Article: Li Jiange, Tian Yuan, FT Chinese Network
In the grand structure of the global financial system, the US dollar has long occupied a core position, and the establishment and evolution of the "dollar anchor" behind it profoundly influence the direction of the world economy. The dollar anchor is essentially the foundation of the dollar's value and its source of credit, akin to the cornerstone of a financial edifice, establishing the dollar's status in the international monetary system.
Since the 20th century, the dollar anchor has undergone four significant developmental stages, from the early gold dollar to the petrodollar, then to the dollar backed by US debt, and now moving towards the exploration of the digital dollar. Each transition has been accompanied by major adjustments in the international political and economic landscape, reflecting the strategic intent of the United States to maintain financial hegemony and control the global economic discourse at different times. A deep analysis of these four stages not only helps to understand the formation and maintenance mechanisms of the dollar's dominant position but also provides insights into the future transformation trends of the global financial system, offering key references for countries to formulate financial strategies and respond to external financial shocks.
I. Gold Dollar: The Brief Glory Under the Bretton Woods System
The two World Wars reshaped the global political and economic landscape. The United States, benefiting from its homeland being largely untouched by direct warfare, saw rapid industrial capacity development and a dramatic expansion of economic strength. On the eve of World War II's end, the global economic order was in urgent need of reconstruction. In July 1944, representatives from 44 countries gathered in Bretton Woods, New Hampshire, USA, to hold the United Nations Monetary and Financial Conference. The conference established an international monetary system centered on the dollar—the Bretton Woods system. The core of this system was the "double peg" principle: the dollar was pegged to gold, with a fixed exchange rate of 35 dollars per ounce of gold, and the US government assumed the obligation to exchange gold at this official price; other countries' currencies were pegged to the dollar, maintaining fixed exchange rates with it.
The establishment of this system effectively elevated the dollar to the status of an international reserve currency equivalent to gold. At that time, the US held about 75% of the world's gold reserves, and this substantial gold backing provided a solid credit endorsement for the dollar, making it widely accepted in international trade and financial transactions. Essentially, the Bretton Woods system was a form of international gold exchange standard, with the dollar serving as a bridge connecting various national currencies to gold, and the global monetary system operating around the dollar as its core, marking the beginning of the dollar's dominance in the international financial order.
Under the Bretton Woods system, trade settlements among countries were predominantly conducted in dollars. Exporting countries, after earning dollars, could choose to exchange them for gold to increase their gold reserves if they had no demand for US goods; importing countries needed to exchange their local currency for dollars to pay for imports. In this process, the dollar, as an international means of payment and reserve currency, facilitated the expansion of international trade and the recovery of the global economy. The US, by exporting dollars, purchased global goods and resources, enjoying "exorbitant privilege."
However, this system harbored a fatal flaw from the outset, known as the "Triffin Dilemma." American economist Robert Triffin pointed out that as the issuer of the international reserve currency, the US faced two contradictory goals. On one hand, to meet the global demand for dollars, the US needed to export dollars through a balance of payments deficit; on the other hand, to maintain the dollar's convertibility with gold, the US had to keep a balance of payments surplus to accumulate gold reserves. As the global economy developed and demand for dollars increased, the US's balance of payments deficit continued to expand, leading to mounting pressure on the dollar's convertibility with gold. By the late 1960s, the outflow of US gold reserves made it increasingly difficult to support the massive demand for dollar conversions, and the gold dollar system was on the brink of collapse.
In the 1960s, the US was mired in the Vietnam War, with significant increases in fiscal spending and high domestic inflation, leading to a sharp deterioration in its balance of payments. Other countries lost confidence in the dollar and began exchanging dollars for gold, accelerating the outflow of US gold reserves. On August 15, 1971, the Nixon administration announced the implementation of a "new economic policy," ceasing the obligation for foreign governments or central banks to exchange dollars for gold with the US. This landmark event marked the end of the fixed exchange rate system between the dollar and gold, leading to the collapse of the Bretton Woods system. Subsequently, the dollar's exchange rate began to float freely, and the gold dollar system became history. Although the gold dollar system lasted only a little over 20 years, it laid the foundational status of the dollar in the international monetary system, and the subsequent evolution of the dollar anchor unfolded under its influence, setting the stage for the construction of US financial hegemony.
