“Unlike any period in the past 80 years of dollar dominance”: U.S. sanctions create a ‘paradox’ that drives allies away from the American currency

(SeaPRwire) –   The global drive to reduce reliance on the U.S. dollar continues, but this time it is America’s closest allies leading the shift away from the American currency.

Canadian Prime Minister Mark Carney announced last week that Canada will establish a $25 billion sovereign wealth fund aimed at strengthening domestic infrastructure and decreasing economic dependence on the United States.

This development follows France’s decision to withdraw all 129 tons of gold it held in the Federal Reserve Bank of New York between July 2025 and January 2026. As one of America’s oldest allies, France replaced its existing gold reserves with newly minted bullion and stored them in Paris, realizing a profit of $15 billion from the sale of its original stockpile.

Francois Villeroy de Galhau, Governor of the Bank of France, stated that the move was not politically driven. However, the last time France repatriated its gold was during the period from 1963 to 1966, when it feared that rising U.S. debt would devalue the dollar relative to gold—a concern that ultimately contributed to the collapse of the Bretton Woods system and the end of the gold standard.

Sana Ur Rehman, a market analyst at EBC Financial Group, emphasized that these recent actions mark a significant departure from previous de-dollarization efforts. Unlike past initiatives led by adversaries, today’s moves are being initiated by long-standing U.S. allies. While U.S. sanctions and financial policies have historically been used to preserve American trade supremacy or pressure hostile nations, Ur Rehman argues that such measures are now backfiring and damaging Washington’s relationships with key international partners.

“These are not the actions of enemies,” Ur Rehman wrote in a note published Tuesday. “They are the actions of allies and partners who have watched the United States weaponize the dollar-based financial system and have quietly decided they need to reduce their exposure to it.”

“That shift,” Ur Rehman continued, “driven by allies rather than adversaries, is what makes the current moment different from anything in the past 80 years of dollar dominance.”

De-dollarization has been underway for decades—the share of U.S. dollars in global foreign exchange reserves has declined from 71% in 1999 to just 57% today, marking a 25-year low. However, recent events have drawn greater attention to this trend and its potential implications for the future structure of the world order.

Following the effective closure of the Strait of Hormuz—through which 20% of the world’s oil typically flows—some shipping companies reportedly began paying for passage through the strategic chokepoint in Chinese yuan. The emergence of the so-called petroyuan has led some economists to suggest a weakening of the petrodollar system, which traditionally mandates the use of U.S. currency in international oil transactions. Despite this, the petrodollar remains the dominant medium for global oil trade.

U.S. sanctions and de-dollarization

In the past two decades, the United States has imposed approximately 70 active sanctions affecting more than 9,000 individuals, companies, and economic sectors—more restrictions than those enacted by the European Union, the United Nations, and Canada combined. Economists argue that these sanctions have diminished favorability toward the dollar among some of America’s rivals.

After the U.S. imposed penalties on Russia following its annexation of Crimea in the early 2010s, Moscow entered into a currency swap agreement with China valued at 150 billion yuan (about $25 billion). In 2023, Saudi Arabia and China signed a $7 billion currency swap arrangement. A recent Deutsche Bank report found that while 90% of cross-border trade in North and South America is conducted using the petrodollar, only about 20% of trade invoicing in Europe and 70% in the Asia-Pacific region relies on the U.S. currency.

The Trump administration’s decision to pursue military action in Iran, along with other aggressive trade policies such as tariffs, signaled to other nations that the dollar may no longer be as stable as it once was, according to David Wight, a historian at the University of North Carolina at Greensboro.

“The growing assertiveness of the United States across multiple domains—both in terms of sanctions and military engagement—has prompted many countries to question whether they should remain fully dependent on the dollar if geopolitical tensions escalate,” Wight told [publication name redacted].

The ‘paradox’ of U.S. sanctions

Ur Rehman warned that U.S. allies reducing their holdings of American assets could set off a domino effect, encouraging other countries to follow suit and further erode trust in U.S. financial systems. In January, Emanuel Mönch, former head of research at Germany’s central bank (Bundesbank), suggested that heightened tensions with the U.S. might prompt Germany to relocate its gold reserves from the Federal Reserve Bank of New York. Germany currently holds 1,236 tons of gold in New York, representing roughly 37% of its total reserves.

“Given the current geopolitical climate, it appears risky to store such large quantities of gold in the United States,” Mönch told German financial newspaper Handelsblatt. “For greater strategic independence from the U.S., the Bundesbank would therefore be wise to consider bringing the gold home.”

Ur Rehman is not alone in warning that U.S. sanctions could undermine American economic influence. A November 2025 analysis published by Cambridge University Press suggested that U.S. sanctions might lead to the formation of a bifurcated global economy, splitting the world into two camps: one comprising the U.S. and its allies, and the other including China and BRICS nations. Political scientist Dongan Tan pointed to the increasing adoption of China’s Cross-Border Interbank Payment System (CIPS), now utilized by over 4,900 banking institutions across 187 jurisdictions.

Ur Rehman likened the process of de-dollarization to the fable of the frog in boiling water: by the time U.S. sanctions have caused enough countries to shift away from the dollar, restoring global confidence in the American financial system may become significantly more difficult.

“The erosion is gradual: measured in percentage points per decade rather than per year. But it accumulates,” Ur Rehman said. “And the paradox is clear: Washington cannot simultaneously weaponize the dollar system and maintain universal trust in it. These two goals are fundamentally incompatible.”