In Part 1, we traced how the dollar became dominant through three strategic moves — Bretton Woods, the Nixon Shock, and the petrodollar arrangement. Each time the old foundation crumbled, America engineered a new one.

Now the question: is a fourth move coming? And who’s trying to make sure it fails?

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Replace the dollar or get around it?

My guess here is - de-dollarization commentary gets wrong: the challengers aren’t trying to replace the dollar with something else. They’re trying to route around it.

No one is building a new global reserve currency. They’re building escape routes — bilateral agreements, regional settlement systems, sanctions-proof alternatives. The goal isn’t a new monetary hegemon. The goal is optionality.

This distinction matters. A frontal assault on dollar dominance would fail. The network effects are too strong, the infrastructure too deep. But a gradual erosion? A world where the dollar is still #1 but no longer the only option? That’s already happening.

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The Challengers: Where They’ll Win and Where They’ll Lose

China and the Yuan

China has been methodical. Since 2015, they’ve built an alternative payments infrastructure piece by piece.

What they’ve built:

• CIPS (Cross-Border Interbank Payment System) — their SWIFT alternative, now connected to 1,400+ institutions in 100+ countries
• Bilateral currency swap lines with 40+ central banks
• Petroyuan agreements — buying Russian oil, Iranian oil, some Saudi oil in yuan
• Digital yuan (e-CNY) — the most advanced major-economy CBDC

Where they’ll win:

China will dominate regional settlement. ASEAN countries increasingly settle trade with China in yuan — it’s simply easier when China is your largest trading partner. Belt and Road projects are yuan-denominated. African infrastructure loans are repaid in yuan. Central Asian energy deals bypass the dollar entirely.

For sanctioned nations, the yuan is already the primary alternative. Russia now holds more yuan than euros. Iran and Venezuela have no choice. This is a growing club.

Where they’ll lose:

Capital controls kill the yuan’s reserve currency ambitions. No treasury manager wants to hold large yuan reserves when Beijing can restrict outflows at any moment. You can’t be a reserve currency if people can’t freely leave.

There’s also no deep, liquid bond market. US Treasuries are the world’s safe asset because you can buy or sell $50 billion without moving the price. Chinese government bonds don’t offer that liquidity.

And there’s political risk. Xi can freeze your assets too — just ask Jack Ma. The dollar’s issuer is unpredictable; the yuan’s issuer is unpredictable and opaque.

Verdict: Regional winner, global also-ran. The yuan will capture 5-8% of reserves by 2035. It won’t capture 20%.

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BRICS+ and the Fantasy of a Common Currency

Every BRICS summit produces headlines about a new currency to challenge the dollar. Every headline is premature.

What they’re doing:

• New Development Bank (alternative to World Bank/IMF)
• Talk of a common settlement unit (maybe gold-backed, maybe basket-weighted)
• Bilateral trade in local currencies (India-Russia in rupees, China-Brazil in yuan)

Where they’ll win:

Bilateral settlement between members is genuinely growing. India paid for Russian oil in rupees and dirhams throughout 2023-2024. China and Brazil now settle some trade in yuan. These are real flows, real infrastructure.

The symbolism also matters. BRICS+ represents the global majority frustrated with dollar hegemony. That political momentum creates pressure, even if the financial architecture lags.

Where they’ll lose:

A currency needs trust. BRICS is a bloc of convenience, not shared interests.

India and China are strategic rivals — they had a border war in 2020. Brazil’s economy is a fraction of China’s. Russia is a sanctions-crippled petro-state. South Africa is economically marginal. The new members (Iran, UAE, Ethiopia, Egypt) add political diversity, not financial depth.

There’s no shared fiscal policy, no common central bank, no integrated bond market. The euro took decades to build with far more aligned economies — and it still nearly collapsed in 2012.

A BRICS currency is a talking point, not a project.

Verdict: Useful for bilateral workarounds. Irrelevant as a dollar replacement.

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The Euro: Permanent Runner-Up

The euro is the only currency with the scale to rival the dollar. It hasn’t, and probably won’t.

What it has:

• 20% of global reserves (stable for two decades)
• Deep, liquid bond markets (though fragmented by country)
• Rule of law, property rights, no capital controls
• Already the #2 invoicing currency for global trade

Where it’ll win:

The euro is the safe alternative for those who want to diversify from dollars but don’t trust Beijing. European companies increasingly invoice in euros. Some commodity contracts (especially gas) have shifted to euro pricing.

For Russia sanctions, the euro was frozen alongside the dollar — but that’s made some countries see the euro as “just as bad” while others see it as “the next best option.” It’s complicated.

