The US dollar's role
Why the world trades, borrows and saves in dollars, how a dollar index works, and the de-dollarisation debate
Official data to September 2026; dollar index as on 31 August 2026
Verified 16 October 2026
For training and education only. Not investment advice.
Trainer notes
Ask the room why an Indian importer buying from Korea might pay in dollars. Most people assume each country pays in its own currency. By the end they should see why the dollar sits in the middle of so much of world trade and finance, and what is and is not changing.
The dollar is America's currency, but much of the world also uses it to price trade, borrow and hold reserves.
So its value matters to people who never deal with the US directly: an importer in Pune, RBI's reserve managers, or a family paying a fee abroad.
Trainer notes
This deck describes the dollar's role and the debate around it. It does not forecast the dollar or the rupee.
Four roles the dollar plays
Reserve currency
A currency central banks hold in their reserves. The dollar is the largest share of the world's reserves.
Go-between
Most foreign exchange trades have the dollar on one side, even when neither party is American.
Pricing trade
The currency a trade deal is priced in. Much trade between non-US countries is priced in dollars.
Deep markets
A very large, easily traded market. The US Treasury calls its securities the world's 'preeminent safe and liquid asset'.
Sources: Federal Reserve FEDS Note, 18 Jul 2025; BIS Triennial Survey 2025; US Treasury statement, 1 Aug 2023.
Trainer notes
The Fed note puts the dollar's share of trade invoicing at 74% in Asia-Pacific (average of 1999-2019) and its share of foreign-currency debt issuance at about 60% since 2010. Its explanation: the size and strength of the US economy, open trade and capital flows, rule of law, and deep financial markets.
How a dollar index works
A TWO-CURRENCY INDEX
An invented index that compares the dollar with two currencies, X and Y.
Weights: X 60%, Y 40%. The index starts at 100.
Over a year the dollar rises 10% against X and falls 5% against Y.
- Weighted change against X: 60% × (+10%) = +6.0%.
- Weighted change against Y: 40% × (−5%) = −2.0%.
- Index change = +6.0% − 2.0% = +4.0%. The index moves from 100 to 104.
- The dollar is up 'on average' though it fell against Y. Real indices use many more currencies and a more complex formula.
Result: A dollar index is an average. It does not tell you the dollar's move against any one currency.
Illustration with invented currencies, weights and moves. Not a forecast.
Trainer notes
The Federal Reserve's broad dollar index uses 26 currencies weighted by trade with the US; India's weight for 2026 is 3.351%, against 1.499% in 2006. The Fed revises the weights each year. Other dollar indices exist, with different currencies and weights, so always ask which index is meant.
Share of world reserves: dollar and euro
| US dollar | Euro | |
|---|---|---|
| 2000 | 69.7 | 17.5 |
| 2005 | 64.9 | 21.9 |
| 2010 | 61.9 | 22.9 |
| 2015 | 64.2 | 19.4 |
| 2020 | 59.5 | 20.6 |
| 2025 | 56.5 | 20.4 |
| Jun 2026 | 56.7 | 20.6 |
Read the chart
- Dollar: 69.74% at end-2000, 56.70% at end-June 2026.
- Euro: 17.54% to 20.60% over the same period.
- Renminbi: 2.11% in June 2026. Yen: 4.96%.
- Dollar reserves grew from $1.35 tn (2000) to $7.49 tn (2026); others grew faster.
Source: IMF, Currency Composition of Official Foreign Exchange Reserves (COFER), data published 30 Sep 2026.
Trainer notes
Since 2025 the IMF allocates all reserves to currencies, using staff estimates for amounts countries do not report by currency, with revisions back to 2000; older shares differ slightly. Total world reserves were US$ 13.22 trillion in June 2026 against US$ 1.93 trillion at end-2000. The dollar amounts in the side panel are rounded from the IMF's series. Total world reserves were US$ 13.22 trillion in June 2026 against US$ 1.93 trillion at end-2000. The dollar amounts in the side panel are rounded from the IMF's series.
The Fed's broad dollar index
| Broad dollar index | |
|---|---|
| Dec 2010 | 90.51 |
| Dec 2015 | 113.34 |
| Dec 2019 | 114.67 |
| Dec 2024 | 129.28 |
| Aug 2026 | 118.57 |
Read the chart
- The dollar against 26 trading partners' currencies, weighted by trade.
- Higher means a stronger dollar. India's weight in 2026: 3.351%.
- Highest close to Aug 2026: 130.04 on 13 Jan 2025.
- 31 Dec 2024 to 31 Aug 2026: 129.28 to 118.57, down 8.3%.
