Most people today have a status quo bias, believing that the U.S. dollar is the reserve currency and will remain so forever. But if history teaches us anything, it’s that nothing in this world lasts forever.

USD’s share as global reserve currency is going down constantly since 2000. On the other hand gold holdings as reserve has gone up during the same period.

The following chart compares the price of $1 in 2000 vs 2025 along with the price of gold during this period. The price of $1 is close to $0.4 in 2025 and gold prices went from $272/ oz to around $3000/ oz during the same period.

This phenomenon has happened earlier as well when people started losing confidence in a particular currency.

I will compare a time in past which fits todays scenario and try to play both scenes simultaneously so that you can get a better idea of what is happening and what might happen. Also, find out what emerges from the destruction of the old currency.

I will not discuss about how dollar was backed by gold and how it started dominating the global currency market as you might have heard this before. I will take a different route; analyze what happens when a currency fall, how does it compare with today’s America, how will this shape US economy and society and does it mean the end of USA or just a transition of power.

To get a clearer idea of what the future might hold, we first need to understand what reigned before dollar.

Did this Happen Before?

Yes!

This has happened multiple times in history.

The United Kingdom's pound sterling was the primary reserve currency for much of the world during the 19th century and the first half of the 20th century. Fueled by the vast British Empire's trade and its vast colonial territories, the pound sterling became the dominant global trading currency by the mid-19th century. Britain's industrial revolution made it the "workshop of the world," much like America's post-WWII economic dominance.

The gold standard backed the sterling, adding trust and reliability to its use internationally. The pound's dominance was extraordinary. In 1914, according to Barry Eichengreen of the University of California sterling accounted for almost 90% of global reserves. For comparison during 2020, the U.S. dollar stands at nearly 60% of global reserves.

The pound's decline came from the same forces that could theoretically challenge the dollar. That status ended after the UK almost bankrupted itself fighting World War I and World War II and its place was taken by the United States dollar.

I can give you more examples; Dutch Guilder before pound also faced a similar decline.

After studying multiple cases, I mapped out a set of patterns:
Common pattern: Fiscal Crisis → Monetary Debasement → Inflation → Loss of Trust → Competitor Currencies → Economic/Military Decline → Currency Collapse
This 1000-year pattern shows that no reserve currency has ever maintained dominance indefinitely and the same fundamental forces - fiscal pressures, military costs, competitor rise and loss of monetary discipline - have repeatedly caused the world's dominant currencies to decline and be replaced.

Common Reasons for Currency Decline

Currency Debasement and Monetary Inflation

Roman Pattern: By the time of Trajan in 117 AD, the denarius was only about 85 percent silver, down from Augustus's 95 percent. By the age of Marcus Aurelius in 180 it was down to about 75 percent silver. In Septimius's time it had dropped to 60 percent and Caracalla evened it off at 50/50.

Chinese Pattern: As it started to expand outside of Sichuan, the Song dynasty saw an increase in inflation due to the overprinting of paper money that didn't have sufficient backing in reserve through precious metals. Later dynasties such as the Yuan and Ming saw similar cases of inflation.

US is doing something similar. Money printing went on a booster mode during Covid.

Military Overextension & War Financing

Roman Wars: Caracalla, the "new Alexander," increased taxes and pursued a new expansive monetary policy. He devalued the three main coins: the aureus to 6.6 grams of gold, the denarius to 51.5 percent silver, and the sestertius to 24.8 grams of brass.

Chinese Military Pressure: Military pressure in particular led to the over-issuance of money especially under the fiat standard. Eventually, over-issuance led to high inflation as the dynasty collapsed.

Dutch Exhaustion: From our earlier discussion, repeated wars with France and Britain drained Dutch resources and destroyed their naval supremacy.

Similarly, USA has a defense budget equal to the next top 11 countries combined.

Loss of Precious Metal Backing

Complete Collapse in Yuan China: Paper money had become virtually worthless by the time the Ming Dynasty toppled the Yuan in 1368. By that time, most towns, prefectures, counties and cities had reverted to a barter economy!

Ming Dynasty: Paper money was used for various kinds of payments and grants by the government but it was always nonconvertible and consequently lost value disastrously.

USD was backed by gold but that ended in 1971.

Economic Structural Breakdown

Two-Tier Economy: By Constantine's time, the empire was already economically fractured. Wealthy elites and international merchants transacted in gold, while ordinary citizens suffered from debased currency.

Failed Price Controls: The solidus failed to halt runaway inflation in Rome, leading to the "Edict on Maximum Prices". The edict was designed to "cap" the prices of over 1,000 goods and services. The edict was also unsuccessful.

While most citizens get taxed on their salaries and income. The elites across USA take loans backed by their stocks and use all sorts of loopholes to avoid taxes.

