Dollar at the Brink? Wars, Debt, and the Future of the World’s Reserve Currency
DOI:
https://doi.org/10.68903/iilmr.v01i02.02Keywords:
Dollar hegemony, de-dollarisation, reserve currency, petrodollar, Bretton Woods, BRICSAbstract
The US dollar’s reserve currency primacy is under gradual but measurable structural stress. This paper makes two original theoretical contributions. First, we introduce the Reserve Currency Credibility Stack (RCCS): a framework proposing that reserve currency dominance rests on four interdependent layers—institutional, fiscal, energy, and geopolitical—whose erosion is non-linear. When two or more layers are simultaneously under stress, feedback loops emerge that accelerate deterioration across the stack. Second, we introduce the kinetic risk premium: a new category of sovereign asset risk that arises when financial coercion escalates into direct military force as an instrument of geoeconomic statecraft. Applied to current conditions, the RCCS predicts the pattern the data confirm: steady erosion in the share of the world’s reserves held in dollars (fiscal and institutional layers under stress), alongside intact dominance in how the dollar is actually used in trade and finance (network effects layer still strong). IMF (International Monetary Fund) COFER (Currency Composition of Official Foreign Exchange Reserves) data show reserve share declining from 72\% in 2001 to 57.7\% in 2025. We present three forward scenarios with indicative probability weights and derive concrete implications for reserve management, corporate treasury strategy, and fixed income positioning.
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