Several factors have put the dollar's status as the world's dominant currency under fresh scrutiny. Apart from the rivalry with China, the fallout from the war in Ukraine and the U.S. debt ceiling, Russia's exile from global financial systems last year also fuelled speculation that non-U.S. allies would move away from dollars.
According to International Monetary Fund data, the dollar share of official FX reserves fell to a 20-year low of 58% in the fourth quarter of 2022. The dollar share of central banks' foreign reserves in the final quarter of 2022 did hit a two-decade low, but the move has been gradual and it is now at almost a similar level as 1995.
Central banks put rainy day funds in dollars in case they need to prop up exchange rates during economic crises. If a currency weakens too far against the dollar, oil and other commodities traded in the U.S. currency become expensive, raising living costs and fuelling inflation.