The rising debt, increased interest payment and rates will force USA to eventually cut back more on social services, Govt. jobs and increase taxes. This in turn will reduce demand from consumers which will mean lower revenue from companies and businesses. This will eventually mean job losses and lower taxes collected which will put more pressure on existing tax payers. So, a flywheel system of downward spiral is created.

Rise of Competitor Powers

Roman: Byzantine Empire split, barbarian invasions
Spanish: Rise of British and Dutch naval power
Dutch: British naval supremacy and economic overtaking
British: American economic and military dominance post-WWI/WWII

Now compare that to China.

Loss Of Trade Network Control

Each dominant currency derived power from controlling key trade routes - Mediterranean (Rome), Atlantic silver trade (Spain), global maritime commerce (Dutch), global empire trade (Britain). When competitors gained control of these networks, currency dominance followed.

As US bullies it’s allies and foes with tariffs, they look for alternatives. Alternatives to SWIFT, USD and the overall ecosystem of US financial might is endangered by the challengers which in turn results in loss of network effect.

1000 years of monetary and trade history

Monetary History

1944-Present: US Dollar Era

The United States dollar became the world's dominant reserve currency following the Bretton Woods Agreement. By the middle of the 20th century, it had established complete global dominance, replacing the British pound as the world's primary reserve currency and facilitating international trade worldwide.

1720-1944: British Pound Sterling

Britain dominated global finance for over two centuries during the height of the British Empire. The pound sterling served as the primary reserve currency of much of the world throughout the 19th century and first half of the 20th century, backed by Britain's industrial revolution and vast colonial network.

1640-1720: Dutch Guilder Dominance

The Netherlands emerged as the world's premier trading nation during the Dutch Golden Age. The guilder became the dominant international currency as Dutch merchants and their powerful East India Company controlled global maritime trade routes and established Amsterdam as Europe's financial center.

1535-1640: Spanish Reales Supremacy

Spain's "pieces of eight" (Spanish reales) became the world's first truly global currency. Massive silver discoveries in the New World, particularly from mines in Potosí, flooded global markets and made Spanish currency the standard for international trade across Europe, Asia, and the Americas.

1250-1535: Italian Renaissance Standard

Italian city-states like Venice, Florence, and Genoa dominated international finance with their gold florins and ducats. These currencies became the preferred medium for European trade as Italian banking houses pioneered modern financial practices and controlled Mediterranean commerce.

1025-1250: Byzantine Solidus Era

The Byzantine solidus reigned as the dominant currency for over 700 years. Known for its exceptional gold purity and stability, it served as the standard for international trade across Europe, the Mediterranean, and parts of Asia until massive debasement led to its decline in the 13th century.

Now, currency and trade are intertwined so now we need to understand global trade as well.

The Evolution of Global Trade: From Gold Coins to Digital Transfers

The Old Days: When Money Had Weight

Imagine you're a merchant in medieval Venice, around 1400. You want to buy silk from Constantinople and spices from India to sell in London. But there's a problem - how do you actually pay for these goods when they're thousands of miles away?

Back then, trade was brutally simple but incredibly risky. Merchants literally carried bags of gold and silver coins on ships. When a Venetian trader wanted to buy goods in distant lands, he'd load his ship with actual precious metals. The weight alone was staggering - enough gold to buy a ship's worth of spices could sink a small boat.

The dangers were immense. Pirates roamed the seas specifically hunting for these treasure ships. Storms could send fortunes to the ocean floor. Even honest crew members faced overwhelming temptation when surrounded by more wealth than they'd see in ten lifetimes.

The First Financial Innovation: Letters of Credit

Italian bankers, being clever people, invented the first solution around the 13th century: the letter of credit. Here's how it worked:

A merchant in Venice would deposit gold with the powerful Medici bank. The bank would write a letter - essentially an IOU - that the merchant could carry instead of the actual gold. When he reached Constantinople, he'd present this letter to the Medici bank's partner there, who would pay the local seller in local currency.

This was revolutionary. Instead of risking a ship full of gold, merchants now carried a piece of paper. But it only worked because everyone trusted the Medici name. If you were a spice dealer in India and some stranger handed you a letter claiming the Medicis owed you money, you had to believe that this Italian family thousands of miles away would actually honor their promise.

The Insurance Game Begins

Of course, even letters could be lost or stolen. Ships still sank. Cargo still spoiled. This created the need for insurance - another Italian innovation.

In the coffee houses of London and Amsterdam, groups of wealthy individuals began offering to share the risk. If you were shipping £1000 worth of goods, you might pay £50 to a group of investors who promised to cover your losses if the ship sank. They were literally betting on whether your voyage would succeed.

Lloyd's of London started in a coffee house where ship captains, merchants, and investors gathered to share information and make these deals. Someone would write the details of the risk on a piece of paper, and investors would sign their names underneath - they were "underwriting" the risk.

