Is de-dollarization happening? If so, where and how?
Sarcastically Strange. Very, Very Strange
Understanding Sarcasm
The year in the chart is 2006. That appears to be a typo which should say 2026.
Otherwise, there is nothing strange about the surge in dollars. Indeed, it’s the expected behavior.
Expected Behavior Explanation
The US runs trade deficits every year.
Those dollars accumulate overseas
Other US dollar funding originates overseas.
Why Dollars Stay Offshore
Banks book a huge chunk of these dollars outside the US (London, Singapore, Hong Kong, etc.) because of regulatory arbitrage.
No Fed reserve requirements
No FDIC insurance premiums
Lighter capital/liquidity rules overall
Ability to pay higher rates and lend more flexibly
Those record ~$14 trillion offshore USD liabilities aren’t dollars that left the US and got stuck abroad.
It’s a combination regulatory arbitrage plus global demand on top of persistent trade deficits.
There is no overseas central bank that sets reserve requirements for most of these dollar liabilities.
Understanding the 2008–2016 Weakness
The period from 2008-2016 was a post-Great-Financial-Crisis cleanup phase, not a loss of dollar demand. European banks (big pre-crisis players in the offshore USD market) deleveraged hard after funding squeezes and losses.
Regulatory tightening (Basel III, etc.) raised costs for wholesale dollar funding.
Risk aversion and slow global growth reduced new credit creation.
In 2016 things returned to normal.
A Lacking Explanation
Gromen treats the offshore dollar pool like a giant hoard of physical dollars sitting in foreign bank accounts that will suddenly repatriate and flood into US commodities if oil flows get disrupted.
That’s not how the Eurodollar system actually works.
Moreover, look at the amounts.
US Crude Exports: ~$100 billion
US Crude Imports: ~$140–147 billion.
US remains a net crude importer by value.
Petroleum Exports: $254 billion
Petroleum Imports: $197 billion
Net $57 billion (net total petroleum exporter) in dollar value
Global Scale
Global crude oil market alone trades roughly $3 trillion annually
Broader oil & energy markets are many times larger. $57 billion net is ~0.002% of global oil trade value – negligible.
Even a big Hormuz disruption wouldn’t create meaningful dollars rushing home pressure relative to the $14 trillion offshore pool.
Even assuming there was this giant pool of money buying US energy, the US cannot ramp up production enough to meet demand.
We have a genuine oil production shortage the US cannot accommodate. Gromen is correct this puts upward pressure on interest rates.
Question of the Day
Why would the UAE (or any nation) ever need a USD swap line? If a guy w/a $14B bank deposit needed a home equity line just to pay his bills, what would that say about that guy & that bank?
Gromen should have been able to work out the answers to his questions or find them if not. It’s quite simple.
The Mideast oil producers have ongoing expenses in US dollars
Due to the strait blockage, the oil producers have no dollar income
The swap lines are to avoid a disorderly sale of assets which would put upward pressure on US interest rates
Gromen either doesn’t know the above but should, or he does understand yet posts absurd questions anyway, implying the banks are unsound.
King Dollar Top Line View
Record offshore USD liabilities reflect ongoing US deficits + structural global demand for dollars + offshore banks doing what they do best.
King Dollar isn’t strangely dominating despite everything. It’s dominating because of how the system works.
But what about percenatges?
Dollars vs Percent
“The eurodollar pool growing isn’t dollar dominance — it’s dollar credit and obligations expanding on the private side. Official reserve share is at 56.77% per IMF COFER, down from 64.69% in 2017. Gold +38% YoY is the market paying for an alternative. The broader dollar basket is −3.5% YoY. Eurodollar deposits measure private-credit plumbing. Reserves measure official trust. They tell different stories — and right now they’re telling opposite ones.“
I agree with Macro Sentinel that percentages provide a needed perspective.
The absolute levels are expected. But the percentage shifts add important nuance.
Flashback October 25, 2017: Gold-Backed Petro-Yuan Silliness: Reserve Currency Curse?
CNBC reports China has grand ambitions to dethrone the dollar. It may make a powerful move this year.
