It’s not just your imagination, even if the narrative is (mostly) imaginary: De-dollarization is a trending topic.

You can take that both figuratively and literally. The market discussion and attendant tsunami of financial media coverage kicked into high gear early last year, when Russia’s reserves were frozen, and the social media cacophony, particularly on Elon Musk’s Twitter, took off in earnest starting in 2023.

Most recently, soundbites from Lula’s state visit to China were tailor-made for various de-dollarization narratives, and proponents didn’t miss the opportunity. The figure below, from Goldman, is remarkable.

Given the extent to which the de-dollarization meme serves the interests of some foreign governments known to leverage Western social media for propaganda purposes, and given the very real possibility that recent staff cuts and policy changes at Twitter have created opportunities for state actors to exploit the platform, I think it’s fair to suggest that some of the “conversation” might be precipitated by those with an interest in sowing doubt about dollar-based trade and finance.

It’s no secret that I’m wary of the de-dollarization narrative, but more importantly, I fear that the perpetuation of the story is pulling in unwitting accomplices, something I discussed at some length here. The best conduits for foreign influence campaigns are often those who are completely and genuinely unaware of their role. In the context of the de-dollarization narrative, I worry that innumerable voters in Western democracies are caught up in autocratic propaganda via the social media echo chamber.

Beyond those sorts of concerns, the other reason to be wary of these narratives is that they aren’t generally true. Some time ago, a passerby sent me an email suggesting that Xi Jinping’s cameo at December’s GCC gathering was “proof” that one well-known, newly controversial, former Treasury advisor and Fed staffer was “more right” than I was about the petroyuan and de-dollarization in general. I didn’t bother to respond because there wasn’t anything to say. Xi had dinner in Riyadh and the subject of invoicing oil in yuan came up. So what? What else were they going to talk about? Iran, obviously. And something did come out of that. But what’s the progress on yuan-based trade? The same goes for Lula in Beijing last week. Yes, he talked about a BRICS currency. But, again, so what? Let me know when there’s tangible progress.

The US comprises just a tenth of global trade, but around half of all trade is invoiced in dollars. What does that tell you? As the BIS noted recently, those shares “have hardly changed since 2019.” As much as 90% of spot, forward and swaps has the USD in one leg. It’ll take more than autocratic preening and tweets to upend that.

The yuan is involved in just 7% of global transactions. And it’s not freely traded. The yuan-based system that so many propagandists (witting and unwitting) swear is just around the corner, is in some sense a logistical impossibility, unless you think Xi is going to wake up one day and liberalize.

What has changed is the share of the dollar in official reserves. But there are a lot of factors at work there, including, tellingly, dollar strength. “Over the last 10 years, most of the decline in the dollar’s reserve share has been a consequence of typical investment behavior in a world of very low yields, with a corresponding reach for extra returns in AUD, CAD, CNY and even a bit of extra yield through JPY swaps,” Goldman’s Kamakshya Trivedi said late Friday. “More recently, part of the dollar’s declining share can likely be attributed to regular market forces as Treasurys fell and Asian central banks sold their dollar holdings to counter the stronger dollar last year.”

De-dollarization is, for all intents and purposes, a myth. To regular readers, it probably seems like I reiterate this point more often than necessary, but as the first figure above (the Goldman chart) makes abundantly clear, the message (whether it comes from me, or those with exponentially larger followings) apparently isn’t getting through.

After alluding to Lula’s remarks in China and the petroyuan meme, Goldman’s Trivedi underscored the point. “Renminbi-related headlines in Brazil and speculation about CNY commodity trading have given rise to questions about whether there will be a wider fallout from G7 sanctions on Russia’s reserves last year, and the regional banking stresses and approaching debt limit might cause more countries to diversify,” Trivedi wrote. Then, this:

While that is a clear risk if the US abuses its ‘exorbitant privileges,’ we see no evidence of that in the data so far (for example, even Brazil’s rising share of CNY reserves replaced CAD, not the dollar), and our strong view is that there is currently no real contender. There are a number of high hurdles to attain the top status of the global transaction currency, including capital market depth (and a reinforcing trust in the legal framework and continuous access), trade invoicing and currency management systems. Relatedly, regional currency pacts have a limited effectiveness and clear drawbacks. All of these factors are interlinked, which is why there is a lot of inertia in reserve currency status. So far, and likely for a long time to come, attempts at de-dollarization will remain contained and constrained.

To be clear, I understand the fascination with de-dollarization. There was a time in my life, long ago, when I might’ve reveled in such narratives myself. I get it. I get why the story is interesting to so many people. But I’d exhort market participants, would-be macro mavens and particularly geopolitical observers to understand: It’s just a story.

For better or worse, the world will run on dollars for the foreseeable future. Unless there’s a complete dissolution of American society (not out of the question, unfortunately), a global military conflict that the US loses (also not out of the question) or some technological advance that forces a complete rethink of how we conduct commerce around the world (Bitcoin might be a decent “outside money” diversifier, but crypto more generally failed last year’s stress test) it’ll likely be another generation before we can declare a real sea change.