Where it’ll lose:

No fiscal union means no Eurobond — no single safe asset equivalent to Treasuries. German bunds are safe but small. Italian bonds are large but risky. The market is fragmented.

Political fragmentation is worse. Hungary blocks sanctions. Italy flirts with euroskepticism. France and Germany can’t agree on anything. The ECB isn’t the Fed — it can’t act as global lender of last resort because it’s politically constrained by 20 different governments.

The euro is structurally capped. It’s the best alternative, but it can’t become the primary.

Verdict: Stable at 20-22%. The euro is a complement to dollar dominance, not a threat to it.

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Gold: The Ancient Hedge Returns

Central banks bought more gold in 2022-2023 than in any year since 1950. This isn’t nostalgia. It’s strategy.

What’s happening:

• China added 300+ tonnes in 2023 alone (officially — likely more unreported)
• Russia, Turkey, India, Poland, Singapore all major buyers
• Gold’s share of reserves has doubled from ~10% (2015) to ~20%+ (2024)

Where gold wins:

Gold is the ultimate sanctions hedge. You can’t freeze a gold bar sitting in your own vault. You can’t debase it through money printing. You can’t cut it off from SWIFT.

For countries worried about dollar weaponization, gold is insurance. Not a transaction currency — but a store of value that doesn’t depend on American goodwill.

Where gold loses:

You can’t pay for LNG imports with gold bars. Settlement is slow, physical, and expensive. There’s no yield. It’s illiquid at scale.

Gold is a hedge, not an infrastructure. Countries are buying it to reduce exposure to the dollar, not to replace the dollar in daily commerce.

Verdict: Reserve diversification continues. Gold goes from 20% to maybe 25-30% of reserves. But it’s savings account, not checking account.

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Stablecoins: Dollar Dominance by Accident

Here’s the irony: the biggest “threat” to the dollar might actually strengthen it.

What’s happening:

• Tether (USDT) processes more transaction volume than Visa
• Circle’s USDC is used for remittances across Latin America, Africa, Southeast Asia
• Dollar-backed stablecoins are the de facto currency of crypto markets

Where they’ll win:

Stablecoins are dollarizing the world faster than the Fed ever could. A farmer in Nigeria holding USDT on his phone has dollar exposure without a bank account. A Venezuelan family receiving remittances in USDC bypasses both their broken banking system and their worthless bolivar.

This is dollarization from below — not through government policy, but through individual choice.

Where they’ll lose:

Regulatory crackdowns could crush the sector. No lender of last resort means a Tether collapse would be catastrophic. And stablecoins don’t help countries that want to escape dollar dependence — they deepen it.

Verdict: Stablecoins strengthen dollar hegemony, not weaken it. The US should embrace them strategically.

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The Scoreboard: Where the Dollar Is Vulnerable

Not all arenas are equal. The dollar’s grip varies dramatically depending on what you’re measuring.

Reading the chart:

High threat areas — Sanctioned countries have already left. Bilateral commodity trade is increasingly non-dollar. These trains have departed.

Medium threat areas — Oil trade and reserves are slowly diversifying. Not collapsing, but eroding at 1-2% per year.

Low threat areas — Debt issuance, trade finance, and the core plumbing of global finance remain dollar-dominated. Network effects here are strongest.

The dollar won’t lose everywhere at once. It’s losing at the margins first.

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The De-Dollarization Spectrum

Countries aren’t binary — “dollarized” or “de-dollarized.” They exist on a spectrum based on their political alignment, sanctions exposure, and economic ties.

The three tiers:

Tier 1: Fully committed to de-dollarization (score 7-10) Russia, Iran, Venezuela — they have no choice. Sanctions forced them out. China is here by strategy, not necessity.

Tier 2: Hedging actively (score 4-7) India, Brazil, Saudi Arabia, UAE, Indonesia, South Africa — these are the swing states. They’re not anti-American, but they’re building alternatives. India buys Russian oil in rupees. Saudi discusses yuan pricing with China. Brazil settles with China directly. They want optionality, not revolution.

Tier 3: Dollar-aligned (score 0-4) Japan, UK, EU, Australia, Canada, South Korea — US allies with deep financial integration. They may grumble about dollar hegemony, but they’re not building exits. Their banks, their reserves, their trade finance are all dollar-native.

The real story is Tier 2. That’s where the dollar’s future will be decided.

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The Real Threat: Fragmentation, Not Replacement

Let me be direct: no currency will replace the dollar as global hegemon.

Not the yuan — capital controls and political risk disqualify it. Not the euro — structural fragmentation caps its ceiling. Not gold — you can’t run a payments system on metal. Not crypto — too volatile, too unregulated, too weird for central banks.

But that’s not the threat.

