The “lasting harm” of war to the dollar system—global central bank gold reserves “surpass” dollar reserves for the first time

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The erosion of dollar hegemony is now appearing in a quantifiable manner.

On Friday, Bloomberg macro strategist Simon White wrote that, under the impact of the US-Iran war, the value of gold reserves held by global central banks has, for the first time, surpassed the size of dollar reserves (after valuation adjustments)—this milestone event has occurred in the era of Bretton Woods II, and it is the first time since the International Monetary Fund (IMF) began releasing relevant data in the late 1990s.

It is worth noting that the market has previously reported several times that "gold reserves have surpassed dollar reserves," but the number quoted then was the nominal dollar reserve figure published by the IMF, about $7.5 trillion, which includes the accumulated interest earnings from dollar assets. The analysis this time is different: it removes the interest earnings from dollar reserves, adjusts for valuation, resulting in a figure of about $4 trillion—only a little more than half the nominal amount.

Comparing these adjusted figures to gold reserves provides a fairer basis for comparison, as gold itself does not generate interest. With this adjustment, gold reserve value has, for the first time, surpassed dollar reserves, marking another substantive turning point in the dominance of the dollar.

Even if the US-Iran ceasefire can be maintained, Simon White believes the damage from this conflict to the dollar system is likely already irreversible. The decline of the dollar will not be a dramatic sudden collapse at one singular moment, but rather, like the pound losing its reserve currency status, a slow erosion through a series of milestones.

After Adjustment, Dollar Reserves are Surpassed by Gold for the First Time—Calculation Method Is Key

Understanding this historic shift first requires clarifying the difference in data metrics.

The IMF’s published nominal size of global dollar reserves is about $7.5 trillion, a figure that includes many years of accumulated interest earnings from dollar assets held by central banks. However, gold produces no interest; comparing nominal dollar reserves with gold reserves directly is not fair.

Simon White uses the Bloomberg US Treasury Index to remove interest earnings, calculating the valuation-adjusted dollar reserves at about $4 trillion. With this standard, the value of global central bank gold reserves has, for the first time, surpassed that of dollar reserves, breaking a pattern established since Bretton Woods II.

This adjusted number better reflects the "active demand" for dollar assets by central banks. Data shows that since the peak of official dollar reserves in 2014, the adjusted value of those reserves has fallen by about 15%; meanwhile, the global central bank physical gold holdings (measured in tons, mostly by emerging markets) have increased by about 15% over the same period. Simon White believes this contrast is hard to dispute: the real demand for dollar assets by central banks is materially weakening.

Changes in Reserve Management, Dollar "Revolving Door" Mechanism Damaged

The erosion of the dollar's reserve status can already be seen in the actions of central banks.

Reserve managers used to countertrade the dollar—buying when it fell, selling when it rose. But this pattern has quietly changed. In recent years, despite the dollar’s sustained decline, reserve managers have not obviously increased their holdings, which marks a clear deviation from historical norms.

The core logic supporting the dollar system is the so-called “Pax Americana” implicit contract: surplus countries recycle their dollar earnings into US assets, providing cheap financing for America; in return, the US provides security and global system stability. This “dollar revolving door” mechanism is coming under increasing pressure.

Take Middle Eastern oil producers as an example: the sensitivity of Saudi Arabia’s current account surplus to oil prices has obviously decreased in recent years, while domestic investment diversification needs have risen, reducing the excess funds available for recycling into dollar assets. More fundamentally, if the US is no longer seen as a reliable security partner, the motivation for countries to use dollars in trade and recycle dollar earnings back to the US will continue to diminish.

Energy Price Shocks Add Pressure to the Dollar System

The energy price shocks caused by the US-Iran war are putting pressure on the dollar system from both supply and demand sides.

After the ceasefire announcement, oil and gas prices have moderated somewhat, but remain significantly higher than before the conflict. For energy-importing countries, persistently high energy costs force them to liquidate assets to raise dollars, intensifying selling pressure on dollar assets. Meanwhile, some energy exporters face cash flow problems because their product sales are hindered.

This two-way squeeze has appeared in market behavior during the war: gold and US Treasuries both showed "risk asset" characteristics—rising as tensions eased, dropping as they increased—departing from their traditional "safe haven" roles.

Resonance of Multiple Indicators, Dollar Dominance Fading Faster

Gold reserves overtaking adjusted dollar reserves is only one signal of the dollar’s waning dominance; other indicators are also sending warnings.

Data shows that the share of global trade settled in dollars has recently fallen to around 40%, while the shares of the euro and renminbi have increased; the percentage of cross-border loans denominated in dollars has dropped to 60% of the world total; the scale of US Treasuries held by central banks is now less than their gold holdings; and the proportion of dollars in global foreign exchange and gold reserves is falling rapidly.

Simon White notes that the dollar’s decline will not happen all at once; there is currently no other reserve or funding asset that can replace the dollar, which objectively gives it some buffer. But he stresses this does not mean the problem doesn’t exist, only that "the tire is already punctured, and air is still leaking."

In his view, after the US-Iran war, market participants have reached a broad consensus: the rules of the game have changed. Once "reducing dollar assets" becomes the rational choice for more and more people—and that judgment itself becomes public knowledge—the ongoing decline of dollar dominance will be hard to stop, and the long-term upward logic for gold will likewise be further strengthened.

Risk Warning and DisclaimerThe market carries risk, and investment should be done cautiously. This article does not constitute personal investment advice, nor does it take into account specific users’ investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article fit their particular circumstances. Any investment based on this is at your own risk. ```