II. Petrodollar: The Deep Binding of Geopolitics and Finance
After the dollar decoupled from gold, the international monetary system fell into a brief period of chaos, and the dollar urgently needed to find a new value anchor to maintain its dominant position as an international currency. At this time, oil, as the most important strategic energy source globally, increasingly highlighted its key role in the modern industrial system. In the early 1970s, the international political situation was tumultuous, with the Middle East, as the world's largest oil-producing region, experiencing continuous geopolitical conflicts. In October 1973, the Fourth Middle East War broke out, and the Organization of Arab Petroleum Exporting Countries (OAPEC) took measures such as reducing oil production, imposing embargoes, and raising prices to strike against Israel and its supporters, triggering the first oil crisis, with international oil prices soaring from $3.01 per barrel to around $12 in 1974, resulting in massive surpluses in the international balance of payments of oil-exporting countries.
The US keenly seized this opportunity and actively engaged in secret negotiations with major oil-producing countries in the Middle East, such as Saudi Arabia. As the world's largest oil exporter, Saudi Arabia held significant influence within OAPEC. In 1974, the US and Saudi Arabia reached an agreement whereby Saudi Arabia agreed to price and settle oil exports exclusively in dollars, while the US would provide military protection and economic assistance to Saudi Arabia and promised to purchase Saudi government bonds to help with infrastructure development. Subsequently, other OAPEC member countries followed suit, and the petrodollar system began to take shape.
Once the petrodollar system was established, it formed a unique closed-loop operational mechanism. Countries around the world, in order to obtain oil, a necessity, had to first hold dollars. This significantly increased the demand for dollars in international trade settlements, solidifying the dollar's status as an international currency. Oil-exporting countries earned substantial dollar revenues from oil exports, referred to as "petrodollars." Due to the single-structure economy of oil-exporting countries, which could not absorb such vast amounts of funds, most petrodollars flowed back to US financial markets, purchasing US government bonds, stocks, real estate, and various assets. The US then utilized the returning petrodollars to continue importing global goods and services, maintaining its consumption-driven economic model, and through monetary policy and financial market operations, redistributed petrodollars back into the global economic system.
For example, oil-exporting countries deposited petrodollars in US banks, which then lent these funds to other countries for oil imports or investments, allowing funds to circulate globally. In this process, the US not only controlled the pricing and settlement rights of global oil trade but also absorbed global funds through financial markets, further strengthening its position as a financial center. At the same time, the US maintained stability in the Middle East through military power, ensuring the normal operation of the petrodollar system. The US deployed a large military presence in the Middle East, exerting political influence over oil-producing countries, and whenever there were destabilizing factors threatening the petrodollar system, the US would quickly intervene, such as launching the Gulf War, to protect the core interests of the petrodollar system.
The petrodollar system has had a profound impact on the global economy. On the positive side, it has provided stable energy supply and financial support for global economic growth. Stable oil trade settled in dollars has promoted the development of international trade, reinforcing the dollar's status as an international payment and reserve currency, and advancing the integration process of global financial markets. The large accumulation of petrodollars by oil-exporting countries, through investments in US government bonds and other financial assets, has provided the US with cheap funds, supporting its fiscal deficit and economic development, while also offering some external financing sources for other countries.
However, the petrodollar system has also brought about numerous negative effects. Oil prices are closely linked to the dollar's exchange rate, and fluctuations in the dollar's value directly affect oil price volatility, increasing uncertainty in the global economy. When the dollar depreciates, oil prices rise, leading to imported inflation and impacting the economies of other countries; conversely, a stronger dollar may reduce the income of oil-exporting countries, affecting their economic stability. Additionally, the petrodollar system exacerbates global economic imbalances. The US has long been in a trade deficit, relying on the return of petrodollars to sustain its economy, while other countries, in order to obtain dollars, have to export large quantities of goods, leading to increasingly severe global trade imbalance issues. At the same time, the massive inflow of petrodollars has caused some oil-exporting countries to become overly dependent on oil exports, resulting in a single economic structure and weak risk resistance.
III. Dollar Debt: Credit Support Driven by Debt
Since the 21st century, the international political and economic landscape has undergone profound changes. On one hand, emerging economies have rapidly risen, contributing increasingly to global economic growth, and the international trade pattern has gradually diversified, putting pressure on the petrodollar system. On the other hand, the US itself has undergone structural changes, with the financial services sector growing in importance within the economy, and the virtual economy excessively expanding. In 2008, the US subprime mortgage crisis erupted, quickly evolving into a global financial crisis that severely impacted the global economy. During the crisis, the US government implemented large-scale quantitative easing policies to rescue the market, leading to a sharp increase in fiscal deficits and a rapid expansion of national debt. By December 29, 2023, the total US national debt surpassed $34 trillion for the first time, meaning that if this debt were distributed among the US population, the per capita debt would exceed $100,000.
