Dollar Hegemony: Twilight or a New Dawn?

A deep analysis of the major turning point the US dollar faces in the digital era.

• Understand the history of how the dollar became the world’s reserve currency.
• Identify the internal and external threats currently confronting dollar hegemony.
• Learn how the US aims to maintain its dominance through digital assets (stablecoins).

You’ve probably heard the phrase “the end of the dollar” at least once. It’s a recurring topic whenever the global economy shakes, but today’s situation facing dollar hegemony goes beyond mere crisis speculation. It stands at the center of the most significant structural change since the 1971 “Nixon Shock.”

This article moves beyond vague doomsday theories and delves deeply into the ongoing ‘restructuring of dollar hegemony’ through three key fronts.

The History of Dollar Hegemony Built on Gold and Oil

Bretton Woods System: The Dollar’s Grand Debut

The story dates back to 1944, right after World War II. 44 Allied nations gathered in Bretton Woods, USA, to agree on the ‘Bretton Woods System’ aimed at rebuilding the war-ravaged global economy.

The core was simple. The US dollar was guaranteed to be convertible at $35 per ounce of gold, and all other currencies were pegged to the dollar. At the time, the US held overwhelming gold reserves, naturally becoming the center of global finance.

However, this ‘golden age’ carried a structural contradiction known as the ‘Triffin Dilemma.’ For the global economy to grow, the supply of dollars had to increase, but the more dollars there were, the harder it became to honor the gold convertibility promise, undermining trust.

Eventually, growing doubts about the US, which spent huge sums on the Vietnam War and other expenses, led President Nixon to suspend gold convertibility in 1971. The ‘Nixon Shock’ ended the Bretton Woods system but paradoxically became the starting point for the dollar’s new hegemony.

Petrodollar System: The Dollar’s Alliance with Oil

Where gold disappeared, ‘black gold’—oil—took its place. In 1974, the US secretly agreed with Saudi Arabia, a major oil producer. Saudi Arabia would accept all oil export payments exclusively in dollars and use that money to buy US Treasury bonds.

Thanks to this ‘petrodollar’ system, every country wanting to buy oil had to hold dollars. The dollar, allied with oil, solidified its position as the world’s top currency.

Table 1: Evolution of the International Monetary System

Shadows of Dollar Hegemony: Internal Cracks and National Debt

Reserve currency status granted the US an ’exorbitant privilege.’ Unlike other countries, the US could simply print more dollars despite trade deficits because the world viewed US Treasury bonds as safe assets and bought them.

But this privilege was a poisoned chalice. With lax fiscal discipline, as of 2025, the US national debt exceeds $36 trillion, surpassing 120% of GDP. This massive debt shakes the dollar’s credibility at its core and is seen as a potential trigger for a global financial crisis.

External Challenges: The Rise of BRICS and the Yuan

While the US struggles internally, an organized challenge to dollar hegemony is emerging externally. At the center is BRICS (Brazil, Russia, India, China, South Africa), which advocates for ‘de-dollarization’ and attempts to build an independent financial system.

The most viable alternative is China’s yuan. However, the yuan accounts for only about 2–3% of global foreign exchange reserves, far behind the dollar’s nearly 60%. Strict capital controls and a lack of transparency in the financial system are major obstacles.

Table 2: Comparison of Major Global Reserve Currencies (2024)

The Dawn of the Digital Dollar Empire: America’s Hidden Card

Facing internal and external challenges, the US has found a breakthrough in technological innovation. The 2025 ‘GENIUS Act’ demonstrates America’s ambition to reshape the digital financial era through regulated digital dollars, i.e., stablecoins.

Having followed economic news for years, I found the idea of the ’end of the dollar’ unrealistic. But this act shows a grand strategy where the dollar does not collapse but evolves digitally to maintain hegemony.

Table 3: Key Strategies of the US ‘GENIUS Act’

The most ingenious part of this act is the reserve requirement. By mandating that stablecoin issuers hold reserves in US Treasuries, it creates a new demand outlet for the growing national debt. This can be seen as a digital version of the petrodollar system.

Comparison/Alternatives: Competing Models for Future Digital Currencies

Two models are clashing over the future monetary system. Which do you think will lead future finance?

• US Model (Market-Centric)
  • Core: Regulated stablecoins issued by private companies
  • Pros: Maximizes technological innovation and market efficiency
  • Cons: Risks from private companies could spread to the entire financial system
• BIS Model (Institution-Centric)
  • Core: Central bank-issued digital currencies (CBDCs) and tokenized bank deposits
  • Pros: Maintains financial stability under central bank control
  • Cons: Slower innovation, potential for excessive central bank control

Conclusion

The future of the dollar is not a simple collapse but a complex structural evolution. Just as the dollar shifted from gold to oil, it is now moving its hegemonic pillar to the new territory of digital.

• Key Point 1: No sudden collapse of the dollar. Its dominance will gradually weaken due to overwhelming liquidity and lack of viable alternatives.
• Key Point 2: The world is likely to reorganize into a ’tripolar currency bloc.’ Competition will unfold among the digitally enhanced dollar bloc, the euro bloc, and the yuan bloc.
• Key Point 3: The dollar will be less dominant but remain central. By leading digital financial infrastructure, it will maintain a central position in the system.

In conclusion, the ’end of the dollar’ will not come. Instead, we are witnessing the birth of a more complex and competitive new global currency order with the dollar still at its core.