The Dollar's Last Move
On de-dollarization, the history of reserve currencies, and why a decentralized monetary system might be the best strategic option the free world has left — even if it sounds like surrender.
Every reserve currency in history has ended the same way. Not with a declaration, not with a war, not with a formal ceremony of abdication — but with a slow, uneven erosion that the dominant power is always the last to fully acknowledge. The pound sterling did not collapse in 1944 at Bretton Woods. It had already been declining for thirty years. What Bretton Woods did was ratify what the markets already knew. The sun had been setting over sterling since 1914, and the British kept insisting it was still noon.
The question worth asking about the dollar in 2026 is not whether its dominance is eroding — it is — but whether the thing that replaces it will follow the historical pattern. Because there is a scenario, counterintuitive and underexamined, in which the United States does not lose the monetary order to China or to a BRICS alternative reserve currency. It loses it to a system that has no owner. And that outcome, which looks from one angle like American defeat, might from another angle be the shrewdest strategic move available.
The pattern that always holds
Reserve currency transitions follow a recognisable grammar. A dominant power accumulates the trust of global markets through a combination of military credibility, institutional reliability, and economic depth. Other states hold its currency because holding it gives them access to the networks, markets, and protection that the dominant power provides. The currency is not just a medium of exchange — it is a membership token in a system whose rules the dominant power writes and enforces.
The transition begins when that trust starts to fray — not all at once, but at the margins, in the decisions of central banks that quietly diversify, in the trade agreements denominated in alternative currencies, in the commodity markets that begin to price in something other than dollars. The dominant power responds with the instruments available to it: sanctions, pressure, financial exclusion. These instruments work, until they work too well. Every time the dollar has been weaponized — against Russia in 2022, against Iran across four decades, against Venezuela, against North Korea, against an expanding list of adversaries — the message received by every non-adversarial state is identical: this could happen to us. The weapon that punishes enemies teaches neutrals to seek alternatives.
Every time the dollar has been weaponized, the message received by every non-adversarial state is identical: this could happen to us.
The dollar's share of global reserves has fallen from 71% in 2001 to around 58% in 2026. The decline is gradual, and the dollar remains dominant by a considerable margin. But the direction is established, and the 2022 freezing of $300 billion in Russian sovereign reserves — held in Western financial institutions and seized by executive decision — accelerated what had been a slow structural drift into something that looks more like a deliberate policy choice by states that had previously been passive holders. Gold purchases by central banks hit record highs in 2022 and 2023. The yuan settlement of oil trades between Saudi Arabia and China is no longer remarkable. The BRICS payment architecture, however rudimentary, exists. The psychological break has occurred. States that had never seriously questioned dollar dependence are now quietly asking the question.
Why the yuan is not the answer
The standard narrative of dollar decline assumes a successor. China is the obvious candidate — the world's largest trading nation, with ambitions commensurate to its economic weight and a stated policy of internationalising the yuan. BRICS summits produce communiqués about alternative payment systems. Russian officials describe a post-dollar world with enthusiasm that is partly genuine and partly performative. The historical pattern suggests a transition: sterling to dollar, dollar to yuan, hegemony transfers with the underlying power shift.
But the yuan has a structural problem that no Chinese policy can fully resolve: it is not convertible. A reserve currency requires that foreign holders can exchange it freely, invest it productively, and withdraw it without restriction. The Chinese capital account is closed. Beijing controls the exchange rate. A state holding yuan reserves is not holding an asset — it is holding a claim on the Chinese financial system that Beijing can honour or dishonour at will, precisely as Washington can honour or dishonour dollar-denominated claims. The yuan is not an escape from dollar dependence. It is dollar dependence with Chinese characteristics — the same political risk, different geography.
This is why the BRICS payment alternative, whatever form it eventually takes, will face the same problem as the yuan: it will require a political anchor. Someone will have to write the rules, enforce the settlements, and guarantee the system against disruption. That someone, by definition, becomes the new hegemon. The states that are hedging against dollar dependence are not seeking a multipolar monetary world — they are seeking a less American unipolar one. The Chinese version of that arrangement offers them less leverage, not more, given that China's economy and military are not yet at American scale and that Beijing's record on financial transparency is considerably worse than Washington's even at its most weaponized.
The decentralized option
Here is the counterintuitive possibility that the geopolitical analysis of monetary transition almost entirely ignores: the successor to dollar hegemony may not be another national currency. It may be a system that has no issuer, no central bank, no government that can freeze it, seize it, or exclude anyone from it by executive order. The technology exists. It has existed, in rudimentary form, since 2009. What has changed in the intervening seventeen years is not the technology — it is the scale, the institutional infrastructure, the regulatory clarity in some jurisdictions, and the demonstrated inability of any major central bank to simply ban it.
China has tried. Beijing has banned cryptocurrency trading, mining, and exchange multiple times since 2013. Each ban has driven activity offshore, underground, or into the grey market, but has not eliminated participation. Russia, Iran, and North Korea — the states most severely excluded from the dollar system — have all turned to cryptocurrency for sanctions evasion, not as a preference but as a necessity. The asymmetry is revealing: the states with the most to gain from excluding decentralized systems are the ones least able to do so comprehensively, and the states most excluded from the existing system find decentralized alternatives most useful.
The states with the most to gain from excluding decentralized systems are the ones least able to do so comprehensively.
