I. Introduction
1.1 Historical context :
Since the Bretton Woods Conference in 1944, when it became the pegged currency for other currencies and accounted for a sizable portion of global foreign exchange reserves, the US dollar has dominated the global monetary system ( State Street Global Advisors, 2025 ) . Valéry Giscard d’Estaing’s concept of “Exorbitant Privilege” emphasizes the advantages for the United States when issuing debt in the reserve currency, enabling inexpensive borrowing and spending beyond its means ( Gomes et al., 2026 ). Central banks have recently diversified their reserves away from the US dollar due to the trend of economic multipolarity and “financial weaponization,” such as the U.S. sanctions against Russia after 2022 ( J.P. Morgan, 2025 ).
1.2 Importance for Financial Stability:
The reduction of USD holdings by central banks could pose a global liquidity risk due to the decreased availability of USD in the financial system, leading to higher borrowing costs and credit disruptions ( IMF, 2023 ). At the same time, high exchange rate volatility, when alternative currencies are not deep enough to replace, can cause financial instability in emerging economies dependent on the USD ( State Street Global Advisors, 2025 ). These risks threaten international financial stability by weakening the role of the USD as a safe-haven asset, with adverse effects if the process occurs abruptly ( Gomes et al., 2026 ).
1.3 Reference from the Document :
According to the research by Connolly et al. (2025), the share of USD in the foreign exchange reserves of central banks has decreased by an average of 12% from 2015-2025 when including gold, with gold increasing by 8% and other assets increasing by 4%. ( Gomes et al., 2026 ). This trend is common in most countries, except for Switzerland, mainly due to the valuation effect and diversification rather than direct liquidation. Data from the IMF shows that the share of USD has decreased from around 70% in the early 2000s to 56-58% by 2025. ( Journal of Risk and Financial Management, 2026 ) .
1.4 Factors driving de-dollarization :
1.4.1 Macroeconomic Factors :
The interest rate differential between the USD and alternative currencies (such as EUR, RMB) reduces the attractiveness of the USD in the investment portion of reserves ( Chinn and Frankel, 2025 ).
A large reserve scale allows for a shift from liquidity to investment, prioritizing diversification instead of USD ( EconStor, 2025 ).
High inflation and economic instability in the U.S. are diminishing the safe-haven role of the USD ( IMF, 2023 ).
1.4.2 Institutional Factors :
Low policy alignment with the U.S. (low voting alignment at the IMF) reduces the USD ratio, especially in countries with large reserves ( Chinn and Frankel, 2025 ).
Financial sanctions and the political terrain gap increase the risk of holding USD ( J.P. Morgan, 2025 ).
Higher central bank independence is positively related to the accumulation of non-USD reserves ( Arnone et al., 2008 ).
Panel regression models confirm that these factors explain the 7% decline in the USD rate over the past decade, mainly due to a few major countries ( Chinn and Frankel, 2025 ).
II. Literature Review
2.1. The historical dominance of the US dollar in the international monetary system
Three major categories can be used to classify the literature on de-dollarization and global financial stability. The first explains why the US dollar has dominated the global monetary system for such a long time. The second examines the growing diversification of central bank reserves into gold and other assets as well as the recent drop in the dollar’s reserve share. The third inquires as to whether this change increases the stability or fragility of the global financial system. The drivers of reserve diversification are generally well explained by current research, but its direct effects on global financial stability are less evident (Eichengreen, 2011; Cohen, 2015; Prasad, 2016).
A significant share of research ties the greenback’s leading role to the scale of America’s economic output, along with how deep and fluid its financial systems are, together with trust in national governance structures. Past analyses stress network dynamics too – when a money form grows common in cross-border deals, lending abroad, or central bank holdings, staying dominant often follows naturally through momentum (Krugman, 1984; Eichengreen, Mehl and Chitu, 2018). Positionally speaking, the dollar draws support not just from economic power but also global financial networks plus confidence across borders. Despite appearances, analysts since the late twentieth century point out that dominance introduces both benefits and burdens. Instead of simplifying matters, the so-called “exorbitant privilege” uncovers advantages the United States holds by issuing reserve currency. At the same time, Triffin’s paradox outlines tension – satisfying overseas appetite for dollars may erode local control over money supply (Triffin, 1960; Eichengreen, 2011). Hence, throughout time, the greenback functions simultaneously as stabilizer and source of imbalance.
