Will financial innovation dethrone the dollar? - Financial Times

The question of whether financial innovation could erode the dollar's dominance has moved from academic circles to mainstream market debate. The concern is not about a single technology, but about a cluster of developments—central bank digital currencies (CBDCs), stablecoins, and faster cross-border payment rails—that could offer alternatives to the existing dollar-based infrastructure. These innovations promise lower transaction costs and greater efficiency, which, in theory, could reduce the friction that currently locks in the dollar's global role.

However, history suggests that currency dominance is sticky. The dollar's position rests on deep liquidity, rule of law, and network effects that are not easily replicated by technology alone. Innovation can certainly reshape how currencies are used, but it does not automatically change which currency is preferred for trade invoicing, reserve holding, or safe-haven flows.

For market participants, the key is to watch adoption metrics rather than headlines. Are new systems actually gaining traction in cross-border trade? Are central banks diversifying reserves? Are payment corridors bypassing the dollar growing in real volume? These observable trends—not the mere existence of new tools—will determine whether the dollar's status is truly at risk.