The Great Unwinding: De-Dollarisation

Geopolitics: From Weaponisation to Fragmentation

The roots of de-dollarisation are as much political as economic. The US has long used the dollar and its associated payment systems as tools of foreign policy, imposing sanctions on adversaries and leveraging its control over the global financial plumbing. As many analysts have pointed out, this “weaponisation” of the dollar has prompted a backlash, especially among emerging powers like China and Russia.

The Trump administration’s return to aggressive tariffs and threats of exclusion from US markets have only deepened the resolve of countries in the Global South, such as the BRICS bloc and beyond, to seek alternatives. China, for example, has accelerated its reduction of US Treasury holdings—cutting them by more than 27% since 2022—and expanded the use of its own currency in cross-border trade. Russia, after being largely excluded from the dollar system following the Ukraine invasion, has shifted its energy exports to local currencies or “friendly” alternatives.

Yet this is not just a story of state actors. Major financial institutions and investors, wary of US policy unpredictability, are increasingly hedging their exposure to the dollar. As Deutsche Bank’s George Saravelos has observed, “We are witnessing a simultaneous collapse in the price of all US assets… The market is rapidly de-dollarising.”

Economics: The Privilege and the Price

The economic implications are profound. The US has long benefited from what French President Valéry Giscard d’Estaing, as far back as the 1960s, called the “exorbitant privilege” of issuing the world’s reserve currency—enjoying cheap borrowing, persistent current account deficits, and extraordinary influence over global capital flows. But as the dollar’s share of global reserves falls—from 73% in 2001 to around 54% in 2025, according to IMF and market data—the costs of this privilege are rising.

Central banks, especially in emerging markets, have been diversifying into gold at record rates, purchasing over 1,000 tonnes annually since 2022. In commodity markets, Russian oil and other key exports are increasingly priced in non-dollar currencies, with India, China, and Turkey leading the shift. The share of global trade invoiced in dollars is declining, particularly among BRICS+ and their partners.

The impact on US financial markets is already visible. Foreign demand for Treasuries is weakening, yields are rising, and the dollar’s “safe haven” status is being questioned for the first time in a generation. While some analysts argue that the dollar’s deep markets, legal protections, and network effects will preserve its dominance for years to come, the direction of travel is clear.

Technology: The Digital Currency Race

A new front in the de-dollarisation battle is technological. The rise of central bank digital currencies (CBDCs), stablecoins, and alternative payment systems is lowering the barriers to moving away from the dollar system. China’s digital yuan is already operational, and the BRICS bloc is piloting new cross-border platforms like BRICS Pay and Bridge.

The Trump administration’s own embrace of dollar-backed stablecoins as a countermeasure has, paradoxically, spurred others to accelerate their own digital currency projects. The risk, as highlighted in recent research, is a possible rapid fragmentation of the global financial system, with competing digital rails and regulatory standards.

Phases and Milestones: How De-Dollarisation might unfold

The process is best understood in four phases. The future phases are of course educated guesses.

• Gradual Diversification (2001–2020): Slow reduction in dollar reserves, limited bilateral agreements, risk management focus.

• Technological Acceleration (2020–2024): CBDCs and alternative payment systems emerge, digital innovation accelerates.

• Geopolitical Fragmentation (2024–2027): Sanctions and tariffs prompt rapid institutional and market shifts; BRICS+ coordinates on payment systems.

• Structural Transition (2027–2035): Multipolar currency blocs emerge; alternative reserve systems become operational.

Key milestones marking these transitions include the dollar’s reserve share falling below 50%, major oil exporters pricing in non-dollar currencies, and alternative payment systems capturing significant market share. Further to this, an erosion in central bank independence for the Federal Reserve and a declining confidence in the absolute irrevocability of US Treasury payments can amplify this process considerably and very quickly.

The Base, Optimistic, and Reasonable Worst Cases

Base Case:
A gradual erosion of dollar dominance, with the reserve share falling to 40–45% by 2040. The US faces higher borrowing costs, but the transition is managed without a systemic crisis.

Optimistic Case:
A rapid, but orderly, shift to a multipolar system, driven by digital innovation and coordinated policy. The dollar stabilises at 35–40% of reserves, and new global frameworks emerge.

Reasonable Worst Case:
A crisis triggered by political shocks—such as the firing of the Fed Chair or forced debt restructuring—leads to a collapse in confidence. The dollar’s share plummets below 30% by 2030, global markets fragment, and the US faces stagflation and financial instability.

What Could Accelerate the Process?

Recent debates have focused on the risks of US policy missteps.

• The firing of the Fed Chair would deeply erode confidence in US monetary policy, triggering capital flight, higher yields, and a faster shift to alternatives.

• Forced restructuring of US debt—such as Trump’s proposed “century bonds”—could precipitate a sovereign risk crisis, accelerating de-dollarisation by years.

• Amongst many problematic economic and fiscal measures, the US’s draft Big Beautiful Bill contained provisions (Section 899) to impose large tax penalties and surcharges on foreign owners of US assets (such as government debt). Without a clear understanding of the penalty criteria, the effect may well be to deter purchase of dollar-denominated assets. This has been removed from the final texts, but the fact that it was even being considered is in itself concerning.

If all three were to happen, the timeline for the dollar’s decline could compress from decades to just a few years.

Can the Tide Be Reversed?

Much depends on US politics. If Democrats retake the White House, a more predictable policy framework might slow the pace of de-dollarisation, but structural changes—technological, geopolitical, and institutional—are likely irreversible. The consensus among analysts is that, while the speed may vary, the direction is set. Reversing course would require not just policy shifts, but a fundamental rebuilding of trust in US governance and the dollar’s role.

There is some risk of a self-fulfilling process starting with the erosion of the dollar and the currently proposed deficits in the One Big Beautiful Bill that make the US less sustainable. It is true that historically Democrats have performed much better on the deficit, but it’s not clear that a future Democrat administration would do anything significant to reduce the deficit. So, this problem could well persist and weigh on the dollar’s position as well.

The Age of Multipolar Money

De-dollarisation is no longer a distant possibility. It is a dynamic, multifaceted process with profound implications for global finance, trade, and power. The coming years will determine whether the transition to a multipolar currency system is gradual and managed, or abrupt and destabilising. For business leaders and policymakers, the imperative is clear: prepare for a world where the dollar is still important—but no longer unchallenged.

Alan Houmann, Senior Adviser, with contributions from Atanas Pekanov, Senior Adviser