Yuan pricing and clearing of crude oil futures is the “beginning” of a broader strategic push “to support yuan pricing and clearing in commodities futures trading,” Pan Gongsheng, director of the State Administration of Foreign Exchange, said last month.
To support the new benchmark, China has opened more than 6,000 trading accounts for the crude futures contract, Reuters reported in July.
Yawn.
Repeat after me: It’s meaningless what currency oil is quoted in. Once you understand the inherent truth in that statement, you immediately laugh at headlines like that presented on CNBC.
Nine years later the same people are repeating the same BS.
Drip, Drip, Drip Dollar Avoidance
This discussion fits into my dollar avoidance theory.
Avoiding dollars is very difficult, but over time we have a steady loss of desire in holding dollars.
Dollar avoidance shows up in percentages rather than absolute amounts.
Three Relevant Posts
April 14, 2026: The Petrodollar Theory Is Dead. It Never Made Sense to Begin With
Oil ranks among the top traded commodities by value, but it represents a modest slice of total global trade (goods + services).
Global Trade Total: Roughly $35 trillion (2025 UNCTAD estimate).
Oil’s Share: Roughly $1.31 trillion for crude (OEC data for 2024) That’s about 3.7 percent of total trade.
Mideast Assignment: Let’s generously assign 60 percent of that $1.31 trillion to Mideast petroyuan. The Mideast petroyuan would then be 2.2 percent of total global transactions that was a previously mix of dollars and euros.
The dollar share of global transactions as measured by payments is 50 to 60 percent. That would make the dollar-related transaction hit 3 to 4 percent.
Q: That’s it?
A: Yes. Even if 100 percent of all Mideast oil transactions were priced in yuan, settled in yuan, and reserves held in yuan, global US dollar transactions would only decline by 3 to 4 percent.In contrast to the theories of Brown and Choyleva, I see a continued slow drip abandonment of dollars.
Slow Drip Abandonment
Trump’s actions have increasingly alienated US allies. Countries are genuinely sick of Trump, for the right reasons.
The US has weaponized the US dollar (both Trump and Biden did this). Countries are fearful of getting caught in the crossfire.
Tariffs and tariff avoidance.
Trump has turned the US into an unreliable trading partner with his repeat threats, contradictions, and constant position shifts.
America First has become a “My way or no way” set of demands, not negotiation tactics.
Trade with the US is down and heading further down as a direct result of points 1 through 5.
Importantly, it’s not just petrodollars. There is pressure on all dollar-denominated transactions.
There’s a global incentive to shift away from dollars, when and where possible.
When and where possible is the key component of the slow drip abandoment idea. Dollar avoidance is not that easy or it would have happened in a major way already.
April 20, 2026: What Does CFR’s Brad Setser Say About Petrodollar Myth and Reality?
Setser – Pricing Unit
It was never quite clear why oil pricing mattered quite as much as some claim.
It isn’t hard to pay for oil in a global currency like the euro, even if the underlying contract is priced in dollars.
There is a deep and liquid market for converting euros [Mish: or Yen etc.] into dollars, and a firm aiming to lock in the euro price of oil 3 months forward can buy oil forward in dollars and dollars forward with euros, thereby locking in a euro [Mish: or yen] price.Mish – Settlement
Currencies are fungible. Something immediately settled in dollars does not have to remain in dollars.
What does matter is where a nation holds its reserves. But that is largely forced by trade surpluses, not conscious decisions.
Setser – Settlement
Dollar settlement is a problem for countries that are sanctioned by the U.S. and the EU and for frontier economies that cannot settle their oil bill in local currency, but it hasn’t required most European oil importers to build up big stocks of dollar reserves just to pay for oil.
What has mattered at times is how the big oil exporters manage their surplus funds when there is a surge in the global price of oil.
Yet the myths around petrodollars persisted long after they had lost most of their substance: the 1970s deal between Saudi Arabia and the United States to price oil in dollars never dictated the accumulation of dollar reserves in East Asia, and it should be clear by now that the U.S. commitment to defend the Saudis is based on much more than dollar pricing of oil.
Mish – Oil Transactions
Oil ranks among the top traded commodities by value, but it represents a modest slice of total global trade (goods + services).
