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Dollar Dominance in the Global Financial System: Dissatisfaction without Displacement

Author

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  • Massimiliano Castelli

    (UBS Asset Management)

Abstract

This paper examines the evolving role of the US dollar in the international monetary system through the lens of reserve manager behaviour. Combining survey evidence from the UBS Reserve Manager Survey with IMF COFER and BIS data, it identifies a growing divergence between declining confidence in the institutional foundations of dollar dominance and the persistence of dollar-centric reserve portfolios. Structural constraints, such as market depth, liquidity, safe asset supply, and financial infrastructure, continue to anchor the system despite rising geopolitical concerns. The findings characterise the system as one of "dissatisfaction without displacement": beliefs are shifting, but portfolio adjustments remain gradual. Scenario analysis suggests that meaningful change is more likely to be crisis-driven than incremental.

Suggested Citation

  • Massimiliano Castelli, 2026. "Dollar Dominance in the Global Financial System: Dissatisfaction without Displacement," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 25(2), pages 5-40.
    • Handle: RePEc:mnb:finrev:v:25:y:2026:i:2:p:5-40
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    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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