2026 will be the year when US dollar dilution—the quiet erosion of its global dominance as countries trade and pay in alternatives—starts to build momentum. The more Washington uses the dollar as a weapon, the more the world builds ways to circumvent it.
America’s share of global trade has fallen from one-third in 2000 to just one-quarter today. As emerging economies trade more with each other, the dollar is less central to the flow of goods. Indian and Russian trade now settles in rupees, dirhams, and yuan. More than half of China’s trade now moves through CIPS, China’s own cross-border payment system, instead of SWIFT—the global messaging network long dominated by Western banks. Other trading 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 starting to accumulate currencies other than the dollar as reserves. The dollar made up 72 percent of global reserves in 1999. Today, it’s down to 58 percent—and falling. A currency is safe only if it’s perceived to be safe. But perceptions are shifting.
Ballooning US fiscal deficits—projected at $1.9 trillion in 2025—together with a widening current-account gap, estimated at 6 percent of GDP, are adding pressure to the dollar. On top of this is the overuse of the “printing press,” meaning the creation of large amounts of new money to finance spending. Once cushioned by the dollar’s “exorbitant privilege” as the world’s dominant reserve currency, these trends now raise questions about global confidence in the greenback.
Even the US Treasury market, once assumed to be infinitely liquid and universally acceptable as pristine collateral, has lost its luster. As of now, there is over $27 trillion in US Treasury bonds—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 on dealer balance sheets. But large financial institutions like JPMorgan, Citi, and Goldman that have been primary dealers providing liquidity, haven’t scaled accordingly. Currently, if everyone wants to sell, there are not enough balance sheets to absorb the selling—unless the Fed steps in. This has been the case since the March 2020 Treasury market meltdown, which marked a historic failure of the world’s most liquid and trusted market—US Treasuries—to function in a moment of stress without central bank intervention.
In 2026, the real threat to the dollar may not come from a single rival currency. Instead, it will come from alternative payment and settlement systems built to bypass dollar-based channels—especially in emerging markets that never fully enjoyed the security of dollar liquidity or reliable access to dollar networks.
The race to design alternatives is taking off. One such alternative is mBridge—a project where central banks in China, Hong Kong, Thailand, and the United Arab Emirates are working with the Bank for International Settlements to build a system that lets countries pay each other instantly using their own digital versions of national currencies. Another is BRICS pay, which would allow BRICS+ countries—Brazil, Russia, India, China, South Africa, and their new members—to send money to each other for trade and investment directly in their own currencies. These are meant to make trade faster, cheaper, and less dependent on the dollar.
