THE UNRAVELLING ORDER: DE-DOLLARISATION, GEOPOLITICAL REALIGNMENT, AND THE STRATEGIC USE OF FINANCIAL POWER

JOURNAL OF ECONOMICS, FINANCE AND INNOVATION 2025 ISSN: 2181-3299 Volume 4 Issue 6 Samarkand branch of Tashkent State University of Economics www.sbtsue.uz Journal of Economics Finance and Innovation http://sbtsue.efin.uz/index.php/imij/index 8 THE UNRAVELLING ORDER: DE-DOLLARISATION, GEOPOLITICAL REALIGNMENT, AND THE STRATEGIC USE OF FINANCIAL POWER Sonam Sherpa Assistant Professor, Department of Economics, Maynaguri College, West Bengal Abstract: Since the mid-twentieth century, the global monetary system has been structured around the supremacy of the U.S. dollar—a status initially formalised at Bretton Woods and later entrenched through the emergence of the petrodollar order. This article re-examines the accelerating trend of de-dollarisation and argues that contemporary shifts away from the dollar are less a conventional financial transition and more a response to deepening geopolitical contestation. The analysis reviews the historical evolution of dollar primacy, focusing on the fixed-rate dollargold framework, its subsequent collapse, and the consolidation of dollar power through the oilpricing system of the 1970s. The article then evaluates how the increasingly assertive use of U.S. financial sanctions—including SWIFT restrictions and reserve immobilisation—has altered strategic calculations for states seeking to insulate themselves from U.S.-centric financial leverage. In reaction, emerging powers and several middle-income economies are investing in parallel financial infrastructures, diversifying reserve holdings, and expanding local-currency settlement channels. While the dollar will continue to dominate global finance, the international system is gradually moving toward a more fragmented, politically plural monetary configuration. These developments have significant implications for global economic governance, financial stability, and geopolitical alignment. Keywords: de-dollarisation, dollar dominance, Bretton Woods, petrodollar, sanctions, SWIFT, renminbi, currency diversification, multipolarity. 1. Introduction The role of the U.S. dollar as the backbone of the international monetary system has been one of the most enduring features of the post-war global economic order. Since the 1940s, the dollar has served not only as the predominant reserve currency but also as the primary unit for international trade invoicing and the linchpin of global financial transactions. This privileged international status has historically granted the United States substantial macroeconomic advantages, including the ability to finance external deficits at lower costs and to exert disproportionate influence over global monetary and financial flows. As Eichengreen (2011) recognises, this “exorbitant privilege” has been central in shaping both the opportunities and constraints of the modern global economy (Eichengreen, 2011). Yet, over the past two decades—and especially following pivotal geopolitical confrontations—the durability of the dollar-centric system has been increasingly called into question. The term “dedollarisation” has come to describe a broad set of strategies employed by states to diminish their reliance on dollar-denominated trade, financing, and reserves. (Saaida, M, 2024). The motivations behind this shift go well beyond conventional macroeconomic considerations. A growing number of governments perceive the U.S.-dominated financial architecture as a strategic vulnerability, particularly given Washington’s expanding use of sanctions and regulatory tools as instruments of geopolitical coercion. (Dooley, M. P., Folkerts, D., & Garber, P. M, 2022, April 7). This article aims to situate contemporary de-dollarisation efforts within both their historical evolution and their geopolitical context, demonstrating that the trend is rooted in fundamental concerns about financial security and political autonomy. JOURNAL OF ECONOMICS, FINANCE AND INNOVATION 2025 ISSN: 2181-3299 Volume 4 Issue 6 Samarkand branch of Tashkent State University of Economics www.sbtsue.uz Journal of Economics Finance and Innovation http://sbtsue.efin.uz/index.php/imij/index 9 2. Historical Foundations of Dollar Dominance 2.1 The Bretton Woods Order and Post-war Monetary Architecture The foundations of dollar leadership were laid at the Bretton Woods Conference in 1944, where delegates from allied nations negotiated a framework to stabilise international finance after the turbulence of the Great Depression and the destruction of global war. The resulting system placed the United States at the centre of the international monetary order. Under the agreement, the dollar became the sole currency convertible into gold at a fixed price, while all other currencies were pegged to the dollar (Steil, 2013). This structure effectively elevated the dollar to the role of global anchor and reserve currency. At