In the Name of Allah---the Most Beneficent, the Most Merciful.
The US dollar has long served as the world’s dominant reserve currency, underpinning the global financial system for decades. However, mounting economic pressures and shifting geopolitical dynamics have led to increasing speculation about the dollar’s decline. Several key factors contribute to the potential collapse of the US dollar, including unsustainable debt, weaponization of the currency, continuous military conflicts, and the growing demand for digital currencies by central banks.
1. Unsustainable US Debt: A Burgeoning Crisis
The US national debt has reached unsustainable levels, significantly increasing over the last five decades. In the 1970s, the US debt-to-GDP ratio stood at a manageable 30%, but today it has surged to 123%, raising concerns about the government’s ability to meet its financial obligations. The expansion of debt has been driven by excessive government spending, tax cuts, and stimulus programs, particularly in response to economic crises such as the 2008 financial meltdown and the COVID-19 pandemic.
A high debt-to-GDP ratio reduces confidence in the dollar’s long-term stability. Investors and foreign governments that hold US debt, particularly China and Japan, may seek alternatives as concerns over debt monetization and inflation rise. The more the Federal Reserve prints money to service debt, the greater the risk of devaluation, and eroding purchasing power domestically and internationally. If trust in US debt sustainability diminishes, the dollar could face a rapid decline in global markets.
2. Weaponization of the US Dollar: A Double-Edged Sword
The US has increasingly used the dollar as a tool for economic coercion, imposing sanctions on countries such as Russia, Iran, and Venezuela. By leveraging its control over the global financial system, the US restricts access to the dollar-based financial network, punishing adversarial nations. While this strategy has been effective in the short term, it has incentivized targeted countries to seek alternatives, accelerating de-dollarization efforts.
Russia, China, and other nations have responded by creating their own payment systems, reducing reliance on SWIFT (the US-controlled international banking network), and increasing bilateral trade in local currencies. For example, China’s Cross-Border Interbank Payment System (CIPS) offers an alternative to SWIFT, facilitating transactions in yuan. Similarly, BRICS nations (Brazil, Russia, India, China, and South Africa) have explored the possibility of launching a new currency to challenge the US dollar’s dominance.
If the weaponization of the dollar continues, more countries may opt out of the US-led financial system, eroding the dollar’s status as the global reserve currency.
3. Continuous Wars and Geopolitical Alliances: Eroding Confidence in US Leadership
The US has engaged in continuous military conflicts over the past decades, from Afghanistan and Iraq to Syria and Ukraine. These wars have drained financial resources, increased government debt, and fueled global resentment towards US interventionist policies. The perception of US instability and overreach has led emerging powers to seek financial and military independence from Washington.
Additionally, shifting geopolitical alliances are challenging the US-led economic order. The Belt and Road Initiative (BRI), spearheaded by China, is expanding trade networks independent of US influence. The Shanghai Cooperation Organization (SCO) and BRICS are also working towards financial independence from the dollar-based system. The more nations shift away from US-aligned economic structures, the weaker the dollar’s global standing becomes.
4. Boosting of Digital Currency Demand by Central Banks
The rise of central bank digital currencies (CBDCs) poses another major threat to the dollar’s dominance. Nations around the world are developing their own digital currencies to reduce dependence on the US financial system. China’s digital yuan has already been implemented in domestic transactions and cross-border trade, while the European Central Bank and BRICS nations are exploring similar initiatives.
Digital currencies allow countries to bypass traditional financial intermediaries, reducing exposure to US-imposed sanctions and currency fluctuations. If CBDCs gain widespread adoption, demand for the dollar as a global reserve currency will decline, further weakening its position.
5. Saudi Arabia Joins mBridge
mBridge is a collaborative project involving multiple central banks and the BIS Innovation Hub. It aims to develop a multi-central bank digital currency platform to facilitate seamless and efficient wholesale cross-border payments. The initiative seeks to address key challenges in international transactions, including high costs, inefficiencies, and settlement delays.
The US ally Saudi Arabia, a major player in the world economy, initially joined mBridge as an observer, monitoring its progress while evaluating potential benefits and risks. By becoming an active participant, SAMA is now directly involved in the testing, development, and implementation of cross-border CBDC solutions. This move aligns with the Kingdom’s Vision 2030, which emphasizes digital transformation and financial innovation.
6. Russia and China Plans to Use CBDC for Cross-Border Payments in 2025
Russia and China have announced plans to implement central bank digital currencies (CBDCs) for cross-border payments by 2025. This initiative aims to reduce reliance on the US dollar and bypass Western-controlled financial systems. The digital yuan and the digital ruble are being developed with blockchain-based settlement mechanisms, allowing for faster, more secure, and sanction-resistant transactions.
By using CBDCs, both nations seek to enhance economic cooperation and integrate their financial networks. This move aligns with broader de-dollarization efforts and poses a direct challenge to the US dollar’s dominance in international trade. If successful, this development could accelerate global adoption of alternative financial systems, further weakening the dollar’s influence.
Conclusion: A Gradual but Inevitable Decline?
While the collapse of the US dollar may not happen overnight, the signs of its weakening grip are evident. Unsustainable debt, geopolitical tensions, and alternative financial systems are collectively eroding trust in the dollar. If de-dollarization efforts accelerate and central banks shift towards digital currencies, the world may witness a significant shift away from US financial hegemony. The coming years will determine whether the dollar can retain its dominance or if a multipolar financial order emerges, reshaping global economic power dynamics.
