In 2026
This year marks a turning point for the US dollar, as its grip on global dominance starts to weaken. As the US increasingly wields the dollar as a geopolitical tool, many nations are exploring alternatives for trade and payments.
America’s stake in global trade has noticeably declined, dropping from about a third in 2000 to around a quarter today. With trade ramping up among emerging economies, the dollar is becoming less central. For instance, transactions between India and Russia are now often settled in rupees, dirhams, or renminbi. Surprisingly, more than half of China’s trade is processed through its own cross-border payment system, CIPS, instead of the traditional SWIFT network. Similar shifts are happening in other partnerships, like Brazil and Argentina, and India and the UAE, which are initiating local currency trades.
Meanwhile, central banks worldwide are amassing reserves in currencies other than the dollar. In 1999, the dollar made up around 72 percent of global reserves, but that has since dropped to about 58 percent. This indicates a shift; a currency’s safety is largely tied to its recognition—and that perception appears to be evolving.
The increasing US budget deficit is also noteworthy, projected to hit around $1.9 trillion in 2025. Coupled with a widening current account gap affecting around 6 percent of GDP, this creates additional pressure on the dollar. The overuse of monetary printing to fund spending raises questions about global faith in the dollar, which has historically benefited from its status.
Even the U.S. Treasury market, once seen as an unshakeable pillar of stability, appears to be losing its appeal. With over $27 trillion in US government bonds swirling through the global marketplace, any attempt to sell could be problematic. Major banks, like JPMorgan and Goldman Sachs, haven’t adjusted their balance sheets to accommodate surges in bond trading. This was starkly highlighted during the Treasury market’s turmoil in March 2020, which revealed vulnerabilities that weren’t supposed to exist in such a trusted market.
Looking ahead to 2026, the true challenge to the dollar may not arise from a specific competing currency, but rather from various alternative payment systems designed to avoid dollar-based frameworks. This is particularly relevant for emerging markets, which haven’t fully leveraged dollar liquidity before.
Efforts to create alternative systems are underway. One such initiative is called m bridge, where the central banks of China, Hong Kong, Thailand, and the UAE collaborate with the Bank for International Settlements to develop a method allowing for instant payments in digital forms of their currencies. Another is the BRICS payments system, enabling BRICS+ countries to trade and invest using their own currencies directly, ultimately aiming to facilitate faster and cheaper trade while reducing reliance on the dollar.
