Treasury Secretary Janet Yellen testifies before the House Financial Services Committee during a hearing regarding the state of the international financial system at the Capitol in Washington, Tuesday, June 13, 2023. (AP)

As the global de-dollarization movement gains traction, US Treasury Secretary Janet Yellen says Washington should expect a gradual reduction in the dollar's share of global reserves.

Yellen made the comments during a hearing of the US House Financial Services Committee on Tuesday, in response to queries about the potential of de-dollarization caused by further US sanctions. "We should expect over time a gradually increased share of other assets in reserve holdings of countries — a natural desire to diversify," she said.

She also recognized that implementing sanctions has prompted some governments to seek alternate currencies. However, she asserted that no alternatives could replace the dollar, emphasizing that "the dollar is far and away the dominant reserve asset," adding that “we have deep liquid open financial markets, strong rule of law, and an absence of capital controls that no country can replicate. It will not be easy for any country to devise a way to get around the dollar."

Yellen also expressed alarm about the US debt limit situation, saying it affects worldwide confidence in the state's capacity to honor its financial obligations, harming the dollar's reputation. Her remarks come amid rising efforts by many countries to wean themselves from reliance on the US dollar and trade in their own currencies.

All indicators reveal that the amount of US dollars held in reserves by non-US central banks has fallen to its lowest level. The weaponization of the US dollar, as well as US sanctions imposed on perceived adversaries, has made other countries apprehensive of using the greenback in financial dealings. As a result, countries such as Iran and Russia are pushing for the abolition of the dollar.

China, a significant ally of Iran and Russia, as well as other large Asian economies such as India and Malaysia, have shown support for such de-dollarization efforts.

Moreover, the de-dollarization move was fast-tracked when the US Treasury Department decided to confiscate Russia's US dollar foreign exchange reserves. This has caused other countries to reconsider keeping their financial reserves in US dollars and to conclude that their country could be the next to be harassed and vilified if it does not abide by US foreign policy. They could face secondary sanctions at the very least.

Many international organizations have also increased their multilateral discourse on the matter, which is noteworthy given that the US has lost favor with so many countries, the majority of which are drifting eastward or away from the US.

The BRICS states have also discussed the creation of a BRICS-specific multilateral wallet and currency.

The United States, the most indebted country in history, is also experiencing a sovereign debt crisis, raising the possibility of the US dollar collapsing.