Dollar reserves drop below 56%! European Central Bank officials: Multi-polar currency landscape has taken shape

The member of the European Central Bank Management Committee, Fabio Panetta, explicitly pointed out that the international monetary system is shifting from a dollar-centric dominance to a multipolar configuration. According to data from the International Monetary Fund (IMF), by Q2 2025, the dollar’s share in global foreign exchange reserves will decrease to 56.32%, the lowest in 30 years. Panetta emphasized that the acceleration of global economic digitization and geopolitical multipolarization are reshaping the international monetary landscape.

Three Structural Cracks in the Collapse of Dollar Hegemony

The decline of the dollar reserve share below 56% is not a random fluctuation but the result of the combined action of three major structural forces. First, the scale of U.S. debt has surpassed $36 trillion, accounting for 124% of GDP, a figure far exceeding the 90% safety threshold that economists consider safe. An internal report from the European Central Bank points out that excessive debt monetization is eroding the credit foundation of the dollar, prompting central banks worldwide to reassess the risks of holding dollar assets.

Second, the weaponization of finance has accelerated the de-dollarization process. After the Ukraine crisis, Russia’s $300 billion reserves were frozen—an unprecedented move that demonstrated the political risks within the dollar system. Russia quickly shifted to settlements in renminbi, which now account for over 95%. The BRICS countries are establishing a payment system independent of SWIFT, although progress is slow, the direction is clear. In a speech in Dublin, Panetta did not directly criticize the U.S., but implied that such unilateral sanctions “may be counterproductive.”

Third, the digital wave is rewriting the rules of monetary competition. The European Central Bank is strengthening the euro’s international status through the digital euro project, while China’s digital renminbi (e-CNY) has handled over $200 billion in cross-border transactions during pilot programs. These central bank digital currencies (CBDCs) provide technical possibilities to bypass the dollar system. While they cannot shake the dollar’s dominance in the short term, in the long run they will erode its network effect advantage.

Changes in the Global Foreign Exchange Reserve Pattern (2022-2025)

Dollar: from 58.79% to 56.32% (down 2.47%)

Euro: from 20.5% to 19.8% (down 0.7%)

Renminbi: from 2.8% to 3.2% (up 0.4%)

Gold: from 13.5% to 24% (up 10.5%)

The surge in gold reserves is the most noteworthy data point. Central banks worldwide have been large-scale gold purchases from 2023 to 2025, indicating declining confidence in all fiat currencies. Although this “de-dollarization” trend does not directly threaten the dollar, it weakens the foundation of the entire paper currency system.

The Dual Challenges of the Euro and Renminbi

Panetta pointed out that while the dollar remains indispensable, currencies like the euro and renminbi are showing potential. The EU aims to increase the euro’s share in global reserves to 25% by 2030, which means raising it from the current 19.8% by 5.2 percentage points. The ECB’s strategies include promoting the digital euro, deepening the Eurozone Capital Markets Union, and persuading more countries to use the euro for trade settlement.

The digital euro project is the ECB’s most important strategic weapon. Its interoperability tests with mBridge (a cross-border payment platform initiated by the People’s Bank of China, the Hong Kong Monetary Authority, the Bank of Thailand, and others) have covered 22 countries. This standardization of technology paves the way for the euro’s internationalization in the digital era. Meanwhile, ECB President Lagarde recently stated that U.S. protectionism might offer “good opportunities” for the euro, hinting that Trump’s tariff policies could actually push European trade partners toward euro settlement.

The rise of the renminbi is even faster. Its share in global payments has reached 4.33%, and over 50% of BRI (Belt and Road Initiative) trade settlement is conducted in renminbi. China systematically enhances the international acceptance of the renminbi through bilateral currency swap agreements, establishing renminbi clearing banks, and promoting cross-border digital renminbi applications. Russia’s shift to renminbi settlement exceeding 95% is an extreme case but also indicates that under geopolitical pressure, the rise of alternative currencies may far surpass expectations.

However, the internationalization of the renminbi still faces fundamental constraints from capital account controls. As long as China does not fully open capital flows, the renminbi will struggle to become a true global reserve currency. The euro, though open, is limited by fiscal fragmentation within the Eurozone and lacks a unified debt-issuing entity like the U.S. Treasury. These structural limitations mean that while U.S. dominance is weakening, it cannot be entirely replaced in the short term.

The Cost of Multipolarity: Volatility and Fragmentation Risks

Panetta warns that without coordination, multipolarization could trigger sharp exchange rate fluctuations and cross-border contagion risks. In 2025, the dollar index fell by 8.9% in the first 100 days of Trump’s presidency—its biggest decline ever—triggering capital outflows from emerging markets. Geopolitical conflicts, such as the Ukraine crisis, led to the freezing of $300 billion in Russian reserves, accelerating fragmentation of the payment system.

The report shows that although the dollar still accounts for 89.2% of global forex trading in 2025, the scale of non-dollar currency swap agreements has increased by 30%, raising potential instability. Alternative networks to SWIFT, like mBridge, mitigate the risk of a single system but also increase systemic risk due to the lack of unified regulatory standards and dispute resolution mechanisms.

Panetta emphasizes that managing risks requires clear rules, reliable public anchors, and ongoing international cooperation. He calls for strengthening central bank digital currency (CBDC) bridging under the G20 framework. Additionally, the independence of central banks is crucial; just as Italy’s central bank maintained independence amid gold reserve disputes to prevent political interference from eroding currency credibility.

This prophecy has profound implications for the global economy: emerging markets can reduce reliance on the dollar by leveraging the internationalization of the renminbi to lower trade friction costs; developed economies need to adapt to increased policy autonomy. Overall, multipolarization will promote a fair and stable order, but short-term volatility should be watched carefully.