While headlines focus on China, BRICS, and trade wares, the more serious threat to the U.S. dollar may be coming from within.
This article lays out how America’s own policies—rising debt, weaponized sanctions, and over-reliance on the dollar’s reserve status—are accelerating global de-dollarization.
Nations aren’t just reacting to geopolitics.
They’re responding to fiscal mismanagement and political instability…
If you’re tracking the endgame, this piece is worth your time.
It connects the dots between internal decay and the growing shift to alternatives like gold, CBDCs, and bilateral trade outside the dollar.
Here’s the full article:
Originally posted by Peter C. Earle at The Daily Economy:
Dollar’s Decline Meets Rising Dedollarization: The Threat Comes from Within
Bloomberg Dollar Spot Index & US Dollar Index Spot Rate, 2023- present
The current period of dollar weakness is rooted in several overlapping forces. Since Donald Trump’s return to the White House, aggressive trade policies, escalating tariff conflicts, and sharp reversals in longstanding diplomatic and economic norms have unnerved international investors. The dollar index has fallen nearly nine percent since inauguration, the worst such performance since the 1971 Nixon shock, when the US severed the dollar’s convertibility to gold. Bank of America’s fund manager surveys indicate that bearish sentiment toward the dollar is at its highest level since 2006, while foreign appetite for US assets — particularly Treasurys and equities — has declined meaningfully, with foreign ownership of Treasurys falling to 32.9 percent as of late 2024.
Simultaneously, the fiscal position of the United States has worsened considerably. The Trump administration’s substantial tax cuts and growing entitlement obligations are threatening to push deficits to alarming levels, while rising interest costs on government debt threaten long-term fiscal stability. These dynamics are now feeding into market pricing and investor expectations. With global capital increasingly reluctant to finance Washington’s deficits on previous terms, foreign inflows into dollar-denominated assets have moderated. Many foreign investors, particularly from Europe, are in a sustained “buyers’ strike” on US assets, compounding downward pressure on the dollar.
Yearly Growth of Payments via SWIFT in USD, 2020 – present
Yet even as the cyclical bearish case gains adherents, the broader question remains: does dollar weakness equate to de-dollarization? The short answer is: no, or at least not yet. The dollar still accounts for nearly 60 percent of global foreign exchange reserves, more than 50 percent of global trade invoicing, and nearly 90 percent of global foreign exchange transactions. Despite short-term market aversion — for central banks, commodity traders, and multinational corporations — the dollar remains indispensable. Its liquidity, the depth of US capital markets, and the breadth of dollar-denominated instruments such as US corporate bonds, Treasurys, and dollar-pegged financial products continue to make it the default global currency.
Incremental signs of de-dollarization are emerging, particularly in Asia and among members of the expanded BRICS bloc. The Association of Southeast Asian Nations (ASEAN) has actively committed to increasing the use of local currencies in intra-regional trade, aiming to reduce exposure to dollar volatility and geopolitical leverage. Countries such as China, India, and South Korea have increased currency swap agreements, promoted bilateral trade settlements in their own currencies, and repatriated portions of their foreign-held assets. Asian institutional investors, including life insurers and pension funds in Japan and Taiwan, have raised hedge ratios on dollar exposure, gradually shifting portfolio balances toward local currencies.
US Foreign Exchange Reserves in Millions of USD, 2010 – present
(A significant development in the de-dollarization narrative is the surge in official sector gold purchases. Central banks, particularly those aligned with or adjacent to China and Russia, have accumulated over 1,000 tons of gold annually for three consecutive years — doubling the pace of purchases seen in the 2010s. The European Central Bank now reports that gold accounts for 20 percent of global reserves, up sharply from previous levels to eclipse holdings of the euro itself. Meanwhile, the dollar’s share of global reserves has slipped from over 70 percent in 2000 to 57.8 percent in 2024. Gold’s role as a politically neutral store of value makes it an attractive hedge against both inflation and geopolitical risks, particularly in an environment where financial sanctions and reserve asset weaponization have grown more common.
Global Gold Demand (white) & Global Gold Demand Net Central Bank Purchases (blue), 2010 – present
In sum, dollar weakness and de-dollarization are not synonymous. The recent depreciation of the dollar relative to other currencies reflects a complex interplay of trade disputes, fiscal excesses, cyclical capital flows, and risk sentiment shifts.
True de-dollarization, by contrast, requires the sustained development of viable alternatives that can match the dollar’s liquidity, legal protections, and institutional depth — an outcome that remains distant, though not unimaginable over the long term. While policymakers and market participants should not dismiss the slow, grinding adjustments occurring at the margins, the dollar nevertheless remains firmly entrenched as the central pillar of global finance.
A more sobering truth is this: the greatest threat to continued dollar dominance comes not from external challengers but within. Persistent fiscal indiscipline, rising debt-to-GDP ratios, erratic policy shifts, and the politicization of monetary and financial institutions collectively erode the confidence that anchors reserve currency status.
If that erosion continues, the dollar may eventually cede ground — not through a sudden collapse, but through the gradual accumulation of self-inflicted wounds. In the meantime, the world remains tethered to King Dollar, even as it cautiously explores alternatives.
One thought on "De-Dollarization: The End Game is Internal"
I’m not an expert in this area. But your arguments sound plausible to me.
I think that Trump appears to want to ruin the dollar. He talks fiscal responsibility, but his actions belie the talk.