The erosion of US dollar hegemony is now quantifiable. According to Bloomberg macro strategist Simon White, under the impact of the US-Iran war, the value of gold reserves held by global central banks has for the first time exceeded the size of US dollar asset reserves adjusted for valuation. This milestone occurred in the era of Bretton Woods II and is the first such instance since the International Monetary Fund (IMF) began publishing related data in the late 1990s.
It is noteworthy that previous market reports of "gold reserves surpassing dollar reserves" referred to the IMF's nominal dollar reserve figure of approximately $7.5 trillion, which includes accumulated interest income from dollar assets. The current analysis uses a different methodology: valuing dollar reserves after stripping out interest income, resulting in a figure of about $4 trillion, just over half of the nominal value. Comparing this adjusted figure to gold reserves provides a more equivalent benchmark, as gold itself generates no interest. On this basis, the surpassing of dollar reserves by gold marks another substantive turning point in the dollar's dominance.
Even if a US-Iran ceasefire holds, Simon White suggests the damage inflicted on the dollar system by this conflict is likely irreversible. The decline of the dollar will not be a sudden collapse at a dramatic moment, but rather a gradual erosion through a series of milestones, similar to the loss of reserve currency status by the British pound.
Understanding this historic shift requires clarifying the difference in data metrics. The IMF's reported global nominal dollar reserve size is approximately $7.5 trillion, a figure that includes years of accumulated interest income on dollar assets held by central banks. However, since gold yields no interest, a direct comparison with nominal dollar reserves is not equitable. Using the Bloomberg US Treasury Index, Simon White stripped interest income from the nominal reserves to arrive at a valuation-adjusted dollar reserve size of about $4 trillion. Measured on this basis, the value of global central bank gold reserves has surpassed dollar reserves for the first time, breaking the pattern established under Bretton Woods II.
This adjusted figure better reflects the "active demand" for dollar assets by central banks. Data shows that since official dollar reserves peaked in 2014, the value of adjusted dollar reserves has fallen by approximately 15%. Meanwhile, the physical gold holdings (in tonnes) of global central banks, predominantly from emerging markets, have increased by about 15% over the same period. White argues this contrast is hard to refute: the actual demand for dollar assets from central banks is substantively weakening.
The erosion of the dollar's reserve status is also evident in the operational behavior of central banks. Reserve managers historically exhibited counter-cyclical trading in dollars—buying on dips and selling after rallies. However, this pattern has subtly changed. Despite a sustained period of weaker dollar exchange rates in recent years, there has been no significant increase in holdings by reserve managers, a notable departure from historical patterns.
The core logic supporting the dollar system is the implicit bargain of "Pax Americana": trade surplus countries recycle their dollar earnings into dollar assets, providing low-cost financing for the US, which in return provides security guarantees and global system stability. This "dollar revolving door" mechanism is under increasing strain. For example, the sensitivity of Saudi Arabia's current account surplus to oil prices has significantly decreased in recent years, with rising domestic demand for diversified investment reducing the surplus funds available for recycling into dollar assets. More fundamentally, if the US is perceived as an unreliable security guarantor, the motivation for countries to use dollars in trade and recycle dollar earnings back to the US will continue to weaken.
The energy price shock from the US-Iran war squeezes the dollar system from both supply and demand sides. Although oil and gas prices retreated after ceasefire news, they remain far above pre-war levels. For energy importers, persistently high energy costs force them to raise dollars by liquidating assets, increasing selling pressure on dollar assets. Simultaneously, some energy exporters face cash flow pressures due to disrupted product sales. This two-way squeeze was reflected in market behavior during the war: gold and US Treasuries exhibited "risk-on" characteristics—rising when tensions eased and falling when they escalated—deviating from their traditional safe-haven attributes.
Gold reserves surpassing adjusted dollar reserves is just one signal of the dollar's declining dominance; other indicators are also flashing warnings. Data shows the dollar's share in global trade settlement has fallen to around 40% in recent years, with the shares of the euro and renminbi rising; the proportion of cross-border loans denominated in dollars has fallen to 60% of the global total; central bank holdings of US Treasuries are now lower than their gold holdings; and the dollar's share in global foreign exchange and gold reserves is declining rapidly.
Simon White points out that the erosion of the dollar's status will not happen overnight. The current lack of viable alternative reserve and funding assets objectively provides a buffer for the dollar. However, he emphasizes this does not mean the problem doesn't exist; rather, "the tire has been punctured, and air is still leaking." In his view, following the US-Iran war, a consensus has formed among market participants: the rules of the game have changed. When "reducing dollar asset holdings" becomes the rational choice for an increasing number of actors, and this judgment itself becomes public knowledge, the continued decline of dollar dominance will be difficult to stop, and the long-term bullish case for gold will be further reinforced.