Over the past few decades, China has been steadily asserting itself as a key player in the “Global South,” a term that has evolved from the Cold War-era Non-Aligned Movement, representing developing countries striving for autonomy from superpower influence. As China’s economic and political influence has grown, it has become the world’s largest creditor of developing nations. This expansion has drawn both admiration and fear, with some critics accusing Beijing of practicing “debt-trap diplomacy” to entrench its sphere of influence, akin to colonial or imperial domination.
Amid these accusations, China has emerged as a central figure in the broader global trend of de-dollarization, a phenomenon that poses a direct challenge to the economic dominance of the United States. As a core member of the BRICS+ group—alongside Brazil, Russia, India, and South Africa—China is pushing for a multipolar world order that aims to reduce reliance on the US dollar and reshape the global economic landscape.
The supremacy of the US dollar in international finance has long been a cornerstone of American global hegemony. The dollar’s dominance dates back to the post-World War II period and was institutionalized by the Bretton Woods Agreement of 1944. The arrangement pegged currencies to the US dollar, which was convertible to gold at a fixed rate of $35 per ounce, cementing the greenback’s role as the world’s reserve currency. Although this system was dismantled in 1971 by President Richard Nixon, the dollar has remained the world’s de facto currency, enabling the United States to accumulate foreign debt in its own currency—a unique privilege.
Today, the US dollar represents nearly 59% of global central bank reserves, reinforcing its status as the world’s preeminent reserve currency. This dominance benefits the US in numerous ways: it reduces borrowing costs for both the US government and private sector and allows the US to run large deficits with little immediate consequence. More importantly, the dollar’s global primacy underpins American geopolitical influence, as international transactions—especially in commodities like oil—are overwhelmingly conducted in dollars.
However, the erosion of confidence in the US dollar could unravel this economic dominance. Several factors threaten to weaken the dollar’s central role, including America’s weaponization of the currency and concerns over the country’s burgeoning debt. As US Treasury Secretary Janet Yellen admitted in 2023, the United States has frequently wielded the dollar as a tool to impose sanctions and enforce political will, not only on adversaries but also on allies. This tactic has provoked anxiety, as nations realize their dependence on the dollar leaves them vulnerable to Washington’s political whims. At the same time, the staggering rise of US public debt, which now exceeds $33 trillion, has raised questions about the long-term stability of the dollar.
China has seized on these vulnerabilities to advance its own agenda. In particular, Beijing has focused on undermining the dollar’s hegemony by promoting the yuan as an alternative global reserve currency. This effort is part of China’s broader push to de-dollarize global trade and investment, a strategy that aligns with the ambitions of the BRICS+ group. Through initiatives such as the Belt and Road Initiative (BRI) and the Asian Infrastructure Investment Bank (AIIB), China has encouraged partner nations to use the yuan in trade deals, circumventing the dollar-dominated international financial system.
One of China’s key moves in this regard was the creation of its own gold pricing mechanism. In 2016, the Shanghai Gold Exchange introduced a yuan-denominated daily benchmark for gold prices. By establishing a gold market in yuan, China signaled its intent to make gold a tangible backstop for its currency, an echo of the dollar’s past convertibility to gold. This move is part of a broader strategy to internationalize the yuan and increase its use in global transactions.
In addition to this, China has been quietly selling off its US Treasury holdings over the past decade. At its peak in 2017, China was the largest foreign holder of US debt, owning over $1.14 trillion in US Treasuries. By 2023, however, China had reduced its holdings to around $816 billion, divesting some $600 billion in the process. Simultaneously, China has been stockpiling gold, amassing over 2,235 tonnes by the end of 2023, making it one of the largest holders of gold reserves in the world. This accumulation of gold serves as a hedge against the instability of the dollar and bolsters China’s efforts to position the yuan as a reliable alternative.
China’s efforts to challenge the dollar’s dominance are not occurring in isolation. As a leading member of the BRICS+ group, China is part of a larger coalition of emerging economies seeking to create a multipolar world, in which no single nation or currency dominates. Formed in 2009, BRICS initially brought together Brazil, Russia, India, China, and South Africa—nations representing diverse regions but united by a common goal: to challenge Western-dominated global institutions like the International Monetary Fund (IMF) and the World Bank. Over the years, the group has expanded its scope, leading to the BRICS+ initiative, which includes a wider array of countries interested in reshaping the global economic order.
One of the group’s most ambitious goals is the establishment of a new international currency system that reduces dependence on the US dollar. In 2023, BRICS leaders announced plans to explore the creation of a BRICS currency, which would be used for intra-group trade and investment. While the details of this initiative remain unclear, the very fact that such discussions are taking place signals a desire to break free from the dollar’s grip.
For China, the push for a BRICS currency aligns with its broader strategy to internationalize the yuan. By encouraging trade among BRICS nations in local currencies rather than the dollar, China can further erode the dollar’s dominance while boosting the yuan’s status. The potential creation of a BRICS currency also represents a direct challenge to the West’s control over global finance and signals a shift towards a more decentralized international system.
The United States is well aware of the growing challenge posed by China and the BRICS+ coalition. While US officials have refrained from using the word “threat,” they have made it clear that China represents the most serious long-term challenge to the existing international order. In response, Washington has taken steps to counter China’s influence, particularly in the realm of trade and finance.
One of the key strategies employed by the US has been to reinforce its alliances with like-minded nations, especially in the Indo-Pacific region. Initiatives like the Quad (a strategic alliance between the US, Japan, India, and Australia) and the AUKUS pact (a security partnership between the US, UK, and Australia) are aimed at containing China’s rise and maintaining the US-led global order.
At the same time, the US has sought to reinforce the dollar’s dominance by tightening control over international financial systems. This includes the use of sanctions and financial pressure to dissuade countries from engaging in de-dollarization efforts. However, as nations increasingly chafe under US economic dominance, the effectiveness of these strategies may wane.
The battle over the future of global finance is far from over, and it remains unclear whether China’s de-dollarization efforts will succeed in dethroning the dollar as the world’s reserve currency. What is clear, however, is that China’s rise as a global creditor and its efforts to promote the yuan represent a serious challenge to the current US-led international order.
While the dollar is unlikely to lose its status as the dominant reserve currency overnight, the growing discontent with US economic policies, coupled with the rise of alternative financial systems like those promoted by China and the BRICS+ group, suggests that the era of uncontested dollar hegemony may be coming to an end.
As China continues to build its influence in the Global South and promote a multipolar world, the US will have to adapt to a new reality—one in which its currency, and by extension its global power, is increasingly challenged. Whether this leads to a more equitable global financial system or a new era of economic fragmentation remains to be seen, but the tectonic shifts in international finance are already underway.
