This week, Bloomberg reported that countries most aligned with the United States cut their net purchases of Treasury notes and bonds by more than 60% during the first eight months of 2026. Buying was the lowest for that period since 2021. The figures include governments and private investors and exclude Treasury bills. Bloomberg report
Ray Dalio has warned that reserve currency status allows a country to borrow more than it otherwise could, creating conditions that can eventually undermine the currency. The privilege makes borrowing easier, while the accumulation of debt can weaken the system supporting it. This is a central argument in his work on the changing world order. Dalio’s explanation
That is why a slowdown in Treasury buying deserves examination. If investors become less willing to finance our deficits, the higher returns needed to attract them would increase interest expense and compound our borrowing problem. Reduced buying by aligned countries does not establish that the dollar is losing reserve status, since investors have other reasons to change their allocations. But how would we recognize a weakening of that advantage, and how close might we be?
I explored this with Lyn Alden in July 2024. Her argument was that reserve currencies sow the seeds of their own eventual decline, but powerful network effects can sustain their dominance for decades. She explained why the dollar is so difficult to replace, and why that strength does not eliminate the risks from our growing debt and structural deficits.
How much protection does the dollar’s reserve currency status give us against those risks?
I have edited our conversation for this week’s YouTube video episode and revisited the factors we discussed. Some show increasing pressure; others demonstrate why Lyn did not expect an imminent loss of dollar dominance.
1. Who is buying our debt
In June 2024, foreign official institutions held approximately $3.8 trillion of the $8.2 trillion in Treasuries owned abroad, about 47%. By August 2026, they held $3.76 trillion of $9.33 trillion, about 40%. Foreign holdings increased by more than $1 trillion while official holdings declined slightly. The increase was in private holdings. Treasury’s 2024 survey, latest figures
A central bank maintaining liquid dollar reserves may accept returns a private investor would turn down. As the mix shifts toward buyers more sensitive to price, financing our deficits could require higher yields. Changes in holdings also reflect valuation movements, so these figures are not a measure of purchases alone.
2. The dollar’s share of reserves
The IMF reported the dollar at 58.24% of allocated foreign exchange reserves in the second quarter of 2024, with the euro at 19.75%. Its latest figures put the dollar at 56.70% and the euro at 20.60% in the second quarter of 2026.¹ 2024 figures, 2026 figures
The latest quarter provides clearer evidence about allocation decisions. Dollar holdings were largely unchanged, while the euro gained mostly through active purchasing, with relatively limited effects from exchange rate movements. Reserve managers can reduce their dependence on the dollar by directing new reserves elsewhere without selling their existing dollars. That is consistent with the gradual diversification Lyn described.
3. Gold and Bitcoin
Lyn discussed the appeal of reserve assets that are not another government’s liability. Central banks and other official institutions added approximately 1,092 tonnes of gold in 2024 and 863 tonnes in 2025, according to the World Gold Council’s updated estimates. Buying continued, although the pace slowed. World Gold Council
The increase in gold’s dollar value was more dramatic. The European Central Bank reported gold at 27% of official reserves at the end of 2025, exceeding Treasuries at 22%. Holding gold prices at their end of 2023 level leaves gold at 16% and Treasuries at 26%. The shift reflects both purchases and appreciation, rather than an equivalent transfer from Treasuries into gold. ECB analysis
Bitcoin remains experimental: the Czech National Bank’s $1 million digital asset test portfolio sits outside its international reserves, far short of real adoption by reserve managers. Czech National Bank announcement
4. The network and its alternatives
This was central to Lyn’s case against a rapid loss of reserve status. Borrowers need dollars to service dollar debts, businesses use a currency their trading partners accept, and investors need markets large enough to accommodate their transactions. Each use reinforces the others, including transactions between parties outside the United States.
The latest BIS survey found the dollar on one side of 89.2% of foreign exchange trades in April 2025, up from 88.4% in 2022. Nearly 99% of stablecoins are also denominated in dollars, according to the IMF, extending access through new technology. Countries can seek less dependence on the dollar much faster than they can build equally useful alternatives. BIS survey, IMF discussion
Lyn nevertheless described a future with several reserve assets and more bilateral currency arrangements. Inadequate alternatives protect dollar dominance today, but diversification does not require one successor to replace the entire system.
5. Our debt and interest costs
Debt held by the public increased from approximately $27.5 trillion at the end of the first quarter of 2024 to $31.7 trillion at the end of the second quarter of 2026. Federal interest payments rose from an annualized rate of approximately $1.06 trillion to $1.28 trillion over those quarters. These are national accounts figures, rather than fiscal year net interest expense. Debt data, interest payments
Lyn emphasized that decades of falling rates helped make growing debt manageable. Refinancing at higher rates increases interest expense and adds to what we must borrow. Reserve status helps sustain financing, but it does not prevent financing costs from increasing.
How close are we?
Some pressures Lyn described are visible: reserve diversification, continued gold purchases, a shrinking official share of foreign Treasury holdings, and higher interest costs. Important parts of the dollar’s network remain resilient, and alternatives still face substantial obstacles. The evidence supports her distinction between gradual erosion and an imminent loss of dominance.
Higher yields alone cannot establish a weakening of reserve status. They also reflect expected monetary policy, inflation, and compensation for holding longer maturity bonds. We cannot yet conclude that the dollar has lost its financing advantage.
Borrowing could become more expensive well before the dollar loses its dominant position, increasing debt service and constraining other spending. I will watch whether official holdings keep falling, reserve diversification persists, and alternatives gain ground in borrowing and transactions. Lyn’s explanation provides a framework for interpreting those changes.
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