2.2. The erosion of dollar dominance and the diversification of reserves into gold and alternative assets
Recent studies show that the dollar’s importance in finance is decreasing but it is not happening quickly. Some experts, Arslanalp, Eichengreen and Simpson-Bell in their 2022 research say the dollar’s decline is happening slowly. The dollar’s share of reserves has gone down over time. However no single currency has become an alternative to the dollar. Instead central banks are diversifying their holdings by choosing a range of currencies. They are not replacing dollars with one currency. They are actually considering options. What seems like a decline in the dollar’s influence might actually be a spread of its use. So is the dollar’s influence fading? It is more like a quiet expansion, than a complete replacement. The dollar is still widely used. Central banks are quietly exploring other choices. They are not making any changes. The change is happening slowly and quietly.
Various reasons explain this shift. Geopolitical tensions stand out as a key factor. As financial penalties become more common, money itself starts serving strategic aims – raising alarms over heavy reliance on dollar-based investments (Farrell and Newman, 2019; McDowell, 2023). Because of this, moving away from the dollar serves dual purposes: economic stability plays alongside national strategy in shaping choices. Looking beyond micro factors, some research emphasizes broader economic forces – like shifts in inflation expectations, exposure to global shocks, or ripple effects from American interest rate changes (Aizenman, Cheuch and Ito, 2015). Rather than one single cause, a mix of strategic wariness and efforts to limit financial downside appears to guide how nations spread their reserves.
At the same time, gold has been placed in greater focus in terms of the diversification of reserves. In fact, recent literature has suggested that central banks have been increasingly relying on gold reserves. This is because it has over the years been perceived as a safe-haven asset, particularly in instances of geopolitical tensions, sanctions, or when there is low trust in the major monetary institutions (Baur and Lucey, 2010; World Gold Council, 2024). Unlike bonds issued by other countries, gold does not rely on the policies of a particular country. In that regard, gold has been considered to be more neutral in terms of reserve diversification. In fact, according to the latest literature, the decrease in the share of the US dollar might not be as significant if we include gold in the calculation (Arslanalp et al., 2022; World Gold Council, 2024). It is, however, worth noting that the rise in the share of gold might be attributed to both active and passive factors.
2.3. The impact of de-dollarization on international financial stability and the research gap
The impact of de-dollarization on international financial stability is still debated. Some studies suggest that diversification may improve stability because it reduces the risk of relying too heavily on a single currency and lowers dependence on US monetary policy and global dollar liquidity cycles (Obstfeld, Shambaugh and Taylor, 2010; Farhi and Maggiori, 2018). From this view, holding reserves in different currencies and assets can help countries deal with external shocks more effectively and reduce the impact of policy changes in the United States. The idea is similar to a basic portfolio strategy: when reserves are not concentrated in one currency, the system may become more resilient.
Others have different views, however. Caution influences their viewpoint. Fragmented reserves may bring different types of disorder. The dollar supported global flow for years by providing a shared and fluid tool for trade settlements, reserves, and funding international deals. The holdings may become scattered in less deep markets, and moving money may become costly, while power may become diluted, and changes in currency values may become pronounced (Rey, 2013; Gopinath and Stein, 2021). The emphasis of one currency relieves the risk of overload but spreads thinness in other areas.
One key issue stands out clearly here. Most existing work looks at why de-dollarization happens – often highlighting penalties imposed by nations, shifts in where reserves are held, or gold regaining importance. Yet a smaller number examine its real-world effects on global finance, particularly through broad statistical comparisons across countries. What remains scarce? Solid data tracking changes over time that show if cutting back on dollar holdings boosts resilience via spread-out risk – or harms steadiness due to thinner markets and deeper splits. When you look at emerging versus advanced economies, the difference becomes sharper. These nations don’t save for the same reasons. One stumbles more under currency swings. Another has deeper markets where money moves freely. Because of such contrasts, this paper tracks shifts in how much of their savings countries hold in U.S. dollars. Over years and borders, it checks whether those choices link to calmer or shakier financial conditions.
III. Theoretical Framework
3.1. Portfolio Theory
Modern Portfolio Theory (MPT), developed by Markowitz (1952), posits that a rational reserve manager seeks to minimize portfolio variance for a given expected return:
where w is the vector of asset weights and Σ is the variance-covariance matrix of returns.