The threat is fragmentation — a world where:

• Regional blocs settle in local currencies (ASEAN in yuan, Mercosur in reals, Africa in mixed)
• Commodity trade partially shifts to seller’s currency (oil in yuan for China, gas in rubles for Europe, gold for sanctions targets)
• Every major economy holds 20-30% non-dollar reserves as insurance
• SWIFT alternatives handle growing share of non-Western flows
• The dollar is still #1, but at 45% of reserves instead of 58%

This is multipolar money. Not dollar collapse — dollar dilution.

The US would still have enormous privilege. But less than today. And shrinking.

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What the US Could Do: The Fourth Move

History suggests America doesn’t accept decline passively. When Bretton Woods crumbled, Nixon pivoted to fiat. When fiat needed an anchor, Kissinger created the petrodollar.

What’s the fourth move?

Option 1: Embrace stablecoins as dollar distribution

Private stablecoins are already spreading dollar usage faster than any government program. USDT and USDC have dollarized more people in five years than the IMF did in fifty.

The US could lean into this. Regulate stablecoins enough to ensure backing and compliance. Let them run on global rails. Accept that Tether operating from the Bahamas is still dollar hegemony — just privatized.

Risk: Regulatory turf wars (SEC vs. CFTC vs. Fed) could strangle the sector instead.

Option 2: Launch a wholesale digital dollar

Not a retail CBDC — Americans don’t need digital cash. But a wholesale digital dollar for interbank settlement could modernize the plumbing.

The mBridge project (China, UAE, Thailand, Hong Kong) is already piloting multi-CBDC settlement. If cross-border payments become faster and cheaper through non-dollar rails, the US needs a competitive offering.

Risk: The Fed moves slowly. China is five years ahead on CBDC infrastructure.

Option 3: Weaponize less, co-opt more

Every new sanctions regime pushes marginal countries toward alternatives. The Russia sanctions were necessary — but they also showed every neutral country what could happen to them.

A smarter approach: expand swap lines, increase IMF flexibility, offer dollar access as a carrot instead of only using exclusion as a stick.

Risk: Domestic politics make this nearly impossible. “Soft on adversaries” is an attack ad.

Option 4: Tie new strategic sectors to dollar settlement

The petrodollar worked because everyone needed oil. What does everyone need now?

• Semiconductors (TSMC, ASML, Nvidia)
• Cloud infrastructure (AWS, Azure, GCP)
• AI models and compute
• Pharmaceutical supply chains

If access to advanced chips or AI compute requires dollar settlement, you’ve created new structural demand. This is industrial policy meets monetary strategy.

Risk: Could accelerate China’s push for self-sufficiency. Creates new geopolitical flashpoints.

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The Strategic Takeaway

For countries:

De-dollarization isn’t ideology — it’s risk management. Every treasury should be asking:

• What percentage of our reserves are in dollars?
• What happens if we’re sanctioned (even secondarily)?
• Do we have bilateral settlement options with major trading partners?
• Should we be holding more gold?

The answer isn’t to dump dollars. It’s to build optionality while dollar infrastructure still works.

For payment leaders:

The future is multi-rail, multi-currency. The corridors that matter in 2030:

• China-ASEAN (yuan-dominated)
• India-Middle East (rupee/dirham mix)
• Africa (yuan for infrastructure, dollar for trade, mobile money for retail)
• Latin America (dollar + real + yuan depending on partner)

Winners will be those who can settle in any currency the counterparty wants. Single-currency dependency is a vulnerability.

For the US:

The dollar’s dominance was never automatic. It was engineered, defended, and re-engineered when necessary.

The current complacency is dangerous. While Washington debates stablecoin regulation and the Fed studies CBDCs, China is deploying infrastructure. BRICS is signing agreements. Central banks are buying gold.

The window for a fourth strategic move is open. It won’t stay open forever.

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Conclusion: The Dollar Isn’t Dying. But It’s No Longer Alone.

Eighty years ago, the dollar replaced the pound through strategic positioning at a moment of crisis.

Fifty years ago, the dollar survived the end of gold backing by becoming indispensable infrastructure.

The next fifty years will be different. Not a single challenger rising to replace the dollar, but a slow fragmentation — regional blocs, bilateral deals, digital alternatives, sanctions hedges.

The dollar will still be #1 in 2050. But #1 with 45% share in a fragmented system is very different from #1 with 70% share in a unipolar one.

The question isn’t whether the dollar will fall. It’s whether America will adapt — again — or let entropy do its work.

History suggests adaptation. But history isn’t destiny.

The fourth move is waiting to be made.

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#USD #Geopolitics #Finance #Payments #DeDollarization #BRICS #China #Yuan

Data sources: IMF COFER, World Gold Council, BIS, SWIFT, PBoC

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