Source: Federal Reserve Board, H.10 release, Nominal Broad Dollar Index (daily) and currency weights, as published 13 Oct 2026.
Trainer notes
Points are the closing values on 30 Dec 2010, 31 Dec 2015, 31 Dec 2019, 31 Dec 2024 and 31 Aug 2026; the series starts in January 2006. The 8.3% fall is our arithmetic on the Fed's values. Points are the closing values on 30 Dec 2010, 31 Dec 2015, 31 Dec 2019, 31 Dec 2024 and 31 Aug 2026; the series starts in January 2006. The 8.3% fall is our arithmetic on the Fed's values. Market figures are shown with a lag of at least 30 days, following Trustner's house rule for price data used in education.
From the 2010 argument to today
| When | What happened |
|---|---|
| 21 July 2005 | China moved to a managed floating exchange rate, set with reference to a basket of currencies. |
| 19 June 2010 | China decided to make the renminbi more flexible. The US Treasury described this as ending its peg to the dollar. |
| 8 July 2010 | The US Treasury told Congress the renminbi remained undervalued, but found no partner manipulating its currency. |
| The tests now | A surplus with the US of at least $15 bn; a current account surplus of 3% of GDP or more; currency buying of 2% of GDP or more in 8 of 12 months. |
| July 2026 | Ten economies, including China and Japan, are on the Treasury's monitoring list. None met all three tests. |
Sources: PBC Deputy Governor's article, 30 Jul 2010 (BIS Review 105/2010); US Treasury press release TG-772, 8 Jul 2010; US Treasury FX report, July 2026.
Trainer notes
The 2010 argument, in the US view: The 2010 argument, in the US view: an undervalued renminbi lowered the dollar price of Chinese goods in the US and hurt American manufacturing jobs. The Treasury's July 2026 report still says 'unfair currency practices abroad' have contributed to the US trade deficit; that is the US Government's position, and we describe it rather than take a side. An economy meeting two of the three tests goes on the monitoring list. and hurt American manufacturing jobs. The Treasury's July 2026 report still says 'unfair currency practices abroad' have contributed to the US trade deficit; that is the US Government's position, and we describe it rather than take a side. An economy meeting two of the three tests goes on the monitoring list.
The de-dollarisation debate
A slow drift
The dollar's share of world reserves was 69.7% at end-2000 and 56.7% in June 2026. The euro's rose from 17.5% to 20.6%.
Gold's share
Gold was about 16.70% of India's reserves by value at end-March 2026 (13.92% at end-Sep 2025). RBI held 880.52 tonnes; price moves change the share.
Trade in rupees
Since July 2022, RBI has allowed exports and imports to be invoiced and settled in rupees through special accounts, as an additional route.
Take-away: Yet the dollar was on one side of 89.2% of foreign exchange trades in April 2025, up from 88.4% in 2022.
Sources: IMF COFER, 30 Sep 2026; RBI reserves report, 30 Apr 2026; RBI circular, 11 Jul 2022; BIS Triennial Survey 2025.
Trainer notes
The Fed's 2025 note found the dollar's reserve share 'basically unchanged since 2022', and said the rise in gold's share of global reserves since 2015 mostly reflects higher gold prices. The Fed's 2025 note found the dollar's reserve share 'basically unchanged since 2022', and said the rise in gold's share of global reserves since 2015 mostly reflects higher gold prices. RBI's own FAQ calls rupee settlement 'an additional arrangement to the existing system of settlement'. De-dollarisation is a debate about direction and speed; present the data and both sides. De-dollarisation is a debate about direction and speed; present the data and both sides.
Where things stand
Latest published figures. Each has its own date; check it before quoting.
- RESERVES IN DOLLARS
- 56.7%World FX reserves, end-June 2026. Euro 20.6%, renminbi 2.1%.
- FX TRADES
- 89.2%Share with the dollar on one side, April 2025.
- BROAD DOLLAR INDEX
- 118.5731 Aug 2026 (Jan 2006 = 100). End-2024: 129.28.
- TREASURIES HELD ABROAD
- $9.2tnTreasury securities, end-July 2026. India: $202.6 bn.
Sources: IMF COFER, 30 Sep 2026; BIS Triennial Survey 2025; Federal Reserve H.10, 13 Oct 2026; US Treasury TIC Table 5 (July 2026 data).
Trainer notes
Foreign holdings of US Treasury securities were US$ 9,248.1 billion at end-July 2026; the largest holders were Japan (US$ 1,103.9 billion), the UK and mainland China (US$ 618.0 billion). Currency shares of FX trading add up to 200% because every trade involves two currencies. State the figures and stop: we do not forecast the dollar.