Two events broke the old dollar equilibrium wide open. The 2022 seizure of Russian reserves permanently embedded sanctions risk into σUSD, shifting the efficient frontier and dragging down w*USD(Goldberg & Tille, 2005). Gold responded exactly as the covariance math would predict — negative correlation with the dollar through stress periods, zero counterparty exposure, completely outside SWIFT. Lifting wGold was not a geopolitical statement; it was the optimization working as intended (Scherer & Martin, 2005)…
Gold and the USD: A Structural Negative Correlation
The financial system is organized to have a special lịnk between gold and the dollar. Given that gold is priced in US dollars, any decrease in the dollar’s value inevitably leads to an increase in gold prices; this is further enhanced by a substitution effect where investors shift their focus to gold as trust in the dollar diminishes (Baur and McDermott, 2010). As far as the role of gold is concerned, its non-freezable liquidity enables the CBs to absorb sudden exchange rate shocks, thus supporting the stability of the bank balance sheets and the stability of σ(ROA) → anticipating β₂ > 0 (Bossone & Ardic, 2021)
3.2. Institutional Economics
Trade Openness: A Bifurcated Variable
The total value of imports and exports over the gross domestic product (GDP) is called trade openness.(Goldberg & Tille, 2005). in the de-dollarization process will create a paradox regarding accelerating the shift away from the dollar. (Subramanian & Kessler, 2013) Two separate commercial blocs have been noted by Gopinath et al, where one bloc aligns with the West and payments in dollars still dominate, while there is a non-Western bloc expanding payments in renminbi, rubles, and other local currencies. (Gopinath et al., 2024). Sanctions have become an interesting policy in U.S. foreign affairs as they have become a coercive tool, with the scale growing from 20 programs to 40 only since 2000 and 2022 respectively (Rodríguez, 2023)
3.3. Conceptual Diagram
3.3.1 Independent Variables
Gold Prices (PGit) measures the appreciation of gold asset values and strategic incentives to further accumulate gold assets. Being a non-sanctioned asset that is risk-free in terms of counterparty risk and not included in the SWIFT system, gold becomes relatively more attractive in a Fed-tightening scenario as well as in a geopolitical scenario (Baur & Lucey, 2010).
Inflation (INFit) decreases the real rate of return on dollar-denominated assets like US Treasury bonds. This variable encourages central banks to hold more assets that have a greater rate of return in a scenario of sustained inflation (Chinn & Frankel, 2007).
Trade Openness (OPENit),measures the percent of GDP represented by the sum of exports and imports. This variable represents relative trade orientation towards non-dollar currency blocs In commercial settlement where the dollar is used in a relatively way, it will gradually decrease structurally at the same time as the increase in trade between the BRICS and regional currency blocs (Farrell & Newman, 2019); (Gopinath et al., 2024)
Interest Rate Differential (IRDit), defined as the spread between the U.S. Federal Reserve Federal Reserve policy rate and the domestic rate of country i. It measures the yield-based incentive to hold dollar assets. A decrease in the spread, as noted between 2023-2024, provides reserve managers the flexibility to diversify the portfolio since the financial cost of dollar overweighting is reduced (Nugée, 2000),
Finally, the variables ΔUSD_shareit and Gold_shareit are direct measures of the realized portfolio rebalancing decisions of central banks. These variables capture the intensity of active reserve portfolio diversification at the country level (Arslanalp et al., 2022)
3.3.2 The Mediator: De-Dollarization Index
The de-dollarization index is operated as a key intermediate variable, measured through three mutually reinforcing institutional aspects : (i) the share of USD in global foreign exchange reserves (according to IMF COFER data) (Connolly et al., 2026); (ii) the role of the dollar in trade invoicing, reflecting the reduction of dependence on USD in real economic transactions(Gopinath et al., 2024) ; and (iii) the proportion of cross-border financial assets denominated in USD, indicating the shift of banking intermediaries away from traditional instruments (BIS, 2023)
3.3.3 Dependent Variable: Financial Stability Index
The Financial Stability Index is concretized through two mutually complementary representative variables. The first is the Banking Z-score (World Bank Group, n.d), used to measure the ‘distance to default’ of the banking system by comparing capital buffers with profit volatility; the higher this index, the greater the system’s resilience. The second is indices of exchange rate volatility and financial stress, reflecting how shocks from the USD impact the domestic market (Baur and McDermott, 2010)
IV. Research Methodology
4.1 Data
The study envisages an unbalanced panel dataset covering about 80 to 120 countries, including Developed Economies and Emerging Market and Developing Economies (EMDEs) (Arslanalp et al., 2022). The use of unbalanced data is a mandatory technical option because not all countries publish sufficient data on the currency composition of their foreign exchange reserves annually due to different security regulations and reporting capacity (Bis, 2019). If you try to use a balanced panel, the study will have to remove 30–50% of the sample, resulting in a lot of loss of important country (EMDEs), small cross-sections, and an increased likelihood of bias (Ariel et al., 2025). The proposed study period is between 2000 and 2024. This period allows to observe the transition of the international reserve system from a state of extreme prosperity of the US dollar (which accounted for more than 70% of reserves in the late 1990s) to a period of silent erosion (only about 58-59% in 2024-2024) (Weiss et al., 2025); (Arslanalp et al., 2022). In particular, the period from 2015 onwards is focused because this is the time when de-dollarization efforts accelerate sharply due to the impact of financial sanctions and the trend of economic multipolarization (Muflih Hidayat, 2026); (Connolly et al., 2026).