Global Trade Total: Roughly $35 trillion (2025 UNCTAD estimate).
Oil’s Share: Roughly $1.31 trillion for crude (OEC data for 2024) That’s about 3.7 percent of total trade.
Mideast Assignment: Let’s generously assign 60 percent of that $1.31 trillion to Mideast petroyuan. The Mideast petroyuan would then be 2.2 percent of total global transactions that was a previously mix of dollars and euros.
The dollar share of global transactions as measured by payments is 50 to 60 percent. That would make the dollar-related transaction hit 3 to 4 percent.
Q: That’s it?
A: Yes. Even if 100 percent of all Mideast oil transactions were priced in yuan, settled in yuan, and reserves held in yuan, global US dollar transactions would only decline by 3 to 4 percent.In contrast to the theories of Brown and Choyleva, I see a continued slow drip abandonment of dollars.
Setser – Oil Transactions
The Saudis aren’t going to generate a big surplus to reinforce the postulated petrodollar system with oil at around $100—not when their balance of payments breakeven (on around 7 million barrels a day of exports) is over $90 a barrel.The GCC countries and Norway do still have a significant surplus, but that oil surplus had fallen to around $200 billion dollars or so in 2025 ($35 billion in Kuwait and the UAE, $25 billion in Qatar, and around $50 in Norway; the Saudi deficit $33 billion.
That is tiny relative to the $1.5 trillion surplus of “manufacturing Asia”—the buildup of dollars in the Chinese state banks and the buildup of offshore dollars in Hong Kong and Singapore from Chinese ex
April 25, 2026: Mideast Dollar Funding Panic, Bessent Portrays it as Strength
Comments on Bessent
Bessent and Mideast Oil Producers are in semi-panic mode.
There is a run on various countries who need dollars because none is coming in from oil.
Bessent presents this as routine. The mechanism may be. But the extent isn’t.
Here’s the key statement: … in
hypotheticalstress scenarios, preventing disorderly sales of U.S. assets. That is not hypothetical. It is the fear.A big lie (discussed below): Extending permanent swap lines can be a major first step in creating new U.S. dollar funding centers in the Gulf and Asia.
Bessent’s Two Lies
Extending permanent swap lines can be a major first step in creating new U.S. dollar funding centers in the Gulf and Asia.
Dollar dominance and reserve currency status are strengthened by constant long-term initiatives, including countering the growth of problematic, alternative payment systems.
The idea that the Mideast will become a dollar funding center is a joke.
Alternative payment systems are actually little threat now. However, the idea that that the US has constant long-term initiatives to strengthen the dollar is also a joke.
The fact is, the world is desperate to get off dollars. But the second fact is that is extremely difficult to do so given massive and persistent trade deficits and fiscal deficits.
That combination is what’s flooding the world with dollars. This is why I proposed a slow drip theory.
China Flunks Five of Five Reserve Currency Tests
Currency Requirement: If China wants to assume the role of having the world’s reserve currency, something I highly doubt actually, it will need to have a free-floating currency.
Bond Market Requirement: If China wants to assume the role of having the world’s reserve currency, it will need to have a very large, if not largest, freely trading global bond market.
Balance of Trade Requirement: China would have to be willing to run trade deficits instead of seeking trade surpluses via subsidized exports.
Reserve Currency Curse Requirement: Having the world’s reserve currency is a curse because it necessitates a willingness to have endless trade deficits . Mathematically, as long as China runs surpluses, foreign holding of yuan will not match foreign holding of dollars. A mathematical corollary to having massive trade deficits year in and year is the need to have a very large, freely trading bond market. Adding gold into the yuan-futures mix does not alter the picture other than to add costs.
Capital Controls Requirement: The currency must move freely without capital controls.
No fundamental requirements have changed. Yet, here we go with “Déjà Vu all over again” on the petroyuan discussion.
There are long-term consequences to Trumps threats. One of those consequences is US dollar avoidance.
But avoiding dollars is very difficult. It shows up in percentages, not hard dollar amounts.
There is nothing on the horizon to change this. The yuan is not about to displace the dollar as a global reserve currency. And China for all its bluster, wouldn’t want that anyway.
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