The dollar's global dominance faces new challenges despite rising public debt and sanctions concerns. Research presented at the Jackson Hole symposium reveals that traditional rivals like the euro and yen have lost ground as reserve currencies. While the Australian dollar, Canadian dollar, and Swiss franc have gained traction, their growth is limited by small economies and shallow markets.

China's renminbi internationalisation has stalled due to capital flow restrictions. Technology may disrupt dollar dominance through blockchain and blockchain solutions, but US capital market size and first-mover advantage in private sector innovations could reinforce existing dominance. Stablecoins, largely dollar-denominated, benefit from US crypto-friendly policies and global demand for dollars.

The interaction between reduced friction and market depth favors dollar-denominated instruments. Emerging markets face greater risks of being overrun by foreign currency assets, threatening monetary sovereignty. Countries resisting new technologies will be most vulnerable; instead, they must develop well-regulated markets, maintain disciplined policies, and promote the rule of law.

Financial innovation could produce three outcomes: true multi-polarity based on strong foundations, greater dollar dominance, or fragmentation. The research was conducted by a Cornell University professor and Brookings senior fellow.