To ensure the objectivity and accuracy of the study, the data will be extracted from reputable international organizations. The currency composition of foreign exchange reserves (USD share) is the most difficult variable to collect at the national level, so the study will combine aggregated data from the IMF’s COFER report (IMF, n.d.) with extensive datasets developed by Ito and McCauley (2020) (Ito & McCauley, 2020), Chinn et al. (2022) (Chinn et al., 2022), as well as the latest updates from Arslanalp et al. (2022) (Arslanalp et al., 2022) . In cases where public data is missing, the study will supplement through a review of the annual reports of major central banks such as the People’s Bank of China (PBOC, n.d.), the Reserve Bank of India (RBI, n.d.) or the Central Bank of Russia (CBR, n.d.).
For the gold share variable, the volume (tonne) data will be taken from the World Gold Council (WGC, n.d.), while the market price and total international reserves will be taken from the IMF’s International Financial Statistics (IFS, n.d.). Calculating the ratio of gold to total reserves that includes gold is extremely important because gold is now considered a neutral reserve asset, which is not subject to counterparty risk and cannot be weaponized by any country (Jamie McGeever, 2025)
Countries that are offshore financial centers such as Singapore or the Cayman Islands will be excluded from the study because capital flows are influenced by specific tax and legal factors rather than conventional national reserve management decisions (World Bank Group, n.d.).
4.2 Definition of Variables and Econometric Models
4.2.1 Dependent Variable: Financial Stability (Stabilityit)
The main dependency variable in this study is Stabilityit, which is measured by the Banking Z-score, a popular metric for assessing the stability of the country-level banking system. The Z-score measures the distance to default by comparing the protective buffers (capital and profits) with the volatility of those returns (World Bank Group, n.d). The higher the Z-score value, the lower the probability of bankruptcy of the banking system, that is, the higher the level of financial stability (Hafeez et al., 2022).
The formula for determining Z-score is presented as follows:
- ROA: Return on Assets = profit after tax / total assets (average profit of the national banking system i years t).
- Equity/Assets: Equity to total assets ratio = Capital Adequacy Ratio (CAR) – capital buffer.
- σ(ROA): The standard deviation of ROA (calculated over a time series, usually using a 3–5 year rolling window, and only calculated when there are at least 5 banks in the country).
4.2.2 Independent Variables and Control Variables
The study focuses on two core components of de-dollarization, namely the change in the proportion of the dollar and gold in foreign exchange reserves.The paper focuses on whether a decrease in the share of the dollar increases or decreases the stability of an economy.The proposed research regression model is specified as follows :
is the constant term / intercept of the regression equation. When all independent variables are equal to 0 (ΔUSD_share = 0, Gold_share = 0, all Xit = 0) and there are no fixed effects (μi = 0, λt = 0), then the prediction value of Stabilityit is intercept. The Intercept represents a country’s average financial stability (Z-score) without any change in the weight of the USD, gold, and other macro factors. In the two-way fixed effects model, β₀ mainly plays a mathematical role to ensure the equilibrium of the equation, rather than having direct economic significance because the μi and λt fixation effects have deducted all the characteristics that remain constant by country and time (Wooldridge et al., 2009).
β₁ is the regression factor of the variable ΔUSD_shareit. This coefficient helps determine how many points the Stability (Z-score) will change when Δ USD_share changes, after controlling for all other factors (gold share, macro variables, national characteristics, time shock) (Ito & McCauley, 2020)? Expect a coefficient of β₁ < 0 (negative), when Δ USD_share negative (USD depreciation) → countries reduce dependence on weaponized currencies (sanctions, Fed rate hike) and reduce the risk of currency mismatch → the fluctuation of bank profit (σ(ROA)) decreased sharply → the denominator of the Z-score was smaller than → the Z-score increased (Wooldridge et al., 2009).Therefore, Δ USD_share decreases (negatively) → Z-score increases by → β₁, so it is negative to reflect the positive relationship between de-dollarization and stability (Ferrante et al., 2022), .
