The dollar’s position as the world’s reserve currency is central to understanding global power and conflict.

When we say the United States (US) dollar is the preferred reserve currency, we mean that most international trade, whether oil, machinery, or raw materials, is priced and settled in dollars. Every central bank, multinational company, and trading nation must therefore hold dollar reserves to do business.

This creates a self-reinforcing cycle of demand. Because global trade depends on dollars, every country needs them, and that high demand strengthens the dollar’s value relative to other currencies. The United States, in turn, benefits from a cheaper cost of borrowing and greater control over the global financial system.

About half of all US currency, including most $100 bills, is held outside America. But the real power lies in US government bonds, the preferred asset for foreign central banks and sovereign funds.

China, Japan, and other nations together hold nearly 25% of America’s public debt, around $9 trillion. Were global trade not denominated in dollars, Washington would have to offer higher interest rates to attract investors.

Advantage

The arrangement gives the US an extraordinary advantage. Because other countries must hold dollars and US debt, America can borrow cheaply to fund its budget and trade deficits. In 2022 alone, the US imported about $1 trillion more in goods and services than it exported. Dollar dominance effectively allows Washington to live on the world’s savings.

Since 2022, Russia has redirected much of its oil trade away from the dollar, settling transactions instead in Chinese yuan or Emirati dirhams to bypass Western sanctions. India’s refiners, once almost entirely reliant on dollar payments, have occasionally used yuan or other local currencies for Russian crude.

What began as a sanction-driven workaround is now emblematic of a broader movement. Heightened geopolitical tensions, the weaponisation of finance, and the rise of China and Russia as alternative economic poles have turned dedollarisation from a distant idea into a deliberate strategy.

Two factors drive this shift. The first is domestic: political division and fiscal strain have raised doubts about the long-term reliability of US governance. The second is external: rising powers, especially China, have built the capacity and motivation to reduce their exposure to the dollar.

Since 2017, when trade tensions with Washington began to escalate, China has steadily reduced its use of the dollar in cross-border transactions and in domestic savings. The move aligns with Beijing’s larger ambition, to build an alternative financial system centred on the yuan and insulated from US leverage.

That ambition now finds its most visible platform in BRICS, the bloc made up of Brazil, Russia, India, China, and South Africa. The group recently expanded to include Egypt, the United Arab Emirates, Ethiopia, Indonesia, and Iran, creating what is now often called BRICS+. Collectively, these nations account for 45% of the world’s population, 35% of its output, and about 30% of its oil production.

To many, BRICS is evolving from a loose coalition of emerging economies into an explicit counterweight to the dollar-dominated system. Its stated goals, to settle trade in local currencies, create new payment systems, and expand a BRICS development bank, New Development Bank (NDB), all point toward a gradual detachment from Western-led financial structures.

The NDB, headquartered in Shanghai, has become a modest but symbolic alternative to the World Bank. Its lending is increasingly conducted in local currencies rather than dollars. Although its loan book remains small, it represents a step toward financial autonomy for members that have long depended on Western capital markets.

Away from dollar

The movement away from the dollar is visible in data. According to the Bank for International Settlements, the greenback still dominates 88% of global foreign exchange transactions, while China’s yuan makes up about 7%. Yet the dollar’s share of global reserves has fallen to its lowest level in two decades.

Central banks, particularly in emerging markets, are diversifying into gold, seen as a hedge against US debt and sanctions risk. The share of gold in emerging-market reserves has more than doubled over the past decade, led by China, Russia, and Türkiye.

Commodity markets tell a similar story. As noted earlier, Russia now sells much of its oil to India, China, and Turkey in local currencies. Saudi Arabia has explored yuan-denominated contracts for part of its oil exports, a move that would have been unthinkable only a few years ago. Each of these steps chips away at the dollar’s monopoly on trade.

For South Africa, the smallest economy in the original BRICS group, the bloc provides both economic and political leverage. It allows Pretoria to diversify trade and investment ties away from its traditional Western partners and to strengthen connections with China, India, and the Gulf states. Diplomatic tensions with Washington, heightened by South Africa’s legal action against Israel at the International Court of Justice and its engagement with Russia and Iran, have further deepened its commitment to BRICS.

For the first time in decades, the US dollar faces not just rivals, but an organised architecture designed to reduce its reach. Observers suggest this is not just a shift away from the West, but a turn against it.