the institutional level, the creation of the IMF and the World Bank further consolidated U.S. financial leadership, since these organisations largely relied on dollar-based resources and policy instruments. However, the system contained an internal contradiction later described by Robert Triffin (1960): the international demand for liquidity required persistent U.S. deficits, yet these same deficits gradually eroded confidence in the dollar’s long-term stability. As global trade expanded through the 1950s and 1960s, foreign holdings of dollars grew to levels that increasingly exceeded the U.S. gold stock. (Triffin, R, 1960). Mounting fiscal pressures from the Vietnam War and domestic spending programmes intensified doubts regarding the sustainability of convertibility. In 1971, the Nixon Administration suspended the dollar’s link to gold, dismantling the Bretton Woods system of fixed exchange rates. While this watershed moment could have destabilised U.S. monetary supremacy, it instead set the stage for a reconfiguration of dollar power through the energy markets. (Cento, M, 2025). 2.2 The Consolidation of Dollar Supremacy through the Petrodollar Regime The dollar regained and expanded its dominance during the 1970s through the formation of what later came to be known as the petrodollar system. After the 1973 oil shock, U.S. policymakers negotiated a critical arrangement with Saudi Arabia, the world’s most influential oil exporter, ensuring that oil would continue to be priced exclusively in dollars. In return, the United States offered security guarantees, and Saudi Arabia reinvested substantial portions of its oil revenues into U.S. Treasury securities (Clark, 2005). This bilateral understanding soon spread across OPEC, creating a structural linkage between global energy demand and the continued use of the dollar. The recycling of oil surpluses into U.S. markets helped stabilise American fiscal positions and reinforced the centrality of the dollar in international trade (Gokay, 2006). More broadly, the petrodollar arrangement deepened U.S. structural power by embedding the dollar within the essential infrastructure of global commerce. As Strange (1988) argues, this form of structural power derives not merely from economic size but from the ability to define the rules and institutions that underpin global markets. (Strange, S, 2015). The institutionalisation of the petrodollar thus represented not merely an economic convenience but a major strategic asset. However, as global financial interdependencies grew, so too did the capacity of the United States to deploy the financial system as an instrument of foreign policy—an evolution with far-reaching consequences. 3. The Strategic Deployment of Financial Infrastructure 3.1 SWIFT, Dollar Clearing, and the Politics of Financial Connectivity Within the architecture of global finance, SWIFT—the Belgium-based financial messaging network—plays a central role in enabling cross-border transactions. Although SWIFT does not itself transfer funds, its system is deeply embedded in the mechanisms through which banks JOURNAL OF ECONOMICS, FINANCE AND INNOVATION 2025 ISSN: 2181-3299 Volume 4 Issue 6 Samarkand branch of Tashkent State University of Economics www.sbtsue.uz Journal of Economics Finance and Innovation http://sbtsue.efin.uz/index.php/imij/index 10 validate and coordinate payments, including those denominated in dollars. Because the U.S. maintains regulatory authority over dollar-clearing operations, its influence extends significantly into the functioning of global financial networks (Xu, W, 2020). The geopolitical significance of this infrastructure became unmistakable in 2012 when several Iranian banks were disconnected from SWIFT as part of a broader sanctions package targeting Iran’s nuclear programme. The resulting economic contraction demonstrated the profound implications of exclusion from global financial communication (Masters, 2023). The stakes became much higher in 2022 following Russia’s invasion of Ukraine. The United States and its allies not only limited Russia’s access to SWIFT but also immobilised a large share of Russia’s central bank reserves held abroad—an unprecedented step against a major global power (Zabelina, 2023). This action challenged a longstanding assumption that sovereign reserves are politically untouchable, prompting significant concern across both adversaries and partners of the United States (Setser, 2022). These episodes fundamentally altered how states evaluate the risks associated with reliance on the U.S.-dominated financial order. What had previously been perceived as neutral market infrastructure increasingly came to be seen as a strategic vulnerability. 