A recent indicator measuring the activity in the interbank foreign exchange market indicates that the ongoing conflict in Iran has reinforced the global trade dominance of the US dollar.
According to reports from Bloomberg, the latest data from SWIFT (Society for Worldwide Interbank Financial Telecommunication), a global financial information service institution, shows that the share of USD in international transactions rose to a historic high of 51.1% in March, up from 49.2% a month earlier, marking the highest share since 2023. Following the USD, the Euro accounts for approximately 21% of transactions, followed by the Pound, Yen, Renminbi, and Canadian Dollar.
In a report released on April 21 by Joyce Chang and her research team at J.P. Morgan, it was pointed out that despite a weakened US dollar last year, its status as a reserve currency or base currency in capital markets has not significantly declined.
While the US dollar index fell by 8% last year to a four-year low, since the outbreak of the Iran conflict at the end of February, the dollar index has risen by approximately 0.9%. Last month, the foreign exchange market witnessed unusually sharp volatility due to the impact of the US strikes against Iran, leading to global risk asset sell-offs, soaring oil prices, and increased demand for safe-haven assets like the US dollar.
Most global oil transactions are denominated in USD, therefore with rising energy prices, the demand for transactions in USD also increases. The volatility measure for the USD for the coming month surged to a 10-month high in March, but as investor focus shifted to prospects of a US-Iran ceasefire negotiation, the volatility eased, and the USD fell by about 1.4% in April.
The report by Joyce Chang suggests that despite the ongoing uncertainty, the market remains optimistic about President Trump’s willingness to end the conflict with Iran, deeming the probability of conflict escalation to be extremely low. Better-than-expected corporate earnings, growth in artificial intelligence capital spending, and the resilience of US consumers in dealing with higher oil prices so far have provided hope and confidence for businesses.
The report notes that since President Trump initiated comprehensive tariff measures early last year, investors have been closely monitoring the international performance of the US dollar and the overall attractiveness of US assets. Currently, there seems to be a broader trend towards diversification rather than complete de-dollarization, and data does not show a widespread move away from the USD.
SWIFT data does not cover the entire foreign exchange market, which has a daily trading volume of up to $95 trillion. Since the outbreak of the Russia-Ukraine war in 2022, SWIFT began excluding several major Russian banks. While SWIFT measures trading activities by currency, the data does not reflect the potential direction of interbank fund flows.
The latest annual report released by SWIFT last year indicated that approximately 13.4 billion transaction messages were sent through SWIFT in 2024, surpassing the previous year’s 11.9 billion transactions. China has its own cross-border interbank payment system called CIPS, which includes instant messaging tools similar to SWIFT, but progress in the global banking sector with CIPS has been slow since 2015. Meanwhile, in March this year, the Renminbi’s SWIFT transaction volume share rose to 3.1%, though it still remains below the historical high set in 2024.