A genuinely decentralized monetary system — one whose settlement layer is cryptographically secured, whose rules are enforced by mathematics rather than institutions, and whose access cannot be revoked by any government — solves the problem that neither the yuan nor any BRICS alternative can solve. It is not a claim on any political authority. It cannot be frozen. It cannot be excluded from. It does not require trust in any issuer. For the states currently hedging against dollar dependence, it offers something neither Washington nor Beijing can offer: genuine monetary sovereignty, defined not as the right to issue your own currency, but as the right to participate in a global system without anyone's permission.
Why this is actually good for America
This is where the argument becomes genuinely counterintuitive. The obvious reading of dollar decline is that it represents American strategic defeat — the loss of the exorbitant privilege of seigniorage, the loss of the sanctions weapon, the loss of the structural advantage that has allowed the United States to run deficits that would bankrupt any other state. That reading is not wrong. Dollar hegemony has been enormously valuable to American power, and its erosion is a real cost.
But consider the alternative to a decentralized monetary transition: a yuan-dominated or BRICS-anchored alternative system. In that scenario, China gains the structural advantages that the United States is losing — the ability to set rules, exclude adversaries, and extract seigniorage from the global economy. The transition of reserve currency status from the United States to China would represent a genuine transfer of geopolitical power of a kind that has no historical precedent in terms of the ideological gulf between the outgoing and incoming hegemon. The dollar system, whatever its weaponization problems, was built by a democracy with functioning rule of law and an independent judiciary. The yuan system would be built by a one-party state that has demonstrated a willingness to use financial access as a tool of political control against its own citizens, its own companies, and its neighbours.
A decentralized system transfers power to no one. It does not give China what the dollar gives America. It does not give America what the dollar gives America either — but America is already losing that. The question is not whether America keeps its monetary privilege. It is whether, in losing it, it allows a rival to acquire the same privilege. A world in which no state controls the global reserve system is strategically preferable to a world in which China does — even from a purely American strategic perspective, setting aside all questions of values and governance.
The deeper structural argument
There is a longer historical pattern here that goes beyond monetary economics. Decentralized systems have, over sufficiently long timeframes, consistently outperformed centralized ones in the domains that matter most: innovation, resilience, and adaptability. The Soviet central planning system was more efficient than the market in producing specific industrial outputs over specific timeframes. It lost because it could not process the distributed information that a market economy generates, cannot reward the lateral thinking that decentralized decision-making permits, and cannot correct errors without the political will to acknowledge them — which centralized systems structurally resist.
A monetary system controlled by Beijing would face the same structural constraints as Soviet planning, applied to global finance. It would be more coordinated than a decentralized alternative. It would be faster at making specific decisions. It would be worse at distributing the processing of economic information, worse at correcting errors, and structurally incapable of tolerating the transparency that financial markets require to function efficiently over time. The Chinese financial system's opacity — the hidden debts, the concealed non-performing loans, the state-directed capital allocation — are not bugs that a better-governed China would eliminate. They are features of a system in which political control takes precedence over financial transparency. Exporting that system as the global reserve architecture would be exporting those features.
Decentralized monetary systems have the opposite structural properties. They are transparent by design — every transaction is recorded on a public ledger. They are resistant to political manipulation because their rules are encoded in mathematics, not in the decisions of a central bank governor. They are permissionless — access cannot be revoked by any authority. These properties make them worse at many things that centralized systems do well. They make them systematically better at the thing that a global reserve system most needs to be: trustworthy to parties who do not trust each other.
What this requires from the West
The argument above is not an argument for doing nothing. A passive drift toward dollar decline that ends in Chinese monetary hegemony is the worst outcome. A deliberate embrace of decentralized monetary infrastructure as a strategic alternative requires active choices — regulatory clarity that makes decentralized systems legible and usable for institutional actors, international coordination among democratic states on standards and interoperability, and a willingness to reframe what looks like monetary retreat as something more sophisticated: the replacement of a system that one state controls with a system that no state controls, on terms that systematically disadvantage states that require centralized control to function.
China cannot participate in a genuinely decentralized monetary system without undermining its own political architecture. A government that cannot tolerate its citizens accessing uncensored information cannot tolerate its citizens holding assets that no government can freeze. Every property that makes decentralized systems attractive to global participants makes them threatening to authoritarian governance. This is not a coincidence — it is a structural relationship. The free flow of value is as threatening to centralized political control as the free flow of information, and for the same reasons.
The West did not design the internet to contain China. But the internet's decentralized architecture has proven more difficult for Beijing to control than any centralized alternative would have been. The Great Firewall is expensive, imperfect, and requires constant political maintenance. A decentralized monetary system would present the same problem at the level of financial sovereignty. You cannot build walls around something that has no centre.
The sun is going down over the dollar. This is not in serious dispute. The question is whether what follows is another sun — Chinese, BRICS-anchored, politically controlled — or something that has never existed before: a global monetary system that belongs to no one, that cannot be weaponized by any state, and that is structurally hostile to the kind of centralized control that authoritarian states require to maintain their political architecture.
From one angle, advocating for such a system looks like an American admission of defeat. From another angle, it looks like the only move available that does not hand the next century to Beijing. Empires have always tried to manage their decline by ensuring that the system they built outlasts the dominance that built it. The British gave the world common law, parliamentary democracy, and a financial architecture that America inherited. The Americans could give the world a monetary system that no successor can monopolize.
That would not be defeat. It would be the most consequential strategic move since Bretton Woods — made, as Bretton Woods was made, in the full knowledge that the old order was ending and that the choice was not between decline and continuity, but between what kind of world comes next.
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This essay is a companion to The Weaponized Dollar and The Strait the Superpower Could Not Keep Open.
michelerovatti.com · Writing since 2012
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