4. Geopolitical Responses and the Reorientation of Monetary Strategies 4.1 China’s Systematic Approach to Reducing Dollar Exposure China has undertaken the most ambitious and strategically synchronized initiatives to reduce dependence on the dollar. While early efforts to internationalise the renminbi were cautious and incremental, recent geopolitical developments have accelerated the pace and scope of these reforms. First, China has significantly expanded local-currency settlement in bilateral trade, particularly with Russia, Brazil, and several Middle Eastern states. As of 2023, the majority of China–Russia trade is conducted in renminbi and rubles (Kynge et al., 2023). Second, the People’s Bank of China has established a wide network of bilateral currency swap lines now numbering more than forty—which provide liquidity for foreign partners engaging in renminbi based settlement (PBOC, 2023). Third, China has developed the Cross-Border Interbank Payment System (CIPS), a platform designed to facilitate renminbi transactions independently of SWIFT. Although CIPS still relies partly on SWIFT for messaging, it represents a critical step toward building a parallel financial infrastructure (Prasad, 2023). Finally, China’s leadership in central bank digital currency development with the e-CNY offers a future channel for cross-border payments that could circumvent dollar-based intermediaries. These efforts collectively reflect a purposeful strategy to expand the international reach of the renminbi and reduce China’s exposure to potential U.S. financial pressure. 4.2 Broader International Initiatives and Emerging Coalitions While China’s approach is the most coordinated, other actors are also contributing to the erosion of the dollar’s singular dominance. The BRICS coalition has discussed developing shared payment platforms and, more ambitiously, exploring the feasibility of a joint reserve instrument, signalling collective interest in reducing dependence on dollar financing (BRICS, 2023). India, meanwhile, has introduced mechanisms for international settlement in the rupee, especially in trade with Russia and the UAE (Dhasmana, 2023). Saudi Arabia—long a cornerstone of the petrodollar system—has shown interest in accepting alternative currencies for some oil transactions, indicating a possible reorientation of its strategic economic partnerships (Kalin & Said, 2023). Taken together, these developments reveal a gradual but tangible movement toward greater monetary pluralism. JOURNAL OF ECONOMICS, FINANCE AND INNOVATION 2025 ISSN: 2181-3299 Volume 4 Issue 6 Samarkand branch of Tashkent State University of Economics www.sbtsue.uz Journal of Economics Finance and Innovation http://sbtsue.efin.uz/index.php/imij/index 11 5. The Prospect of a Multipolar Monetary System Despite accelerating de-dollarisation initiatives, a decisive displacement of the dollar remains improbable in the short to medium term. The depth and transparency of U.S. financial markets, along with the absence of comparably robust alternatives, continue to support the dollar’s central role. The euro’s long-term prospects are constrained by institutional fragmentation within the Eurozone, while the renminbi’s global appeal is compromised by capital controls and limited financial liberalisation (Eichengreen, 2022). Nonetheless, the present trajectory suggests the emergence of a more fragmented system in which multiple currencies coexist and compete across different functional domains. Under such a scenario, the dollar would remain the leading global currency, but its dominance would no longer be uncontested. Regional blocs could increasingly rely on their own monetary anchors, and the boundary between economic integration and geopolitical alignment may become sharper. This transition carries meaningful risks. As Farhi and Maggiori (2018) observe, the absence of a single stabilising currency could introduce volatility, reduce the efficiency of global capital allocation, and intensify geopolitical competition. Managing this transition will require careful coordination among states and global institutions to avoid financial fragmentation (Farhi, E, & Maggiori, M, 2018). 6. Conclusion The evolving landscape of de-dollarisation reflects a wider geopolitical transformation rather than a merely technical adjustment in international finance. The historical foundations of dollar dominance—from the Bretton Woods order to the consolidation of the petrodollar system—have long provided stability and global coherence. However, the strategic use of financial channels, particularly in the form of sanctions and reserve immobilisation, has highlighted the vulnerabilities inherent in a system dominated by a single currency issuer. In response, both emerging powers and established states are constructing alternative financial pathways, promoting local-currency settlement, expanding currency swap networks, and investing in new payment infrastructures. While the dollar will continue to play a central role, its monopoly is gradually giving way to a more diversified and politically contested monetary landscape. 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