Against this backdrop, US debt gradually became a new important support for the dollar. With its strong national credit and the most developed financial market globally, US debt became viewed as a "safe asset" by global investors. Countries around the world, seeking to preserve and increase the value of their foreign exchange reserves, began purchasing large amounts of US debt, leading to the emergence of the dollar debt system. The dollar debt system is essentially based on US national credit, absorbing global funds through the issuance of government bonds to maintain the dollar's dominant position in the international monetary system. The US government monetizes its fiscal deficit by selling government bonds to the Federal Reserve and global investors. After the Federal Reserve purchases government bonds, it injects base currency into the market, increasing market liquidity, allowing dollars to continuously flow globally.
The operation of the dollar debt system relies on global investors' trust in US national credit. As the world's largest economy, the US possesses abundant resources, strong technological innovation capabilities, and military power, which are perceived as indicators of strong debt repayment ability. US government bonds are characterized by high liquidity and relatively stable returns, attracting global investors. Central banks of various countries regard US debt as an important component of their foreign exchange reserves to maintain the stability of their local currency exchange rates and international payment capabilities. For example, countries like China and Japan have long been major foreign holders of US government bonds.
When the US government faces a fiscal deficit, it raises funds by issuing government bonds. These bonds are sold globally, and when foreign investors purchase US debt, dollars flow back to the US. The US uses these funds for domestic infrastructure construction, social welfare spending, and other purposes to stimulate economic growth. At the same time, the Federal Reserve adjusts monetary policy to influence government bond yields and market liquidity. During economic downturns, the Federal Reserve implements quantitative easing policies, purchasing large amounts of government bonds to lower yields, reduce financing costs for businesses and governments, and stimulate investment and consumption; conversely, during an overheated economy, it raises interest rates to attract funds back and curb inflation. In this process, dollars circulate globally through US debt, maintaining the dollar's status as an international currency.
Although the dollar debt system has maintained the dollar's dominant position for a certain period, it has inherent risks and faces severe challenges. First, the scale of US debt continues to rise, and fiscal deficits are expanding, leading to increasing repayment pressure. High interest payments on debt consume a significant portion of fiscal resources, squeezing the space for other public expenditures and weakening the US government's ability to respond to economic crises and social issues. Second, US national credit is being eroded. In recent years, the US government's arbitrary fiscal policies, such as frequent debt ceiling disputes, have raised market concerns about the possibility of US default. Additionally, some unilateral actions by the US in international affairs have diminished its credibility globally, affecting investors' confidence in US debt.
Furthermore, the global trend of de-dollarization is gradually becoming evident. As emerging economies grow stronger, their dissatisfaction with dollar hegemony is increasing, prompting them to seek ways to reduce dependence on the dollar. Some countries have begun to promote local currency settlements, strengthen regional currency cooperation, and lower their holdings of US debt. For example, China has signed currency swap agreements with multiple countries to promote the use of the renminbi in cross-border trade and investment; Russia has significantly reduced its holdings of US debt and increased its gold reserves. These measures pose a challenge to the US debt dollar system, and if not addressed, the stability of the US debt dollar system will be severely threatened, and the dollar's status as an international currency will also face instability.
IV. Digital Dollar: The New Battleground for Future Finance
With the rapid development of digital and blockchain technologies, global currency forms are undergoing profound changes, ushering in a wave of digital currencies. Since 2009, a distributed ledger currency network has gradually developed in the market, giving rise to a new type of currency known as digital stablecoins. Due to the dollar's reserve status in the international monetary system, distributed ledger digital currencies have also formed an ecosystem priced in dollars during their development. The digital dollar is exchanged at a 1:1 ratio with fiat dollars, while using US debt and dollar-denominated assets as reserves to ensure redemption, which has reshaped a new application scenario for the dollar and expanded the capacity for US debt, reversing the recent weakness of the US debt dollar and injecting new value support into the dollar.
According to a 2024 VISA survey report, the market value of digital dollar stablecoins has grown from several billion in 2020 to over $200 billion in 2024, with settlement amounts exceeding $2.6 trillion in the first half of 2024 alone, and the number of user addresses surpassing 100 million, reaching many countries and regions worldwide. The digital dollar features anonymity, portability, and the ability to transcend physical regional limitations, demonstrating strong expansion potential. At the same time, decentralized finance (DeFi) and the tokenization of real-world assets (RWA) in the digital network (such as Ondo Finance tokenizing US debt and selling it directly to non-US retail and institutional investors) suggest the possibility of migrating traditional financial markets to blockchain networks in the future, with its ecosystem primarily using digital dollars for transactions and settlements, further expanding the depth of the digital dollar system. The new application scenarios of the digital dollar, the support of its reserve assets for the dollar, and its expansion potential based on blockchain technology collectively create an ecological opportunity for the development of the digital dollar.
