How fiat currency is unravelling

The game of dollar musical chairs

For decades, the global monetary order has been sustained by a complex yet fragile system centred on the US dollar. But this structure, much like a game of musical chairs, works only as long as the music keeps playing. When it stops, the illusion collapses, and many are left standing.

In fiat systems, liabilities far exceed the available base money. In the US, over $100 trillion in dollar-denominated liabilities are backed by just $6 trillion in base money. Globally, the mismatch is even starker, with dollar claims far exceeding available reserves. This imbalance creates systemic fragility: a structure that functions only when confidence and liquidity persist. The 2008 financial crisis was a near-collapse of this system, averted only by massive monetary intervention, what some have termed the "printing bazooka".

Trade, deficits, and dollar supremacy

The dollar's role as the global reserve currency has enabled the US to run persistent trade deficits for decades. While this benefits consumers with cheaper imports, it hollowed out America’s industrial base and concentrated wealth in financial centres. As other countries accrued dollar surpluses, they recycled them into US assets, stocks, bonds, and treasuries, which inflated financial markets and further reinforced the cycle.

But this imbalance has generated resentment and sparked a global rethinking of monetary dependencies. Rising powers like China and India are challenging the post-war dollar hegemony. These countries are not trying to replace the dollar globally, but regionally they are building alternatives: trade agreements, capital pools, and reserve assets that reduce reliance on the greenback.

The return of neutral reserve assets

Gold, long considered a neutral store of value, is re-emerging as a central bank favourite. Since 2009, central banks have been accumulating gold, reversing decades of net sales. With rising concerns about inflation, currency debasement, and geopolitical instability, gold offers a form of sovereignty that treasuries no longer guarantee.

Bitcoin, too, is playing a role on the margins. Though far smaller in size than gold, its fixed supply, portability, and resistance to seizure make it attractive to smaller nations and individuals seeking monetary independence. While Bitcoin isn’t replacing state currencies, it’s becoming a hedge against the growing risks in traditional finance.

De-dollarisation by default

Some call it "dumping" US treasuries. In reality, it’s more like quiet disengagement. China, once a massive buyer of US debt, began reducing its exposure as early as 2013, shifting focus to infrastructure and commodity-backed investments via its Belt and Road Initiative. Foreign ownership of US treasuries is declining relative to the size of issuance, meaning more debt is held domestically, often by the Federal Reserve itself.

This represents a silent vote of no confidence. Central banks and sovereign funds are moving away from dollar concentration not because of one event, but due to decades of accumulated imbalance.

The multipolar world re-emerges

We are transitioning from a unipolar, dollar-dominated system to a multipolar one. In this new order, the dollar remains important, but no longer unchallenged. Regional powers are asserting themselves through trade alliances (e.g., ASEAN+3), financial coordination (e.g., BRICS), and independent payment systems.

As a result, monetary flows and currency reserves are gradually diversifying. This doesn’t mean chaos, it means recalibration. The US must now reconcile two competing goals: maintaining global dollar dominance while restoring domestic manufacturing. These objectives are fundamentally at odds.

Structural bond bear market

For forty years, bonds were the go-to safe haven. But the era of falling rates is over. With US debt exceeding $34 trillion and annual interest costs above $1 trillion, investors are increasingly wary. Rising inflation risks, central bank intervention, and geopolitical uncertainty make sovereign bonds less attractive.

Gold and, to some extent, Bitcoin are stepping into this vacuum. They don't offer yield, but they offer something more valuable in today’s context: sovereignty, scarcity, and security.

Conclusion: prepare for a slower song

Fiat systems work best in motion. But the game is slowing. Musical chairs only ends one way, with fewer places to sit. Those holding tangible assets, neutral reserves, or decentralised money may find themselves better positioned when the music stops.

The shift is not abrupt, but it is accelerating. The smart money isn’t waiting for headlines. It’s already moving.