The dollar is about to end its dominance

2026 will be the year when US dollar dilution – the quiet erosion of its global dominance as countries trade and pay with alternatives – begins to gain momentum. The more Washington uses the dollar as a weapon, the more the world seeks to circumvent it.

America’s share of world trade has fallen from a third in 2000 to only a quarter today. As emerging economies trade more with each other, the dollar plays less of a central role in the flow of goods. Indian and Russian trade is now settled in rupees, dirhams and yuan. More than half of China’s trade now goes through CIPS, China’s cross-border payments system, instead of SWIFT, the global messaging network long dominated by Western banks. Other trade partnerships like Brazil-Argentina, UAE-India and Indonesia-Malaysia are also piloting local currency settlements.

At the same time, central banks around the world are beginning to accumulate currencies other than the dollar as reserves. The compound dollar 72 percent of world reserves in 1999. Today, it is 58 percent– and fall. A currency is only safe if it is perceived to be safe. But perceptions are changing.

The explosion of American budget deficits – projected at $1.9 trillion in 2025 – alongside a growing current account gap, estimated at 6 percent of GDP, add pressure on the dollar. Added to this is the excessive use of “printing money”, which means the creation of large quantities of new money to finance expenses. Once mitigated by the dollar’s “exorbitant privilege” as the world’s dominant reserve currency, these trends are now raising questions about global confidence in the greenback.

Even the U.S. Treasury market, once considered infinitely liquid and universally acceptable as ironclad collateral, has lost its luster. For now there is more 27 trillion dollars in U.S. Treasuries – loans from investors to the government, backed by the full faith and credit of the United States – circulating in the global financial system. That means more bonds to trade, more to settle, more to repo, and more to absorb into brokers’ balance sheets. But large financial institutions like JPMorgan, Citi and Goldman, which were prime brokers providing liquidity, have not moved accordingly. Currently, if everyone wants to sell, there aren’t enough balance sheets to absorb the selling – unless the Fed intervenes. This has been the case since the collapse of the Treasury market in March 2020, which marked a historic failure of the world’s most liquid and reliable market – US Treasuries – to function in a period of stress without central bank intervention.

In 2026, the real threat to the dollar may not come from a single rival currency. Instead, they will come from alternative payment and settlement systems designed to bypass dollar-based channels, particularly in emerging markets that have never fully enjoyed the security of dollar liquidity or reliable access to dollar networks.

The race to design alternatives begins. One of these alternatives is mBridge— a project in which the central banks of China, Hong Kong, Thailand and the United Arab Emirates are working with the Bank for International Settlements to create a system that allows countries to pay each other instantly using their own digital versions of their national currencies. Another is BRICS paywhich would allow BRICS+ countries (Brazil, Russia, India, China, South Africa and their new members) to send each other money for trade and investment directly in their own currencies. These aim to make trade faster, cheaper and less dependent on the dollar.