The Triffin Dilemma Becomes Reality: The Approaching Post-Dollar World

The US dollar? It’s more than just a national currency. Think of it as the operating system (OS) running nearly the entire global financial system. If you consider it, the current financial system, created after World War II, is fundamentally rooted in the dollar. The US economy alone accounts for a quarter of global GDP, and the dollar covers 40% of world trade settlements and nearly 60% of foreign exchange reserves held by countries. This is effectively a massive “financial infrastructure.”

Of course, this system has played a positive role in supplying liquidity and stabilizing the global economy. But frankly, it has also handed the US an enormous weapon—a powerful lever to steer the world economy for its own benefit.

Regarding this status, former French Finance Minister Charles de Gaulle coined a striking phrase: “exorbitant privilege.” A spot-on observation. The US can simply print dollars whenever it needs money because the world accepts them. This is essentially borrowing money from the world at a very low interest rate.

However, there is a fundamental contradiction hidden here. The conflict between a country’s monetary policy (e.g., controlling inflation in the US) and the role of the issuer of the global reserve currency that must supply money worldwide. Economist Robert Triffin identified this in the 1960s and named it the “Triffin dilemma.” If “exorbitant privilege” is the light, then the “Triffin dilemma” is the shadow that inevitably follows. This article aims to dissect everything about the dollar through these two key concepts.

Entering the 21st century, questions began to arise: “Will the dollar era last forever?” On the surface, it still looks strong, but beneath lies a complex and quite serious situation. The US’s massive debt, China’s rapid rise, the geopolitical tensions sharpened by the Russia-Ukraine war, and technological innovations like CBDCs—all these challenges are converging.

This article will thoroughly examine how these challenges affect the dollar’s future. First, we’ll look at how the dollar reached its current position, focusing on “historical path dependence” and the intertwined power of “network effects.” Simultaneously, we’ll diagnose the “fracture factors” shaking the system from within and without, and sketch future scenarios. Through this journey, we will gain a multidimensional understanding of the sustainability and limits of the dollar empire.

Part 1: Blueprint of the Empire (Past)

This section traces how the US dollar ascended to the throne of global finance. It was a result of a meticulously calculated strategy and historical coincidence. It’s less about natural market selection and more about a structure created by the intersection of US design and reality at a specific moment. Once established, such a path rarely changes. This is the powerful inertia called **“path dependence.”

Bretton Woods Blueprint: All Roads Lead to the Dollar

The official birth of the dollar empire was the 1944 Bretton Woods Agreement in New Hampshire, USA. The key question then was how to rebuild a world economy shattered by the Great Depression and two world wars. The US, almost unscathed by war, held half of the world’s manufacturing output and over two-thirds of the global gold reserves (an astounding 20,000 tons), making it the dominant player.

At this historic negotiation table sat two geniuses: UK representative John Maynard Keynes and US representative Harry Dexter White. Their debate was more than technical; it was a clash of philosophies on how to run the global economy.

• Keynes’s Dream, ‘Bancor’: Keynes proposed a revolutionary idea—a new international currency called ‘Bancor.’ The system’s core was a symmetrical adjustment mechanism that held both debtor and creditor countries equally responsible for correcting trade imbalances, aiming to prevent the deflationary spiral that doomed the gold standard.
• White’s Reality, ‘Dollar-Centered Order’: White’s plan was more pragmatic and US-centric. He argued against a new currency, proposing instead a system centered on the US dollar fixed at $35 per ounce of gold. Adjustment responsibilities were asymmetrically placed mainly on debtor countries.

The result? As everyone knows, White’s plan won. Not simply because the US was powerful, but because Keynes’s plan seemed to protect the British Empire’s fading glory, while White’s plan appeared as an open system with the US at the center.

However, this choice embedded asymmetry and fractures into the system from the start. The “exorbitant privilege” was not an accidental side effect but part of the original blueprint. This deliberately designed system created strong “path dependence,” ensuring that even after the system collapsed, the dollar’s influence remained structurally resilient.

