Over the past century, monetary systems have changed about every 30-40 years on average, according to the evidence of monetary history.
- Before 1914, the world monetary system was based on the classical gold standard.
- Then, in 1944, a new monetary system emerged at Bretton Woods. Under this system, the dollar became the world’s reserve currency, pegged to gold at $35 per ounce.
- In 1971 Nixon ended the dollar’s direct convertibility into gold. For the first time, the monetary system was not backed by gold.
Today, the existing monetary system is over 50 years old, so its transformation is long overdue. There are persistent attempts by different states to dethrone the US dollar as the world’s leading reserve currency and the main means of conducting trade.
At the same time, I have such processes do not happen overnight. Instead, they happen slowly and gradually over decades. 
The waves of Western sanctions
While this is true, the process is accelerating in ways that no one could have predicted before the Russian military attack on Ukraine in February 2022. In response, the US has launched the most aggressive sanctions regime in history in its efforts to punish the Russia for the invasion of Ukraine.
- The first round of economic sanctions included obvious measures, such as freezing the US dollar accounts of Russian banks and oligarchs.
- The second round raised the bar, with the Central Bank of Russia itself freezing dollar accounts. This was unprecedented, except in the case of states such as Iran, North Korea and Syria.
Suddenly the central bank of the world’s ninth-largest economy and third-largest oil producer with over $2.1 trillion in GDP found itself shut out of the global payment and banking systems.
The sanctions went beyond financial and banking operations, including a ban on Russian exports, freezing Russia out of insurance markets (as a way to effectively ban oil exports), and bans on critical exports to Russia, including high-tech equipment, semiconductors and popular consumer goods.
Major American and other Western companies from Shell Oil to McDonald’s were pressured to shut down their operations in Russia, and many did.
Not everyone followed…
But a large part of the world refused to join the US/EU/NATO economic sanctions. Not that countries around the world necessarily supported Russia’s move. They simply did not want US sanctions to disrupt their trade relations with Russia, on which they depend.
They were unwilling to damage their economies for a conflict that had nothing to do with them, on the other side of the world in many cases. For example India and China.
They are the biggest buyers of the oil that Russia would otherwise sell to Europe. China itself sells cars, semiconductors and machinery to Russia. Meanwhile, Turkey has greatly expanded its exports to Russia, while Iran sells weapons to Russia, including kamikaze drones that act like cruise missiles and can be highly accurate in hitting targets.
And importantly, the more other economies trade with Russia, the less any of them will need US dollars as a medium of exchange. Thus, the US sanctions not only failed, but contributed to the long-term decline of the dollar as the world’s leading payment currency.
They also steer countries away from using dollars in international transactions, fearing they could become the next target of US displeasure.
Almost 10 years ago, in a secure Pentagon conference room to a group of US national security officials from the military, CIA, Treasury and other agencies that someone was explaining that excessive use of the US dollar as an instrument of economic warfare would eventually force states to look for alternative monetary solutions.
Some noted it, some ignored the warning, and a Treasury official pounded the table and said, “The dollar was the world’s reserve currency, it is the world’s reserve currency now, and it will always be the world’s reserve currency! He replied that he felt like I was in Whitehall, London in 1913 hearing John Bull say the same thing about sterling. Sterling would begin to fall away from the dollar just a year later with the start of World War I.
The BRICS summit in Kazan (22-24/10) will announce the admission of new members, which is important because membership expansion is the key foundation for launching a viable payment currency. It will bring the group closer to the critical mass needed to start a monetary union.
The process will unfold over time and the dollar will not be displaced in the near future. But the trend away from the dollar is certainly underway. The de-dollarization movement represents a global tectonic shift that will only accelerate in the coming years.
Like the British pound…
If you want a historical parallel to how the dollar will fall, look at the British pound.
Many observers assume that the 1944 Bretton Woods conference was the moment when the US dollar replaced sterling as the world’s leading reserve currency. But this replacement of sterling by the dollar as the world’s leading reserve currency was a process that took 30 years, from 1914 to 1944.
The Bretton Woods Conference of 1944 was simply the recognition of a process of dominance of the dollar as a reserve currency that had been underway for decades. As with the pound sterling, the dollar’s slide into the role of the world’s leading reserve currency is not necessarily something that will happen overnight.
But unprecedented dollar sanctions against Russia have accelerated the process. So after 80 years under the Bretton Woods arrangements, 53 years since Nixon ended the gold standard and 50 years since the petrodollar deal with Saudi Arabia, the dollar’s reign as the world’s leading payment currency is nearing its end. And while the process will likely be relatively gradual, no investor should be surprised if it happens sooner rather than later. The dollar could lose its reserve status gradually — then sudden death would occur.
