ASIA
11 March 2026
Waning dominance of US dollar
The US dollar’s dominance has been waning since 2015
The US dollar has been the world’s dominant currency for the past seven decades, having overtaken the pound sterling after World War II and Britain’s subsequent loss of most of its empire. The dollar’s dominance reflects not only the United States’ global economic dominance, but also its military dominance, giving it the power to set the international financial rules of the game.
But the dollar’s dominance has been waning since 2015 with the US losing associated privileges, according to American economist Kenneth Rogoff in his latest book, Our Dollar, Your Problem. Rogoff, a Harvard professor and former chief economist at the International Monetary Fund, offers an insider’s view of seven turbulent decades of global finance—from the postwar rise of the dollar to the challenges it faces today from cryptocurrency and the Chinese renminbi.
Rogoff’s book is written in a charming style as he weaves his own professional experience into the dollar’s story, along with his teenage years as a chess grandmaster, living in the former Yugoslavia and competing against Yugoslav and Russian chess champions.
Dollar dominance was enshrined in the postwar Bretton Woods system of fixed exchange rates, under which the world’s leading currencies were pegged to the dollar. These countries could cash in their dollar holdings for gold with the US at a fixed rate of US$35 an ounce. In 1971, president Richard Nixon suspended dollar-gold convertibility—a decision referred to as the ‘Nixon shock’—leading to today’s floating exchange rates.
In response to complaints from European finance ministers, US treasury secretary John R Connelly said that the dollar ‘is our currency, but your problem’, inspiring the title of Rogoff’s book. Following the Nixon shock, Europe broke away from the dollar bloc, ultimately leading to the creation of the euro. A weakened dollar would then regain strength by colonising newly globalised economies in Asia and Latin America.
The dollar’s dominant role in the international economy has several facets. A majority of the world’s foreign exchange reserves, especially in East Asia, are held in dollars. Some countries peg their currencies to the dollar, as China did for a period. The lion’s share of international trade is denominated in dollars. The world’s oil and other commodity markets are dollar-based. The US therefore dominates the back-office of the global financial system, giving it power to spy on everybody’s transactions.
In a postscript to his book, Rogoff also reminds us that the US has a long history of allowing competitors to do well but not too well, especially if their success threatens to diminish the dominance of the US economy and the dollar.
The dollar’s international role confers many benefits on the US. Americans enjoy lower interest rates due to foreign demand for dollars. US businesses avoid exchange risk by trading in their home currency. The US government can restrict access to the US financial system to sanction other countries. Such sanctions can offer an alternative to putting boots on the ground in international conflicts.
Rogoff insists that the degree of dollar dominance was not preordained. It may have faced stronger competitors if the Soviet Union had liberalised its economy in the mid-1960s, Japan had resisted US pressure for currency appreciation in the 1980s, France had not insisted on the premature inclusion of Greece in the euro in 2001 or China had moved to a full-fledged floating exchange rate regime in 2010s.
A number of factors have been eating away at the dollar’s dominance over the past decade and will continue to do so. China is actively promoting the role of the renminbi in international transactions, though Rogoff is pessimistic about China’s economic future. The US’s active use of financial sanctions and financial spying is undermining the attraction of the dollar. President Donald Trump’s pressure on Europe to remilitarise is strengthening the continent’s credentials as a geopolitical power and improving the foundations of the euro as an international currency. Rogoff also analyses the rise of cryptocurrencies and central bank digital currencies that aim to create new non-dollar pipelines.
Perhaps the greatest threat to the dominance of the dollar may come from the US itself. US government debt is basically ‘out of control’, representing 120 percent of GDP, and neither political party has a serious plan to bring it back under control. US initiatives to reduce economic openness, compromise the rule of law and undermine the constitutional order also threaten the status of the dollar, as do political attacks on the independence of the Federal Reserve. In sum, the dollar will likely remain the world’s dominant currency, but much less dominant than in the past.
But the dollar’s dominance has been waning since 2015 with the US losing associated privileges, according to American economist Kenneth Rogoff in his latest book, Our Dollar, Your Problem. Rogoff, a Harvard professor and former chief economist at the International Monetary Fund, offers an insider’s view of seven turbulent decades of global finance—from the postwar rise of the dollar to the challenges it faces today from cryptocurrency and the Chinese renminbi.
Rogoff’s book is written in a charming style as he weaves his own professional experience into the dollar’s story, along with his teenage years as a chess grandmaster, living in the former Yugoslavia and competing against Yugoslav and Russian chess champions.
Dollar dominance was enshrined in the postwar Bretton Woods system of fixed exchange rates, under which the world’s leading currencies were pegged to the dollar. These countries could cash in their dollar holdings for gold with the US at a fixed rate of US$35 an ounce. In 1971, president Richard Nixon suspended dollar-gold convertibility—a decision referred to as the ‘Nixon shock’—leading to today’s floating exchange rates.
In response to complaints from European finance ministers, US treasury secretary John R Connelly said that the dollar ‘is our currency, but your problem’, inspiring the title of Rogoff’s book. Following the Nixon shock, Europe broke away from the dollar bloc, ultimately leading to the creation of the euro. A weakened dollar would then regain strength by colonising newly globalised economies in Asia and Latin America.
The dollar’s dominant role in the international economy has several facets. A majority of the world’s foreign exchange reserves, especially in East Asia, are held in dollars. Some countries peg their currencies to the dollar, as China did for a period. The lion’s share of international trade is denominated in dollars. The world’s oil and other commodity markets are dollar-based. The US therefore dominates the back-office of the global financial system, giving it power to spy on everybody’s transactions.
In a postscript to his book, Rogoff also reminds us that the US has a long history of allowing competitors to do well but not too well, especially if their success threatens to diminish the dominance of the US economy and the dollar.
The dollar’s international role confers many benefits on the US. Americans enjoy lower interest rates due to foreign demand for dollars. US businesses avoid exchange risk by trading in their home currency. The US government can restrict access to the US financial system to sanction other countries. Such sanctions can offer an alternative to putting boots on the ground in international conflicts.
Rogoff insists that the degree of dollar dominance was not preordained. It may have faced stronger competitors if the Soviet Union had liberalised its economy in the mid-1960s, Japan had resisted US pressure for currency appreciation in the 1980s, France had not insisted on the premature inclusion of Greece in the euro in 2001 or China had moved to a full-fledged floating exchange rate regime in 2010s.
A number of factors have been eating away at the dollar’s dominance over the past decade and will continue to do so. China is actively promoting the role of the renminbi in international transactions, though Rogoff is pessimistic about China’s economic future. The US’s active use of financial sanctions and financial spying is undermining the attraction of the dollar. President Donald Trump’s pressure on Europe to remilitarise is strengthening the continent’s credentials as a geopolitical power and improving the foundations of the euro as an international currency. Rogoff also analyses the rise of cryptocurrencies and central bank digital currencies that aim to create new non-dollar pipelines.
Perhaps the greatest threat to the dominance of the dollar may come from the US itself. US government debt is basically ‘out of control’, representing 120 percent of GDP, and neither political party has a serious plan to bring it back under control. US initiatives to reduce economic openness, compromise the rule of law and undermine the constitutional order also threaten the status of the dollar, as do political attacks on the independence of the Federal Reserve. In sum, the dollar will likely remain the world’s dominant currency, but much less dominant than in the past.