The Phoenix’s Return: Gold Died, but Oil Inherited the Throne

The seemingly eternal Bretton Woods system faced crisis after about 25 years. The US, burdened by Vietnam War and welfare spending, ran chronic deficits. On August 15, 1971, President Nixon made the bombshell announcement: “We will no longer convert dollars to gold!” This was the famous “Nixon Shock,” the death sentence for Bretton Woods.

Logically, this was a fatal blow to confidence in the dollar. Yet the US brilliantly turned this crisis to its advantage. Freed from the gold shackles, the dollar was tied to a new tangible asset: oil. When oil prices quadrupled during the 1973 oil shock, the US secretly negotiated with Saudi Arabia, the world’s largest oil exporter, to price all oil sales exclusively in dollars. This was the birth of the “petrodollar” system.

This event fundamentally changed the essence of dollar hegemony. During Bretton Woods, the dollar’s value was tied to the US gold stock, a limited “stock”. The petrodollar system replaced this with a guarantee based on the continuous “flow” of the world’s most vital commodity: oil. Every country needed dollars to buy oil to keep their factories running, creating a permanent demand for dollars.

But it didn’t stop there. Oil-exporting countries earned vast dollars and recycled them by buying US Treasury bonds. This “petrodollar recycling” allowed the US to borrow cheaply at low interest rates, strengthening the dollar empire financially.

The System Manager’s Power: Plaza Accord and the Disappearance of Competitors

In the early 1980s, the dollar became too strong, causing problems. In 1985, the G5 countries met at New York’s Plaza Hotel and agreed to artificially lower the dollar’s value. This was the **“Plaza Accord.”

The accord succeeded but was disastrous for Japan. The yen doubled in value, hitting its export economy hard and triggering the asset bubble burst that led to the infamous “Lost Decade.” The Plaza Accord showed that the US could offload system management costs onto other countries, a lesson that later made countries like China wary.

In 1991, the Soviet Union collapsed. With the ruble bloc gone, the dollar lost its last geopolitical rival, ushering in the era of the **“unipolar currency.”

Part 2: The Pressure of Standing Alone (Present)

Now to the present. This chapter examines how recent crises seemed to shake the dollar system but paradoxically strengthened its position while creating future fractures.

The Paradox of Power: In Crisis, Everyone Seeks the Dollar

The core of the dollar’s strength today lies in the “network effect.” Everyone uses it because it’s the most convenient and beneficial. This power shines brightest in crises.

The “Dollar Smile Theory” states that the dollar strengthens both when the US economy is booming and when the global economy is in crisis. The 2008 global financial crisis perfectly illustrated this. Although the crisis originated in the US, investors dumped all other assets and flocked to the US Treasury market, considered the only safe haven. This “flight to safety” caused the dollar’s value to soar.

The 2008 crisis proved the dollar is not just a safe haven but the system’s “plumbing.” In crises, the US market is the only place to turn, showing the structural dependence that underpins the dollar’s power.

System Contradiction: Excess Savings Spark ‘Currency Wars’

After the 1997 Asian financial crisis, Asian countries desperately accumulated dollars as “self-insurance.” Buying US Treasuries with these dollars kept US interest rates historically low. Then-Fed Chair Ben Bernanke called this the **“Global Saving Glut.”

Cheap money chased higher returns in the US, flowing into risky assets like subprime mortgages, sparking the 2008 financial crisis. Ironically, Asia’s survival strategy planted a financial time bomb in the US.

To manage the crisis, the Fed began quantitative easing (QE), flooding emerging markets with cheap dollars. Brazil’s finance minister declared in 2010, “This is an international currency war!” This was the Triffin dilemma becoming reality—what benefits the US economy can be a disaster for others, ushering in an era of self-reliance.

