The global financial system stands at a critical juncture as new forms of digital currency reshape how value moves across borders. The fundamental question confronting policymakers is no longer which nation’s central bank provides the system’s anchor currency, but rather whose technological infrastructure will channel international monetary flows.
Historical Precedents for Monetary System Transformation
Throughout the twentieth century, the architecture underpinning global finance underwent two major transformations when existing arrangements could no longer sustain mounting pressures. Following World War II negotiations in 1944, Allied nations established the Bretton Woods system, which anchored international currencies to the US dollar while maintaining dollar convertibility to gold at $35 per ounce. This framework required participating governments to accept constraints on monetary autonomy in return for predictable exchange rates and dependable liquidity provision from Washington.
The arrangement functioned effectively during post-war reconstruction, but deepening capital markets eventually rendered it unsustainable. In August 1971, President Nixon terminated dollar-gold convertibility, effectively ending the Bretton Woods framework and ushering in floating exchange rates. The modern system that emerged proved sufficiently adaptable for an interconnected global economy and sophisticated financial networks, though it remained vulnerable to periodic disruptions. Nevertheless, the greenback preserved its preeminent position in cross-border commerce and central bank holdings, supported by deep Treasury markets, extensive US financial reach, and institutional credibility.
Structural Mismatches in Contemporary Global Finance
Economic power distribution has shifted dramatically in recent decades. China has become the world’s dominant trading nation, the eurozone exports substantial capital, and emerging powers like India and ASEAN members occupy central positions in supply networks and energy consumption. Yet monetary arrangements have not evolved correspondingly. The dollar still represents approximately 58% of global foreign exchange reserves, roughly half of international lending, and over half of trade invoicing. Nearly all currently circulating stablecoins remain pegged to the American currency.
This disconnect between economic geography and monetary infrastructure creates significant vulnerabilities. Nations across the globe—including those functioning as manufacturing powerhouses—face exposure to US monetary policy cycles, episodic dollar scarcity, and asymmetric shocks. These structural weaknesses manifested during the 2008 financial crisis, the 2020 pandemic disruption, and 2022’s Federal Reserve rate increases. While authorities managed each episode, fundamental imbalances persisted without resolution.
Digital Currency Infrastructure as Geopolitical Instrument
The proliferation of digital monetary forms may finally address this longstanding tension. The transformative element lies not in the currencies themselves but in their underlying settlement architecture. Tokenized assets, programmable transactions, and modernized messaging protocols enable both state and private actors to construct alternative infrastructure bypassing traditional intermediaries. With 49 central bank digital currency pilots now active worldwide, including full implementations in the Bahamas, Jamaica, and Nigeria, this technological shift is accelerating.
Properly engineered, these payment rails could support an open, stable system that expands access, reduces friction, and modernizes outdated financial plumbing. However, an alternative trajectory threatens: digital monetary architecture could entrench competing geopolitical blocs with incompatible technical standards and governance frameworks.
This explains why digital currency initiatives have become instruments of strategic competition. China’s cross-border CBDC pilots with Singapore, Thailand, and the UAE aim equally at establishing governance norms and improving transactional efficiency. Europe’s pursuit of digital sovereignty stems from security concerns regarding American reliability as a strategic partner. Emerging economies are developing clearing mechanisms outside conventional dollar channels. Meanwhile, privately issued stablecoins are compelling governments to reconsider how monetary influence operates.
Technology-Driven Realignment of Financial Power
Technology is accomplishing what political negotiations could not: a grassroots restructuring of monetary authority. The United States maintains leadership potential because its institutions command greater trust, its capital markets offer superior depth, and its reserve-asset ecosystem remains strongest. However, realizing this potential depends as heavily on infrastructure design as on asset quality.
The primary threat to dollar primacy comes not from a rival currency but from the possibility that global financial infrastructure will develop in ways that diminish the advantages of openness. This includes the network effects making dollar holdings and settlements attractive. China’s digital yuan has already processed over $2.38 trillion in transactions through November 2025, with cross-border settlements through the mBridge platform exceeding $54 billion.
Infrastructure Requirements for Sustained Dollar Leadership
Maintaining centrality in the global monetary system requires Washington to construct the rails that will convey international liquidity in the digital age. This necessitates upgrading both domestic and cross-border payment infrastructure to ensure interoperability and prevent digital fragmentation. The Federal Reserve’s position that it will not pursue a retail CBDC during Chairman Powell’s current tenure places greater emphasis on private sector solutions through stablecoins and tokenized bank deposits.
Providing regulatory clarity for dollar-denominated stablecoins and tokenized bank liabilities becomes essential to ensure private actors don’t perform quasi-central-bank functions without appropriate safeguards. Additionally, advancing multilateral governance frameworks will ensure cross-border digital rails embody the principles that made the post-1970s system resilient: openness, transparency, and trustworthy governance.
Mutual Benefits of an Open Digital Monetary Order
Such a system serves universal interests. For Europe and China, modernized digital payment infrastructure enables greater monetary autonomy without fragmentation’s disadvantages. For emerging economies experiencing the 2022 Federal Reserve tightening cycle’s effects, upgraded rails provide credible pathways to reducing external shock exposure. For the United States, they strengthen supply-chain resilience, prevent dependence on rival digital ecosystems, and enhance investment competitiveness by making dollar assets programmable and attractive as collateral.
Furthermore, embedding trusted digital-identity and compliance standards into global financial infrastructure extends US influence in commercial diplomacy and economic statecraft. An analysis by Stanford’s Darrell Duffie highlights how China’s aim to internationalize the renminbi through digital yuan expansion and cross-border payment systems carries major international security implications, underscoring the strategic importance of US engagement.
An open, interoperable, standards-based monetary order could finally deliver what neither Bretton Woods nor floating exchange rates simultaneously achieved: liquidity, stability, and sovereignty. As the IMF notes in examining the international monetary system, the availability of foreign currency-based electronic money could lower barriers to currency adoption, transforming traditional headwinds into tailwinds.
Original analysis by Silvia Sgherri from Project Syndicate. Republished with additional research and verification by ThinkTanksMonitor.
