The US dollar, while still dominant, is suffering a steady erosion in a number of respects. This erosion can be attributed to two main causes that have been at play over the past 15 to 20 years. First, the weakening trust in the dollar that results from the severe financial and fiscal fragilities of the US economy. Since these fragilities are structural in nature and measures to correct them are not forthcoming, negative confidence effects are far from negligible. Second, the systematic use, or rather misuse, of the dollar and the Western financial system as weapons against countries that are seen as hostile or non-cooperative by the US and its allies.
Since Donald Trump took office in January 2025, weaponization acquired a new dimension – the indiscriminate use of import tariffs to blackmail and intimidate other countries, including traditional allies. To this unprecedented use of tariffs, the Trump administration added other factors of instability, such as public threats to the Federal Reserve’s autonomy, large tax cuts and the resulting impact on the fiscal deficit and, more importantly, a number of new wars and military adventures, also with heavy fiscal and financial implications. The war on Iran, in particular, has led to another major challenge – the weakening of the so-called petrodollar system based on the pricing, selling and buying of crude oil in US dollars. As a result of all this, periods of flight from the dollar have occurred time and again.  
Weakened by its use as a geopolitical weapon and undermined by the economic vulnerabilities of the US and, more recently, by the destabilizing behavior of the Trump administration, the dollar will probably continue to lose relevance as an international currency.
Who will take up the slack? Gold has emerged as a safer alternative, leading to large-scale purchases by central banks and a sharp rise in its price. However, the volatility of gold prices makes it an imperfect asset for reserve-holding purposes by central banks and other institutions or investors.
Could other currencies of high-income countries replace the dollar? This is happening to a limited extent, but most of them are too small to be a full-fledged alternative. The exception to this is the euro, a currency that when created a quarter of a century ago seemed to be a promising competitor to the greenback. These expectations were largely dashed, however. The new currency did become the second most important one, but never came close to challenging the dollar’s preeminence, and has apparently ceased to gain ground in recent years. The euro is hampered by the short-comings of the monetary union and macroeconomic weak spots of the main economies of the bloc, often more serious than those of the US. Moreover, the euro has been weaponized in the same manner as the dollar and applications in euros are also no longer safe from seizure. When Russian dollar holdings were frozen after war broke out in Ukraine, European authorities followed suit and assets held in euros were also frozen.
Could we look to the renminbi instead? Although the international role of the RMB is still modest, the Chinese alternative may seem more viable, given the size and dynamism of the country’s economy. The renminbi became one of the five currencies of the IMF’s Special Drawing Rights (SDR) basket in 2016, and experienced greater international acceptance after that. The share of the renminbi in official foreign exchange reserves is still small, as well in global trade and finance, but its usage in China’s cross border transactions has grown at a rapid pace, especially with Russia. Furthermore, the extensive and actively used bilateral swap network of the People’s Bank of China (PBOC) with more than 40 central banks is overwhelmingly denominated in renminbi, expanding the currency’s role in trade settlement and balance of payments support operations.
Nevertheless, China has reasons of its own to hesitate. Allowing the renminbi to play a greater role abroad has attractions for China, including lower borrowing costs and providing protection against Western sanctions, as well as prestige considerations. But it also entails risks that a middle-income country with the characteristics of China may not yet be ready and willing to run.
There are a number of reasons for this hesitation. For one, the renminbi is not fully convertible internationally, limiting its external use. China’s reluctance to allow full convertibility is understandable. At the current stage of its development, convertibility will expose the exchange rate, the balance of payments, interest rates, and domestic financial markets to the vagaries of international capital markets. Their largely unpredictable and often sharp upswings and downswings could undermine the stability of the Chinese economy and of its financial system, as suggested by the experience of many economies, including large ones.
Moreover, China’s economic dynamism might suffer from a large-scale internationalization of the renminbi. Higher foreign demand for the renminbi will entail an appreciation of the exchange rate, hurting the competitiveness of China’s tradeable sector. Given the long-standing dependence of economic growth on exports, the effect would be to lower rates of economic expansion significantly, unless alternative source of growth are forthcoming. Furthermore, since China has already been experiencing deflation (in wholesale prices) and inflation close to zero (in consumer prices), a sharp and sustained appreciation of the renminbi might land the economy into a deflation trap with the associated risk of recession.  
Concerns about the economy’s stability and dynamism are, therefore, likely to delay indefinitely a move to an extensive international role for China’s currency. Indeed, why would the country endanger its successful long-term performance? It will probably not take the risk, at least not in the medium term. One particular circumstance needs to be kept in mind: popular support for the Chinese political regime derives in part from the economy’s long lasting strong performance. China can thus be expected to follow in this area its habitual pragmatism, testing the temperature of the waters by cautiously allowing a gradual increase in the international presence of the renminbi. However, not to the extent of challenging the dollar in a major way.
In sum, one can foresee that the dollar’s decline will not be matched by a rise of the euro or other currencies of the West, and that the renminbi will only be able to partly pick up the slack. Needless to say, none of the other currencies of the Global South can play an international role, except in neighboring countries.
Even more unrealistic is the hope for a grand agreement on a global reserve currency, since the US and its allies are not remotely willing to accept this anytime soon. Even if the Global South countries or a majority of them could come together for this purpose, a tall order in itself, the West is still much too large to be left outside of anything truly global in nature.
Where does all this leave us? The current international monetary scenario and especially the lack of convincing options pave the way for a new plurilateral currency that could be sponsored mainly by a not too numerous a group of large and medium-sized countries of the Global South. For reasons that will be discussed in a moment, the new currency would probably not be a BRICS currency, but might well be BRICS-centric in the sense that most but not all BRICS members would join right way, whereas some non-BRICS, Global South countries may be expected to do so.

Editor: LQQ