The Empire’s Achilles’ Heel: Ever-Growing Debt

The dollar’s greatest threat is internal: the US’s “twin deficits” (fiscal and trade deficits). Thanks to its exorbitant privilege, the US has lived beyond its means, but the cost is a snowballing national debt. As of 2024, US federal debt exceeds $34 trillion, over 120% of GDP.

This deepens the Triffin dilemma. The reserve currency issuer must run deficits to supply global liquidity, but excessive debt risks undermining confidence in the currency. If global investors start doubting “Can the US repay this debt?” it could trigger uncontrollable dollar sell-offs.

Crossing the Rubicon: The Dollar as a Weapon

In February 2022, when Russia invaded Ukraine, the US and its allies froze about $300 billion of Russia’s foreign reserves. This unprecedented seizure shocked the world.

It revealed that US Treasuries, once deemed safest, are exposed to geopolitical risks. This fueled “de-dollarization” discussions. Countries like China realized their dollar assets could become worthless overnight. The dollar system was no longer a neutral infrastructure but a Western power tool, making alternatives a necessity for survival.

Part 3: Outlining a New Order (Future)

What about the future? This chapter explores challengers to the dollar’s dominance and how new technologies might reshape the landscape.

The Yuan and BRICS: Will Their Dreams Come True?

The recently expanded BRICS countries are key challengers to the dollar. However, their real goal is less about replacing the dollar and more about “sanction-proofing.” Like Russia, they want a financial lifeboat to survive sanctions.

Reality is tough. China’s Cross-Border Interbank Payment System (CIPS) has grown but still relies heavily on SWIFT, and the yuan faces capital controls and low market trust. Reserve currency status requires more than economic power.

Technological Counterattack: CBDCs and the ‘Digital Eurodollar’

The top priority for central banks worldwide is Central Bank Digital Currencies (CBDCs). Notably, China and others’ ‘Project mBridge’ demonstrated cross-border remittances bypassing the dollar.

Meanwhile, private sector dollar-pegged stablecoins (USDT, USDC) are growing rapidly. Interestingly, the US is integrating them into the regulatory framework, encouraging issuers to back them with US Treasuries. As the stablecoin market grows, so does demand for US debt, cleverly reinforcing dollar dominance. Like the old Eurodollar market, a blockchain-based “digital Eurodollar” could become a pillar of the 21st-century dollar empire.

The Greatest Enemy Lies Within: The Shadow of Protectionism

The dollar’s biggest short-term threat might be the US itself. What if the US adopts extreme protectionism? The dollar system depends on free trade and capital flows; undermining these would erode the dollar’s foundation and its status.

The Eternal Haven: The Return of Gold

Seeing the dollar weaponized, central banks worldwide quietly began buying another form of insurance: gold. In 2022 and 2023, central banks made the largest gold purchases in decades, especially emerging countries like China, Poland, and India. This reflects a clear move to diversify reserves away from dollar assets toward politically neutral, tangible assets.

Conclusion: The End of the Unipolar Era and Beyond

In conclusion, it seems unlikely that a single currency will replace the dollar in the near future, given the overwhelming size and liquidity of the US Treasury market and the power of the **“network effect.”

However, the unquestioned era of the dollar’s “unipolar hegemony” is over. The “exorbitant privilege” is gradually eroding. Internally, the unbearable debt problem; externally, China’s challenge and geopolitical confrontations; plus technological innovations—all contribute to systemic fatigue.

The future likely holds not a dollar-less world but a more fragmented, competitive “multipolar currency environment.” The world will follow a path of “gradual multipolarity,” where the dollar does not suddenly collapse but shares roles with the euro, yuan, and others in a hybrid system.

Of course, the dollar will remain the “first among equals,” the most important currency. But it will no longer stand alone. It must coexist and compete with regional blocs led by the yuan and euro, new digital currencies, and traditional safe assets like gold. This new system will be more complex and possibly less stable, demanding fundamental revisions in economic strategies. The seemingly eternal dollar empire era is ending, opening a new age of uncertainty and opportunity.