If you are holding up your dollars in hope of profiting from a future increase in their value, then it’s time to reconsider your decision. The dollar has been the main reserve currency of the world since World War II. Most international trade transactions are conducted using the U.S. dollar. However, the picture is changing now, and de-dollarization might be the new future. Governments, market players, and corporations are reducing their dependence on the U.S. dollar in trade, reserve, and foreign exchange transactions. There is much talk about de-dollarization today.
Why De-Dollarization Is Taking Place
Governments, traders, investors, and different players in the market are shying away from dollars due to controversial US policies like tariff issues and others. They are losing confidence in the status of the dollar in the market. On the other hand, the US government is also seeing de-dollarization as a way to make its economy more stable and come out of inflation.
Other nations are also growing, like China and India, who sees alternative currencies as more stable and safer than dollars. A combination of these and other reasons is responsible for de-dollarization. Though the US dollar is still the dominant currency in the forex market, there is a strong possibility of a shift in 2026.
According to the Bank of America, de-dollarization is expected to gain momentum in Asian economies. They have the chance to repatriate forex earnings to local currencies. The Association of Southeast Asian Nations (ASEAN) and other countries in the world are now encouraging the use of local currencies rather than dependency on the USD.
International Monetary Fund (IMF) data shows that the dollar share in global forex reserves has reduced from more than 70% in 2000 to about 57.8% in 2024. So, looking for alternative forex pairs has become crucial. Here are the most promising ones to look up to.
EUR/JPY:
The Japanese Yen is expected to be an attractive choice for forex transactions. This pair doesn’t have a direct association with the US dollar. Unlike the potential volatility that may affect the USD pairs, such as USD/JPY, this pair poses less risk. The euro is the most chosen reserve currency after the USD. If investors trade this payer, they will be exposed to both the economic dynamics of the Eurozone and Japan. Therefore, they will get the opportunity to diversify their investment portfolio without any negative effect due to de dollarisation.
The EUR/JPY is often considered the prime indicator for market movements of global stocks. Thus, you can get insights into market trends without depending on the US market. As EUR/JPY provides high liquidity, it is a cost-effective option for international trading.
Another benefit of this forex pair is that the policies of the European Central Bank and Bank of Japan have a direct influence on the rate of EUR/JPY; it is not affected by any change in US government policies. One disadvantage with this pair is the lack of a unified financial system, which makes that vulnerable to political and economic turmoil.
EUR/GBP:
Many people think that the EUR/GBP is an expensive pair; however, it’s not true. Both these currencies have a strong presence in central bank reserves. People trust them as they are backed by transparent governance. The Eurozone and the UK have liquid capital markets, which result in better trading. Due to the geographic proximity of the Eurozone and the UK, a large volume of global trade is possible. However, the Eurozone doesn’t have centralised fiscal control, and this is considered a weakness compared to the USD.
EUR/CHF:
If you are looking for stability in your investments or trading, then you can go for the EUR/CHF pair. Europe and Switzerland both have stable and strong economic ties. It is seen that during uncertain periods, the Swiss franc is considered to be safer. This pair is a good alternative in the face of de-dollarization for risk management and diversification. A drawback of this pair is that it has a strong connection with the USD/CHF and EUR/USD pairs. So, their fluctuations are still influenced by the performance of the value of the USD in the global market.
Conclusion
By holding reserves of other currencies, Central banks can lower their dependency on the US dollar. To profit in future from international trading or investment, it is important to diversify a portfolio across different currencies. The weakening of the USD affects both domestic and international transactions and investments. It will influence the inflation and exchange rates. Therefore, it is crucial to rearrange your currency portfolio to make your financial position stable and strong during the de-dollarization period.