Moreover, in the current environment, the US is already facing real challenges such as the debt ceiling controversy, expanding fiscal deficits, and surging repayment pressures, which objectively necessitate seeking new value support tools to maintain its international status. In terms of timing, 2024 coincides with the US elections, with nearly 100 million people in the US holding and trading digital currencies, primarily among the younger demographic, which the Trump team needs to appeal to in order to enhance their electoral leverage. Thus, under the combined influence of market ecology, real pressures, and political competition, the US has shifted since Trump's election from a previously negative and suppressive stance on digital currencies during his first term to actively supporting and promoting regulatory legislation, while also announcing its intention to become a world leader in the digital currency industry. The digital dollar anchor strategy has thus been established. As US Treasury Secretary Janet Yellen stated, "We want to solidify the dollar's position as an international reserve currency, and we aim to achieve this through digital stablecoins."
The current overall construction approach of the US towards the digital dollar system is to incorporate the previously wild-growing digital currency ecology into a compliant regulatory framework, ensuring that the development of the digital currency industry aligns with US national interests. This can be roughly understood as creating a "contractual relationship" between the dollar and the digital currency network, similar to the "petrodollar" contractual relationship, which solidifies the application scenarios of the dollar. On this basis, the goal is to gradually guide digital assets to become mainstream assets and expand their application scope globally. Together, these elements form the overall construction path for the digital dollar anchor.
The challenge lies in the regulatory framework of the traditional currency and financial system in the US, which must align with the currently developing digital ecological regulatory framework. These two will objectively create two parallel systems and rules, with the former requiring stability and rigor, while the latter demands innovation and flexibility. Ensuring compatibility within this "dual-track" framework and avoiding arbitrage and conflicts in practical operations poses significant challenges for the top-level design of regulatory innovation and rule enforcement.
On May 19, the US passed the "2025 American Stablecoin Innovation Guidance and Establishment Act" (GENIUS ACT), which for the first time clarified the regulatory requirements for digital stablecoins. At the same time, the US is actively exploring the possibility of incorporating digital assets into reserves. On January 23, the Trump administration signed a presidential executive order on digital assets, while promoting a multi-dimensional regulatory framework and enforcement guidelines for digital assets at both federal and state levels, as well as among regulatory agencies such as the SEC, OCC, and CFTC. These measures represent a substantive beginning for the construction of the digital dollar system.
Additionally, the launch of the digital dollar faces many other considerations. From a technical perspective, ensuring the security, stability, and privacy protection of the digital dollar system is a key issue. Digital currency transactions can easily become targets for hacker attacks, and any security vulnerabilities could lead to significant financial losses and user information leaks. From a policy perspective, the digital dollar may impact existing monetary policy and financial regulatory systems. The issuance of the digital dollar could affect the statistics and control of the money supply, interfering with interest rate policies. Effectively regulating the issuance, circulation, and use of the digital dollar to prevent illegal activities such as money laundering and terrorist financing is also an urgent challenge. Furthermore, the international promotion of the digital dollar may trigger geopolitical competition, with other countries potentially fearing that the digital dollar will reinforce US financial hegemony, prompting them to take corresponding countermeasures and exacerbating tensions in the global financial arena.
Looking back at the four-stage evolution of the dollar anchor, from the gold dollar's gold exchange standard to the petrodollar's geopolitical and financial entanglement, and then to the debt credit support of the US debt dollar, we are now moving towards the exploration of the digital dollar. Each transition represents a strategic choice by the US to adapt to changes in the international political and economic landscape and maintain financial hegemony. The evolution of the dollar anchor not only profoundly alters the global financial landscape, affecting the economic development and financial stability of various countries, but also reflects the ebb and flow of global economic power and the changes in international political relations.
Currently, the global economy is undergoing a deep adjustment period, with the rise of emerging economies, frequent geopolitical conflicts, and the surging wave of digital technological revolution, posing unprecedented challenges to the dollar-dominated international monetary system. The inherent contradictions of the US debt dollar system are accumulating, and the future of the digital dollar is filled with uncertainty. In this context, countries should deeply understand the evolution of the dollar anchor, actively adjust their financial strategies, strengthen financial innovation and cooperation, and enhance their financial strength and risk resistance. For China, it is essential to accelerate the internationalization of the renminbi, improve the financial market system, promote the research and application of digital currencies, seize opportunities in the reshaping of the global financial landscape, and enhance its international financial discourse power, contributing to global economic and financial stability and development. The future global monetary system may develop towards diversification, with a new monetary order being born, and the continuous evolution of the dollar anchor will be a key variable in this process, warranting ongoing attention and in-depth research.
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