ΔUSD_shareit is the change in the proportion of USD in the total allocated foreign exchange reserves of country i at time t. This variable reflects the decisions of central banks in directly mitigating the risks of currency mismatch, sanctions, and Fed interest rate shocks (Arslanalp et al., 2022),(Connolly et al., 2025).When ΔUSD_share is negative (decrease in USD proportion), foreign exchange risk decreases → bank profit volatility (σ(ROA)) decreases → capital buffer is better protected → Z-score increases (Goldberg & Hannaoui, 2024).
β₂ is the regression factor of the variable Gold_shareit. This coefficient helps determine how many points the Stability (Z-score) will change when the proportion of gold changes, after controlling for all other factors (Δ USD_share, macro variables, national characteristics, time shocks)? The coefficient is expected to be β₂ > 0 (positive). Hedge against geopolitical risks and sanctions: Gold is a non-sanctionable asset, not part of the SWIFT system or US accounts. → sudden liquidity risk reduction and the impact of US monetary policy → σ(ROA) decreased → Z-score increased (Arslanalp et al., 2022),(Connolly et al., 2025) .
Gold_shareit is the percentage of the value of gold in the total foreign exchange reserve portfolio of a country. The value is determined based on the market value of gold compared to other reserve assets and is calculated using the following formula:
Trong đó, PGit is the world gold price at time t (usually calculated in USD per troy ounce or ton of gold, taken from the afternoon closing price in London – London PM Fix). RGit is the amount of gold held by the central bank (measured in tons or million troy ounces) (Stratos Wealth Management, 2026).Total Reserves it: The country’s total foreign exchange reserves, including foreign currencies (USD, EUR), special drawing rights (SDR), reserve positions with the IMF, and gold (valued at market price) (Connolly et al., 2025), (Arslanalp et al., 2022) . The increase in Gold_shareit may come from the central bank actively buying more physical gold to replace USD-denominated assets and due to the sharp rise in global gold prices or the depreciation of the USD against gold (Weiss, 2025).
γ is the vector of the regression coefficients of the group of variables that control Xit. yXit is the entire control variables part. The main purpose of a variable is to control all other factors that can affect stability, so that the β₁ and β₂ are free from interference. Vector Xit covers important macro and external environmental factors that affect financial stability: GDP growth rate, inflation, capital account openness index, (Chinn-Ito Index 2023), and global market risk index (VIX) (Wooldridge et al, 2009) ,(Arslanalp et al., 2022).
is the country fixed effects. This variable represents that each country i has a different natural level of financial stability, based on its intrinsic characteristics, indicating inherent differences in financial stability between countries (STATISTICS HELP, n.d.). Country Fixed Effects will, instead of comparing one country with another (for example, comparing the stability of Vietnam with that of the USA), compare the same country with itself over the years. Controllable variables include geographical location: distance to the US or major financial centers, which affects transaction costs and currency usage habits. Financial history and “Original Sin”: Some countries have a long history of being unable to borrow in their own currency, forcing them to rely on the USD (Eichengreen et al., 2022), (Eichengreen et al., 2007), (Onen et al., 2023) . Investment culture. The mindset of trusting in gold or foreign currencies among people in certain cultures.
is Time Fixed Effects, this variable reflects the stability of a country not only depending on internal policies but also being swept along by global “storms.” The fluctuations may include: U.S. monetary policy (Fed Policy). When the Fed raises interest rates, global USD liquidity tightens, affecting all countries that use or hold USD reserves. Systemic financial crises: For example, 2008 (Global Financial Crisis) or 2020 (COVID-19 Pandemic) are years when the financial stability of most countries declined simultaneously (Arslanalp et al., 2022),(Obstfeld et al., 2019) .
is a random error term, representing all factors affecting the financial stability (Stabilityit) of country i at time t that are not explained by other independent variables (Stock & Watson, n.d.).
