroad, they mostly borrow in dollars. When corporates hedge, they hedge in U.S. dollars. When crisis hits, markets rush for dollar liquidity, not for baskets of rubles, rupees, and renminbi. The DXY’s behavior around every risk event is empirical proof of this. When things get tough, everybody wants dollars.

In 2025, foreign investors bought a net $1.6 trillion of long-term U.S. financial assets, a record and a sharp jump from about $1.18 trillion in 2024, according to Reuters. Net foreign purchases of U.S. securities in 2025 were led by private investors, not just public institutions. The figures show that in 2026, global demand is accelerating.

Between 2024 and 2025, total net foreign buying of U.S. long-term assets rose by nearly $400 billion, even as headlines were dominated by “sell America” claims, and in 2026, the data of the first three months show a 10 percent increase over the same period last year.

Foreign holdings of U.S. Treasurys hit a record $9.355 trillion in November 2025, up by more than $100 billion in a single month and up from roughly $6 trillion in 2018. And in 2026, the increase in demand is about 8 percent.

According to the IMF’s COFER data, the dollar’s share of allocated global FX remains at 56.7 percent in the fourth quarter of 2025, more than twice as large as the euro’s roughly 20 percent share and the renminbi’s minuscule 2 percent share.

No rival fiat currency is close to substituting for the U.S. dollar as the primary reserve asset when measured in either share or depth of underlying markets. There is no substitution or displacement.

SWIFT and BIS data show that the dollar remains the global leader in invoicing, settlement, and funding in global trade and finance, with a share well above any competitor’s in cross-border payments and FX turnover.

A recent “de-dollarization” irony is that while some emerging central banks have shifted a part of reserves into gold, their countries’ private investors have been increasing purchases of U.S. dollar equities and credit, leaving net demand for dollar assets stronger, not weaker.

So why does the de-dollarization narrative refuse to die? Because it is emotionally and politically appealing. It promises a mirage of currency independence while retaining capital controls. Interventionists want to believe that there could be a form of world reserve currency in which authoritarian governments retained capital and exchange controls. The reason why the de-dollarization narrative remains alive is that it is a mirage that, in fantasy land, would make socialism work.

The irony is clear. The louder the de-dollarization chorus becomes, the more attractive U.S. dollar assets appear for global investors.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.