If you learnt this from older material
What older decks say
- The US was cut from AAA to AA.
- China pegs the yuan to the dollar to help exports.
- A strong dollar is mainly a US-China jobs story.
What holds now
- The 2011 cut was to AA+. All three major agencies now rate it a notch below top.
- The US Treasury said China ended its peg in June 2010. It found no manipulator in July 2026.
- The Fed's broad index spreads weight over 26 currencies.
Take-away: The old decks date from 2010-2011. Some figures have moved since and some have not; check each date.
Sources: CRS R48209; Moody's, S&P, Fitch releases 2025-26; Treasury FX report, Jul 2026; Fed H.10 weights.
Trainer notes
The other two agencies cut the US to AA+ (August 2023) and Aa1 (May 2025); see the deck 'Sovereign ratings'. After the August 2011 cut, the Fed's broad dollar index did not fall: it was 85.73 on 29 July and 86.77 on 31 August 2011. One month is too short to prove cause and effect; use it only to show that a downgrade need not weaken the currency.
Four things people get wrong
Misconception'De-dollarisation means the dollar is over.'
What is trueIts reserve share fell from 69.7% (2000) to 56.7% (2026), yet it was on one side of 89.2% of FX trades in 2025.
Misconception'A dollar index is the dollar-rupee rate.'
What is trueIt is an average against many currencies. The dollar can rise on an index and fall against the rupee on the same day.
Misconception'A strong dollar only affects Americans.'
What is trueOil, many imports and dollar loans are priced in dollars. A stronger dollar raises their cost in rupees, other things equal.
Misconception'Rupee trade replaces the dollar.'
What is trueRBI calls rupee settlement an additional arrangement to the existing system. Settlement in dollars continues alongside it.
Trainer notes
On the third point, the effect on any one company depends on hedging and on whether it also earns dollars; see the deck 'The rupee: what moves it'. Trustner and its people are mutual fund distributors: we explain how currencies work; we do not forecast them.
Check yourself
Question 1: An invented dollar index gives currency X a weight of 70% and Y 30%. The dollar rises 4% against X and falls 10% against Y. What is the index change?
Answer: 70% × 4% = +2.8%. 30% × (−10%) = −3.0%. Index change = −0.2%: the dollar fell on average although it rose against X.Question 2: Name two ways the world uses the dollar apart from as America's own currency.
Answer: Any two of: central bank reserves, as the go-between in foreign exchange trades, for pricing (invoicing) trade, for borrowing, Any two of: central bank reserves, as the go-between in foreign exchange trades, for pricing (invoicing) trade, for borrowing, and as a deep, liquid market through US Treasury securities.Question 3: A client says de-dollarisation means the dollar will collapse and asks whether to move money. What do we say?
Answer: Share the published data (reserve share 56.7% in June 2026, down from 69.7% in 2000; 89.2% of FX trades in 2025) and explain both sides of the debate. Share the published data (reserve share 56.7% in June 2026, down from 69.7% in 2000; 89.2% of FX trades in 2025) and explain both sides of the debate. We do not forecast currencies or recommend moves on the back of a forecast.
Trainer notes
Q1 shows why an index can move opposite to its heaviest-weighted currency: the size of each move and its weight both decide.
Sources and disclaimer
Sources for the figures in this explainer
- Reserves by currency, 2000 to June 2026: IMF, COFER dataset and data brief, 30 Sep 2026.
- Foreign exchange turnover, April 2025: BIS Triennial Central Bank Survey 2025, FX turnover commentary.
- Broad dollar index and weights: Federal Reserve Board, H.10 release, 13 Oct 2026. Dollar's roles: Fed FEDS Note, 18 Jul 2025.
- US Treasury: FX report to Congress, July 2026; press release TG-772, 8 Jul 2010; TIC Table 5, July 2026 data. US ratings: CRS R48209.
- China's 2005 and 2010 reforms: article by PBC Deputy Governor Hu Xiaolian, 30 Jul 2010, BIS Review 105/2010.
- RBI: Half-yearly report on management of foreign exchange reserves, 30 Apr 2026; A.P. (DIR Series) Circular No. 10, 11 Jul 2022.
This material is for training and investor education only. It is not investment, tax or legal advice and is not a recommendation to buy, sell or hold any security or scheme. Examples use assumed figures unless a source and date are shown. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Trustner Asset Services Pvt. Ltd. is an AMFI-registered Mutual Fund Distributor (ARN-286886).