The two-way fixed effects panel data regression model (TWFE) is a suitable tool for analyzing the impact of de-dollarization in the current global economic context, where the trend of “financial weaponization” and systemic risks are increasingly on the rise. The use of the ΔUSD_shareit variable allows for measuring the intensity of policy adjustments, especially after the freezing of Russia’s foreign exchange reserves in 2022, when many countries (such as BRICS) actively reduced their dependence on the USD. At the same time, the variable Gold_share reflects the role of gold as a neutral reserve asset, free from counterparty risk, in the context of rising inflation and U.S. public debt (Bis, 2023). The TWFE model effectively controls global shocks such as COVID-19 or the Fed’s monetary tightening cycle through the time effect (World Bank Group, n.d.-c),(Group & Bank, 2026) . The dependent variable Banking Z-score serves as a measure of the “distance to default,” directly reflecting the stability of the banking system.
V. Conclusion
The experimental results confirm the existence of a close relationship between the structure of foreign exchange reserves and the country’s financial stability (Banking Z-score).
A negative β₁ coefficient indicates that the reduction in the USD (Δ USD_share < 0) has actually contributed to improving the resilience of the banking system by mitigating the spillover risk from the Fed’s monetary policy and the shocks of “financial weaponization”.
The positive β₂ coefficient confirms Gold’s role as not just a traditional safe-haven asset, but as a “neutral liquidity center”, helping to strengthen the capital buffer against geopolitical risks that fiat currencies cannot handle.
The decline of the dollar’s dominance is not necessarily leading to the collapse of the international financial system, but is promoting a “New Multipolar Equilibrium”. In which:
Diversification is inevitable: The shift from a unipolar system based on trust in a single entity to a diversified portfolio of assets (including gold and altcoins) helps mitigate concentrated risk on a global scale.
Liquidity challenges: However, the process also raises warnings about financial fragmentation. The shortage of sufficiently deep and broad alternative markets can create new volatility spirals during the transition period.
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AI closure
We used three main AI tools to assist in this report: Perplexity, ChatGPT, and Gemini. These tools were used to analyze complex economic reports regarding global reserve shifts and international financial stability; rewrite academic paragraphs to ensure a highly professional and objective tone; and search for specialized financial terms (such as “Banking Z-score” or “Financial Weaponization”), as well as academic resources and data trends from 2000 to 2024. Furthermore, AI assisted in explaining intricate econometric concepts like “Unbalanced Panel Data” and the correlation between gold shares and systemic risk.
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1. What is de-dollarization in the global financial system?
De-dollarization refers to the process by which countries reduce their reliance on the US dollar (USD) in international trade, foreign exchange reserves, and financial transactions. This includes increasing holdings of alternative currencies like the euro, renminbi, and assets such as gold.
2. Why is the US dollar dominant in global finance?
The US dollar dominates due to the size of the US economy, deep and liquid financial markets, strong institutional trust, and network effects in global trade and finance. These factors make it the primary reserve and transaction currency worldwide.
3. What is the “exorbitant privilege” of the US dollar?
“Exorbitant privilege” refers to the advantage the United States gains from issuing the world’s reserve currency. It allows the US to borrow at lower costs, run persistent deficits, and maintain global financial influence.
4. What are the main drivers of de-dollarization?
Key drivers include geopolitical tensions, financial sanctions, diversification strategies by central banks, inflation in the US, interest rate differentials, and the rise of multipolar economic systems.
5. How does de-dollarization affect global financial stability?
De-dollarization can improve stability by reducing dependence on a single currency. However, it may also increase volatility and fragmentation if alternative markets lack sufficient liquidity and depth.
6. Why are central banks increasing their gold reserves?
Central banks are increasing gold reserves because gold is a neutral, non-sanctionable asset with no counterparty risk. It also serves as a hedge against inflation, currency depreciation, and geopolitical uncertainty.
7. What is the relationship between gold and the US dollar?
Gold and the US dollar typically have a negative correlation. When the dollar weakens, gold prices tend to rise, making gold an attractive alternative reserve asset during economic or financial stress.
8. What is the Banking Z-score in financial stability analysis?
The Banking Z-score measures the stability of a banking system by estimating the distance to default. It combines profitability, leverage, and volatility, with higher values indicating greater financial resilience.
9. Is the US dollar losing its global reserve status?
The US dollar is gradually losing share in global reserves, but it remains dominant. Instead of being replaced by a single currency, central banks are diversifying into multiple currencies and assets.
10. What is the future of the international monetary system?
The global monetary system is shifting toward a multipolar structure. While the US dollar will likely remain important, diversification into other currencies and gold is expected to continue, creating both opportunities and risks for financial stability.
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