Dollar Hegemony: How Long Will the Era of King Dollar Last?

The dollar's standing in the global financial order is still unrivaled. In recent years, however, it has faced a steady stream of controversy. Countries are developing central bank digital currencies (CBDCs) to expand their payment sovereignty, U.S. sanctions policy has sparked debate over the "weaponization" of the dollar, and political uncertainty has become a factor that shakes confidence in the dollar itself.

Paul Blustein, author of King Dollar: The Past and Future of the World's Dominant Currency and a fellow at the Center for Strategic and International Studies (CSIS), says that even amid this turbulence, "the dollar is still a powerful reserve currency, and its status will not be shaken in the short term." So what is the reason for that?

Key Takeaways

• The dollar's dominance stems not simply from the size of the U.S. economy, but from the depth of its capital markets and institutional trust grounded in the rule of law
• The euro and the yuan have potential, but structural constraints leave them short of replacing the dollar
• Rather than threatening dollar hegemony, CBDCs and stablecoins are more likely to become tools the U.S. can control
• Political uncertainty and erosion of the rule of law inside the U.S. may be the most fundamental risk to the dollar

1｜The dollar's status is the result of a "system," not "economic power"

Paul Blustein does not see dollar hegemony as simply a product of America's economic or military might. "The dollar functions as the basic language of global finance," he says, emphasizing two structural strengths behind it: first, the free movement of capital, and second, financial markets with abundant liquidity.

U.S. capital markets are open to foreign investors, and because assets can be bought and sold at any time, they offer a level of liquidity no other country can match. The U.S. Treasury market in particular is the largest and most trusted bond market in the world, one that central banks and institutional investors across the globe rely on. These structural characteristics form a foundation that cannot easily be toppled by mere shifts in the business cycle or by political issues.

2｜The euro and the yuan: alternatives or complements?

The euro, often cited as the strongest candidate to threaten the dollar, does have some structural foundations in place. The European Union already has a huge economy, an independent central bank (the ECB), and institutional trust grounded in the rule of law. However, Blustein's judgment is that unless its capital markets are integrated, it will be difficult for the euro to take the dollar's place.

He points out that Europe has not managed to create a single euro-based bond market through joint debt issuance, and highlights the political limits created by fiscally sound countries like Germany being reluctant to share responsibility for debt with Southern European countries. The recent spike in French government bond yields is a clear example of this trust gap.

The yuan, too, is making various efforts to grow into an international currency, but its share in settlements between third countries remains negligible, and capital controls and a lack of policy transparency limit its ability to win trust in global financial markets.

3｜Is the weaponization of the dollar sustainable?

The U.S. has enforced sanctions by using the dollar system to cut specific countries off from international payment networks, a prime example of dollar hegemony being used as a diplomatic tool in addition to military power. In response, China and Russia are attempting "de-dollarization" by developing their own payment systems, but Blustein's analysis is that this movement will not fundamentally shake the dollar's dominance.

That's because accessing the international payment system still requires a connection to the dollar network, and established global financial practices do not change easily. Even if some payment systems are developed as a way to evade sanctions, he explains, they cannot immediately replace the global payment infrastructure.

4｜CBDCs, mBridge, stablecoins… can any of them become a real alternative?

Central bank digital currencies (CBDCs) being tested by various countries, blockchain-based international payment systems like mBridge, and privately issued stablecoins are all mentioned as potential technologies that could threaten the dollar's status. Blustein, however, believes that all of them "may become political symbols, but will struggle to bring about a real shift in currency hegemony."

Citing the Bahamas' "Sand Dollar" and the CBDCs of China and Nigeria, he points out that actual usage rates are very low and that they offer no particular benefit to the people transacting with them. Stablecoins, digital assets backed by short-term government bonds, are a source of concern because they are likely to be used for money laundering or sanctions evasion, but at the same time, there is also the possibility that the U.S. could use them as a traceable means of oversight.

The technology Blustein is actually watching is "tokenized deposits," which the BIS is experimenting with. This approach manages commercial bank deposits on a blockchain in the form of digital assets, with the advantage of gaining efficiency and transparency while keeping the existing financial regulatory framework in place. He predicts that if this approach is adopted in the U.S., it could help further entrench dollar hegemony.

5｜The dollar's biggest risk is "inside America"

Blustein names the weakening of the rule of law and institutional trust in the U.S. as a far more fundamental threat than technological change. Former President Trump's attempt to remove a Federal Reserve governor, repeated attacks on the Fed's independence, and hints at taxing foreign bondholders all act as signals that can unsettle investors.

"The dollar is not simply the currency of a country called the United States, but a symbol of trust in the system itself," he warns, adding that if the rule of law is shaken, the value of the dollar could be damaged along with it. In the end, the dollar's real competitor is not another currency, but actions by which the U.S. erodes its own credibility.

6｜Even so, we should aim for multipolarity

Interestingly, while Blustein acknowledges that dollar hegemony is sustainable, he says it is not a desirable situation. "America's prosperity does not depend on dollar hegemony," he states, arguing that a multipolar international monetary order in which several currencies coexist could actually provide a more stable environment for the world economy.

In particular, he said that if China guarantees the free movement of capital and establishes a rule-of-law framework, the internationalization of the yuan would be something to welcome. His message is clear: what matters is not defending the dollar's status, but building a responsible and transparent global monetary system.

Frequently Asked Questions (FAQ)

Is there no chance that dollar hegemony collapses in the short term?

The dollar's current status is maintained on the basis of the size of its capital markets and institutional trust. This structure is not easily shaken by short-term political issues or technological change, and it rests on a systemic foundation that other currencies would find hard to replace.

Doesn't the euro have the potential to replace the dollar?

The European Union has the economic scale and institutional foundation, but due to incomplete capital market integration and political division, the euro still struggles to function as a real substitute for the dollar.

What is the significance of China's CBDC or mBridge?

The digital yuan and mBridge are strategic attempts to break away from the U.S.-centered financial order, but they remain limited in terms of actual usage and credibility. For now, they stay at the level of technological symbolism.

If the rule of law in the U.S. is shaken, would it really affect the dollar?

The dollar is not just a means of payment, but a global currency that operates on the basis of America's institutional credibility. A weakening of the Fed's independence or erosion of the rule of law directly affects the confidence of foreign investors, which can also deal a blow to the dollar's structural status.

Which alternative technologies should we watch in the digital age?

"Tokenized deposits," which the BIS is experimenting with, are a model designed to let existing bank deposits be traded on a blockchain. They are drawing attention as a realistic digital financial infrastructure that can achieve both regulatory compliance and transparency.

Closing Thoughts｜The dollar is solid, but not absolute

The dollar is still at the center of global finance. Various challenges continue to emerge, from the euro and the yuan to digital currencies, but none of them has yet surpassed the system-based advantage the dollar holds. However, as Blustein pointed out, that hegemony is not absolute, and if the rule of law inside the U.S. is shaken, its very foundation could be weakened.

Discussion of a multipolar monetary order is no longer optional but essential. Whichever currency sits at its center, what will matter most is trust, institutions, and responsible management.