The Dollar Always Wins - A History of De-Dollarisation Attempts

by Dhwani Aachi

Introduction

In October 2024, the leaders of nine nations gathered in Kazan, Russia, for the BRICS summit, and put the dollar on trial. With members and observers spanning four continents and representing over a third of global GDP, the coalition called explicitly for reducing dependence on Western financial infrastructure and accelerating the development of alternatives to dollar-dominated payment systems. The previous year, Brazilian president Luiz Inácio Lula da Silva criticised the US dollar: “Why should every country have to be tied to the dollar for trade? Who decided the dollar would be the world’s currency?” Yet the dollar ended 2024 at a near two-year high. The history of de-dollarisation reveals how every serious challenge to the dollar has failed not for economic reasons, but for political ones.

The Dollar as a Political Institution

The dollar did not become the world’s dominant reserve currency because the United States had the largest economy, but because America built, and for decades sustained, a political and economic order in which holding dollars was the rational choice for almost every state on earth. That is the logic Charles Kindleberger, famed economic historian, identified at the heart of Hegemonic Stability Theory: stable international systems require a dominant power willing to provide public goods, such as open markets, a reliable currency, and security guarantees, and that power’s currency becomes the system’s anchor.

Trust in the dollar is ultimately trust in American institutions. Investors and central banks hold dollars not just because US capital markets are the deepest in the world, but because they trust that Washington will honour its obligations, that the Federal Reserve will act independently, and that the rule of law will protect their assets. That trust is not guaranteed. It is a political achievement, renewed or eroded by every policy decision Washington makes. Dollar dominance, for all its apparent permanence, rests on a foundation that is more fragile and more political than its champions usually admit.

A History of Failed Challenges

Each challenge to the dollar’s dominance has arrived with genuine economic logic and real political momentum, yet has foundered on the same obstacle: the gap between wanting a different monetary order and the ability to build one.

The first great test came right after Bretton Woods. When Nixon closed the gold window in August 1971, where the dollar became unmoored from gold, he did so unilaterally, with no international consultation. French finance minister Valéry Giscard d’Estaing had already coined the phrase “exorbitant privilege” to describe America’s ability to run deficits and print the world’s reserve currency without consequence, and now Nixon was proving his point. By right, dollar credibility should have collapsed.

However, it did not, due to a secret arrangement negotiated by then US Secretary of State Henry Kissinger and Treasury Secretary William Simon with Riyadh in 1974: Saudi Arabia would price its oil in dollars and recycle its surpluses into US treasury bonds, and the United States would provide security guarantees and military equipment in return. As a result, the dollar replaced its anchor of gold with oil and the political loyalty of the Gulf.

Kissinger rebuilt dollar dominance on an entirely new political foundation within three years. The lesson was not that the dollar was invincible, but that the United States had the political agency and strategic creativity to reinvent the terms of its dominance when cornered.

The launch of the euro in 1999 represented the most structurally serious challenge the dollar had ever faced. It was a reserve currency issued by an economic bloc of comparable size, with deep capital markets and credible institutions. For a decade, it seemed to be working: the euro’s share of global reserves climbed steadily, and economists began writing about a bipolar monetary system. Then, the eurozone crisis of 2010 exposed the currency’s fundamental political flaw. A reserve currency needs a sovereign behind it, a fiscal authority that can issue safe assets in unlimited quantities when panic strikes. When markets turned on Greece, Italy, and Spain, there was no European Treasury to backstop their debt, because Europe’s member states had never been willing to pool the fiscal sovereignty that monetary union required. The euro’s failure to dethrone the dollar was, at its core, a political one.

The 2022 decision to freeze around $300 billion of Russia’s central bank reserves was of a different character entirely. Previous dollar challenges had been ideological or opportunistic; this was existential. For the first time, a G20 economy had seen its sovereign reserves weaponised, and central banks across the Global South began diversifying into gold. Conversations about alternatives to SWIFT accelerated sharply. Yet the flight from the dollar remained modest, because there was nowhere else to go. The yuan was not convertible. Gold was illiquid. No alternative had the political infrastructure to absorb the demand. The crisis revealed dollar weaponisation as a genuine long-run vulnerability, but it also revealed just how completely the alternatives had failed to materialise.

For the Gulf states, the freezing of Russia’s reserves was particularly unsettling. Since Kissinger’s 1974 arrangement, they had been the dollar system’s most important political partners, and that partnership had always rested on an assumption of American reliability. Saudi Arabia’s presence at Kazan was a strategic reassessment of whether that reliability could still be taken for granted. And yet motivation, as every previous challenger discovered, is not the same as capacity. BRICS+ encompasses economies with diverse interests and, in the case of China and India, active strategic competition. The present challenge, for all its apparent novelty, follows the pattern of every previous one.

Why This Pattern Holds

Institutional trust explains why the dollar earned its position, but it does not fully explain why that position has proven so difficult to displace. There is an asymmetry built into monetary competition that challengers consistently underestimate. Displacing a reserve currency requires convincing the entire system to switch simultaneously. The incumbent only has to make switching costly enough that no one moves first. In network economics, this is a coordination problem, and it systematically favours the status quo.

This is why the United States has been able to absorb shocks that would have displaced any challenger. After 1971, after the inflation of the 1970s, after 2008, the dollar weakened but held. The persistence of dollar dominance through each of these episodes is less a testament to American strength than to the structural difficulty of coordinating a system-wide switch among states with competing interests.

Conclusion

The history of de-dollarisation reveals a consistent pattern. Every serious challenge has correctly identified the dollar system’s flaws, and every serious challenge has failed to solve the political problem of replacing it. The coordination costs are too high, the alternatives too shallow, and the institutional trust too hard to manufacture quickly enough to matter.

The present moment may yet prove different, though not necessarily for the reasons its proponents expect. External challengers face the same structural obstacles as every previous attempt. What is less historically familiar is the pressure the dollar system is facing from within: the erosion of Federal Reserve independence, the aggressive use of sanctions, and a broader uncertainty about the reliability of American institutions. Whether that changes the calculus for states currently sitting on the fence remains to be seen. But it introduces a variable that fifty years of de-dollarisation attempts have never had to account for.

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