The Telegraph Changes Everything

For centuries, this system worked but remained painfully slow. A letter of credit from London to India took months to verify. You never knew if your business partner on the other side of the world had received your payment until months later.

Then came the telegraph in the 1840s. Suddenly, you could send messages across continents in hours instead of months. Banks began using coded telegrams to verify payments and transfers. For the first time in history, money could move faster than the ships carrying the goods.

This created the first truly global financial network. The British pound became the world's currency not just because Britain had the biggest economy, but because London had the telegraph lines connecting to everywhere that mattered.

How is it Working Now

The Bretton Woods Revolution

World War II changed everything. By 1944, Europe was in ruins, and America had become the world's financial powerhouse. At a hotel in Bretton Woods, New Hampshire, representatives from 44 countries gathered to redesign the global financial system.

They made a radical decision: instead of each country using its own gold reserves, everyone would agree that their currencies were worth a fixed amount of US dollars, and US dollars were worth a fixed amount of gold ($35 per ounce). America essentially became the world's banker.

This created unprecedented stability. A German company could now do business with a Japanese company knowing exactly what the exchange rate would be. Trade exploded because businesses could plan ahead without worrying about currency chaos.

The Birth of Modern Banking Networks

But even with stable currencies, moving money remained cumbersome. Banks in different countries had to maintain relationships with each other - "correspondent banking." If you wanted to send money from New York to Tokyo, your bank would have to work with a Japanese bank they trusted, who would credit the recipient's account.

This system worked, but it was slow, expensive, and prone to errors. Messages were still sent by telegraph using complex codes. A single typo could send $1 million to the wrong account in the wrong country.

SWIFT: The Internet Before the Internet

In 1973, a group of banks created something revolutionary: SWIFT (Society for Worldwide Interbank Financial Telecommunication). Instead of each bank maintaining individual relationships with hundreds of other banks, they created a shared network.

SWIFT was like creating a common language for banks. Instead of each bank having its own codes and procedures, everyone agreed on standard message formats. When a bank in Germany wanted to send money to Singapore, they would send a SWIFT message with standardized codes that any bank in the network could understand.

Each bank got a unique SWIFT code - like a postal address for money. Deutsche Bank in Frankfurt became DEUTDEFF. JPMorgan Chase in New York became CHASUS33. These codes are still used today.

The Modern Payment Journey

Here's what happens today when you wire money internationally:

Let's say you're an American company paying a supplier in Vietnam. You instruct your bank to send $50,000. Your bank doesn't actually send dollars to Vietnam - instead, they send a SWIFT message to a Vietnamese bank saying "We owe you $50,000 worth of Vietnamese dong."

But here's the catch: your American bank probably doesn't have a direct relationship with that Vietnamese bank. So the money takes a journey through "correspondent banks" - like a relay race where each bank passes the financial obligation to the next.

Your $50,000 might go from your US bank to JPMorgan Chase (who has relationships everywhere), then to a major Singaporean bank (who covers Southeast Asia), then finally to the Vietnamese bank. Each bank takes a small fee - maybe $25 here, $50 there. What started as a $50,000 transfer might arrive as $49,875.

The Hidden Infrastructure

Most people don't realize that international trade depends on a handful of major banks that serve as the world's financial highways. Banks like JPMorgan Chase, Deutsche Bank, HSBC, and Citibank maintain correspondent relationships everywhere and essentially serve as the internet service providers of global finance.

When sanctions hit a country like Russia or Iran, it's devastating precisely because they get cut off from this network. Suddenly, their banks can't talk to banks anywhere else. It's like having your internet connection severed - technically your computer still works, but you can't reach the rest of the world.

The Trust Problem

The entire system runs on trust, but it's not the personal trust of medieval merchants who knew each other. It's institutional trust backed by governments and regulations.

When a bank in Tokyo receives a SWIFT message claiming that a bank in London owes them money, they don't call London to verify. They trust that the SWIFT network is secure, that the sending bank is legitimate, and that their own government will back them up if something goes wrong.

This trust has limits. Banks are required to hold "capital reserves" - basically, they can't lend out more money than they actually have (plus a safety margin). International regulators constantly monitor major banks to ensure they're not taking excessive risks that could crash the system.

The Speed vs. Security Trade-off

Today's system prioritizes security over speed. A SWIFT transfer can take 3-5 business days to complete, not because the technology is slow, but because banks verify everything multiple times. Each bank in the chain checks that the sender has enough money, that the recipient exists, that the transaction isn't suspicious, and that they comply with all relevant laws and sanctions.

This is why newer systems like cryptocurrency appeal to some people - they promise to eliminate the middlemen and transfer money directly from sender to recipient. But they also eliminate the safety nets, dispute resolution, and regulatory oversight that the traditional system provides.