THE American dollar, long the primary vehicle of global finance, now faces a quiet but consequential retreat. This decline is neither sudden nor absolute; it signals a deeper shift than a mere cyclical correction. It reflects a geo-politiconomic erosion 鈥� a simultaneous weakening of US geopolitical dominance and economic centrality.
Geo-politiconomy, a portmanteau capturing the fusion of geopolitics and geoeconomics, provides the essential lens for understanding today鈥檚 monetary shifts. The dollar鈥檚 erosion is not merely about currency swaps or de-dollarization rhetoric; it reflects a global rebalancing of trust, power, and incentives.
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Historical foundations of dollar dominance
SINCE the Bretton Woods Agreement, and especially after president Richard Nixon ended the dollar鈥檚 gold convertibility in 1971, the USD has maintained unrivalled status as the world鈥檚 reserve currency. The petrodollar agreement with Saudi Arabia embedded the dollar deeply into global trade arteries. Nearly 60 per cent of global reserves and 88 per cent of international transactions remain dollar-denominated. Yet these pillars rely not only on trade or financial data but on confidence 鈥� in US political stability, rule of law, financial depth, and the promise that America will remain lender, spender and enforcer of last resort. Today, that confidence faces multi-pronged assaults.
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Forces undermining dollar supremacy
THREE converging forces undermine the dollar鈥檚 bedrock. First, the weaponization of the dollar: financial sanctions, blocking SWIFT access, and freezing central bank reserves have made many wary of the dollar鈥檚 strings. Second, fiscal imbalances: skyrocketing debt 鈥� over $36 trillion and growing 鈥� chronic deficits, and recurring debt ceiling crises raise doubts about long-term sustainability. Third, the rise of alternatives: China鈥檚 yuan, digital currencies, and gold-backed regional schemes are gaining traction, with Belt and Road initiatives, CIPS, and bilateral trade promoting substitutes to dollar dependence. Like a tectonic plate slowly shifting beneath a continent, these changes create unseen fissures that surface during military, financial or climatic crises.
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Understanding global interdependence
THE decline in the dollar is best understood through metaphors from physics. In sympathetic resonance, two tuning forks tuned to the same frequency cause each other to vibrate when only one is struck 鈥� a silent harmony of forces. Similarly, today鈥檚 interconnected world behaves much the same: economic tremors in Washington reverberate in Beijing, Brussels, and beyond.
Quantum entanglement offers a second metaphor: electrons respond to each other across vast distances as if bound by an invisible thread. Picture them as two entangled economies 鈥� movements in one produce immediate consequences in the other. This systemic co-vibration is more than interdependence; it redefines sovereignty itself. America鈥檚 debt issuance, like China鈥檚 accumulation of gold or offloading of US Treasuries, sends ripples through global bond markets, currency valuations, and capital flows. We now live in an age of geo-politiconomic entanglement, where national decisions instantaneously shape international outcomes.
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Rising alternatives to the dollar
BRICS expansion and proposals for a commodity-backed global reserve currency reflect a growing appetite for alternatives. These initiatives are both ideological and practical: a quest for sovereignty, resistance to Western dictates, and escape from post-WWII hierarchies. BRICS+ nations, representing over 40 per cent of the global population and nearly a third of global GDP (PPP terms), increasingly pursue trade in local currencies. Saudi Arabia and the UAE have entertained yuan-based oil trade, while France recently settled a Chinese LNG deal in yuan 鈥� a symbolic crack in the petrodollar armour.
Meanwhile, emerging digital currencies, gold-backed regional schemes, and localised clearinghouses gain momentum in Latin America, Africa, and Asia. This is more than de-dollarization; it is a contest over epistemic authority 鈥� who defines value, sets rules, and narrates legitimacy in the global financial system.
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Enduring strength of the dollar
DESPITE these shifts, the dollar鈥檚 dominance is diluted, not destroyed. Most global debt, contracts and trade remain dollar-denominated. No alternative matches the dollar鈥檚 liquidity, legal infrastructure, or trust profile. The yuan is not fully convertible and is tightly controlled by state banks. The euro lacks unified fiscal backing and is vulnerable to political fragmentation. Cryptocurrencies are volatile and speculative, while gold lacks velocity. Even a BRICS-backed currency faces immense coordination, trust, and logistical hurdles. What unfolds is gradual erosion, reshaping global landscapes without immediate collapse.
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Implications for the US
WEAKENING dollar primacy carries profound implications for the United States. Reduced Treasury demand leads to higher yields, eventually forcing higher taxes or spending cuts. Sanctions lose effectiveness if countries bypass the dollar. A weaker dollar inflates import prices, particularly for essential commodities such as oil, natural gas, and metals. Loss of seigniorage diminishes the 鈥渆xorbitant privilege鈥� of issuing a widely desired currency, reducing America鈥檚 ability to finance deficits without immediate fiscal discipline. Rising borrowing costs, coupled with diminished leverage in international negotiations, signal a new era in which the US must navigate more carefully to maintain influence.
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Opportunities, risks for emerging economies
FOR countries like Bangladesh, dollar erosion presents both risks and opportunities. Risks include capital outflows, falling remittances, volatile exchange rates, higher import bills, and challenges in servicing dollar-denominated debt, particularly for energy and infrastructure projects. Opportunities arise from diversifying reserves into yuan, euro, or gold; settling trade in local currencies with China, India, or regional partners; and establishing regional payment systems that reduce dependence on the dollar. Strategic alignment is crucial. Blind adherence to the dollar or impulsive moves into alternative currencies carries risk. Hedged, pragmatic approaches, strengthening monetary buffers, reducing energy import reliance, and maintaining macroprudential discipline will determine whether emerging economies can thrive amid shifting global monetary dynamics.
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Towards a multipolar monetary world
A POST-DOLLAR world will not be a yuan world or a euro world. It is inherently multipolar, with overlapping currency spheres. The digital yuan may dominate East Asian trade, the dollar will continue to underpin global debt, crypto protocols could facilitate remittances, and a BRICS token might serve commodity markets. In this landscape, trust becomes the real currency 鈥� not only in monetary policy but also in institutional strength, political predictability, crisis management, and data governance. The erosion of the dollar mirrors a simultaneous erosion of US soft power 鈥� its ability to inspire confidence rather than merely command compliance.
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Managing erosion and fostering innovation
EROSION is not inherently destructive; it can create fertile ground for innovation, new financial architectures, and more resilient economic ecosystems. Ungoverned, however, it leads to instability. The United States must manage its decline by rebuilding fiscal credibility, investing in infrastructure and innovation, reinvigorating multilateral institutions, and exercising restraint in the reflexive use of sanctions. Monetary dominance is not guaranteed; it is earned daily through responsible governance, ethical diplomacy, and institutional integrity.
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From hegemony to plural equilibrium
THE dollar may no longer be the sole vehicle of global finance but can remain a trusted mediator, a hub within a more complex financial constellation. Its geo-politiconomic erosion signals a shift from singular hegemony to plural equilibrium. The trajectory 鈥� whether crisis or catalyst 鈥� will depend on the choices made not just in financial markets but in capitals around the world, from Washington to Beijing to Delhi and beyond.
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Dr Abdullah A Dewan is a former physicist and nuclear engineer at the BAEC and professor emeritus of economics at Eastern Michigan University, USA.
