For nearly eight decades, the U.S. dollar has been the anchor of the global financial system. After World War II, the Bretton Woods agreement placed it at the center of trade and finance. Even after Washington abandoned the gold standard in 1971, the dollar retained its status. Nations continued to treat it not just as currency, but as treasure.
This privilege has given the United States remarkable flexibility. Few countries could expand their money supply without triggering a crisis. America did so while keeping global confidence intact — a tribute to its strong institutions, innovative spirit, and a system that nurtures talent like no other. The US remains, in many ways, the most benign superpower the world has seen.
But in a more multipolar world, the question is unavoidable: can a single nation’s currency forever serve as the foundation of global trade?
The Puzzle of Inflation and Quantitative Easing
Between 2008 and 2022, the US Federal Reserve’s balance sheet swelled from under $1 trillion to nearly $9 trillion. This surge was the result of quantitative easing (QE) — large-scale purchases of Treasuries and mortgage securities to stabilize markets.
Normally, such an expansion of money supply would risk runaway inflation. Yet America managed a different outcome. Inflation averaged only 2.5–3% for over a decade, peaking at 8% only during the post-pandemic shock.
Meanwhile, others struggled. In 2022, inflation in the UK touched 9.2%, Germany 8.1%, and France nearly 6%. India, despite strong growth and fiscal discipline, also wrestled with 3–5%.
How did the US contain inflation when others could not? Was it because global demand for dollars kept absorbing excess liquidity? Was it because QE largely stayed within financial markets rather than spilling into consumer prices? Or does America’s role as issuer of the reserve currency give it advantages no other nation enjoys?
The answers remain debated. But the divergence is striking — and it explains why many countries now question whether reliance on the dollar comes with hidden vulnerabilities.
When Trust in the Dollar Wavered
The dollar’s credibility faced its sharpest challenge in 2022. After Russia invaded Ukraine, the US and its allies froze about $300 billion of Moscow’s reserves. For the first time in modern history, the savings of a G-20 nation were immobilized not for economic mismanagement, but as a political act.
The message to the rest of the world was blunt: your reserves are secure only as long as Washington agrees.
Since then, the dollar’s share in global reserves has fallen below 47% — the lowest in decades. Central banks from Asia to Latin America have been diversifying, and gold purchases have surged to record highs. What India began before the crisis, others are now scrambling to emulate.
India’s Golden Hedge
India has long operated within the U.S. dollar system, exporting over $450 billion in goods and services in 2023—most of it settled in dollars. But policymakers in the Modi government recognized early on that heavy reliance on a single currency carried risks, and they began preparing well before cracks in the dollar’s dominance became visible.
Over the past four years, the Reserve Bank of India has built a quiet yet powerful hedge: gold. Reserves have increased by 26%, reaching nearly 880 tonnes by March 2025. Gold now accounts for 12% of India’s total reserves—twice the share it held just a few years ago.
This wasn’t a reaction to recent shocks, but a strategic move. As others turned to gold after 2022, India had already begun insulating itself from the vulnerabilities of a dollar-centric system—striking a careful balance between remaining engaged with the global framework and quietly building insurance for the future.
Across the globe, momentum is quietly building toward diversifying away from the US dollar in international trade. China has steadily increased its gold reserves and begun settling some oil transactions in yuan. Russia has moved decisively toward non-dollar mechanisms, and even the Gulf states — once pillars of the “petrodollar” system — have shown openness to alternative settlement currencies. From Brazil to Southeast Asia, nations are experimenting with bilateral and regional trade arrangements that bypass the dollar altogether.
For India, this isn’t about rejecting the dollar outright. It’s about building resilience in a rapidly evolving global landscape. The future may not lie in replacing one dominant currency with another, but in fostering complementary systems that reduce systemic vulnerabilities.
One idea worth exploring is the creation of a gold-backed digital currency, designed specifically for settling cross-border trade — potentially within a framework like BRICS. By combining the historical trust in gold with the efficiency of modern digital infrastructure, such a mechanism could serve as a politically neutral settlement tool, offering an alternative to existing systems increasingly shaped by geopolitics.
This may still be a vision rather than reality, but as cracks in the dollar-centric system continue to grow, it is perhaps an idea whose time has come.
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