The four-stage evolution of the US dollar anchor: the power code of the global financial landscape

Author: Li Jiange, Tian Yuan

In the grand structure of the global financial system, the US dollar has long occupied a core position, and the setting and changes of the "dollar anchor" behind it have profoundly affected the direction of the world economy. The dollar anchor is essentially the support basis and credit source of the dollar's value. It is like the cornerstone of a financial building, which has established the position of the dollar in the international monetary system.

Since the 20th century, the dollar anchor has gone through four important development stages, from the early gold dollar, to the petrodollar, to the US debt dollar, and now it is on the road to exploring the digital dollar. Each transformation is accompanied by a major adjustment in the international political and economic landscape, reflecting the United States' strategic intention to maintain financial hegemony and control the global economic discourse power in different periods. An in-depth analysis of these four stages will not only help us understand the formation and maintenance mechanism of the dollar's dominance, but also provide insights into the future trend of change in the global financial system, and provide key references for countries to formulate financial strategies and respond to external financial shocks.

1. The golden dollar: the brief glory under the Bretton Woods system

The two world wars reshaped the global political and economic landscape. With the advantage that the United States was not directly invaded by the war, its industrial capacity developed rapidly and its economic strength expanded sharply. On the eve of the end of World War II, the global economic order urgently needed to be rebuilt. In July 1944, representatives from 44 countries gathered in Bretton Woods, New Hampshire, USA, to hold the United Nations International Monetary and Financial Conference. The conference established an international monetary system centered on the US dollar - the Bretton Woods system. The core of the system is the "double peg" principle: the US dollar is pegged to gold, with 1 ounce of gold being exchanged for 35 US dollars, and the US government is obliged to exchange gold at the official price; other countries' currencies are pegged to the US dollar, and the currencies of various countries maintain a fixed exchange rate with the US dollar.

The establishment of this system actually pushed the US dollar to the status of an international reserve currency equivalent to gold. At that time, the United States had about 75% of the world's gold reserves. The strong gold reserves provided a solid credit endorsement for the US dollar, making the US dollar widely accepted in international trade and financial transactions. In essence, the Bretton Woods system is an international gold exchange standard. The US dollar has become a bridge connecting the currencies of various countries with gold. The global monetary system revolves around the US dollar as the core, ushering in an era in which the US dollar dominates the international financial order.

Under the Bretton Woods system, trade settlements in various countries are mostly conducted in US dollars. After earning dollars, if the exporting country has no demand for American goods, it can choose to exchange the dollars for gold to increase its gold reserves; the importing country needs to exchange its own currency for dollars to pay for the imports. In this process, the dollar, as an international payment method and reserve currency, has promoted the expansion of international trade and the recovery of the global economy. The United States enjoys "excessive privileges" by exporting dollars to purchase global goods and resources.

However, the system has hidden fatal flaws since its birth, namely the "Triffin Dilemma". American economist Robert Triffin pointed out that as the issuer of international reserve currency, the United States faces two contradictory goals. On the one hand, in order to meet the demand for dollars from all over the world, the United States needs to export dollars through a deficit in the balance of payments; on the other hand, in order to maintain the exchange relationship between the dollar and gold, the United States must maintain a surplus in the balance of payments to accumulate gold reserves. With the development of the global economy, the demand for the dollar continues to increase, the US international balance of payments deficit continues to expand, and the pressure to exchange the dollar for gold is increasing. By the end of the 1960s, the U.S. gold reserves continued to flow out, and it was difficult to support the huge demand for dollar exchange, and the gold-dollar system was shaky.

In the 1960s, the United States was deeply mired in the Vietnam War, fiscal expenditures increased significantly, domestic inflation was high, and the balance of payments deteriorated sharply. Other countries' confidence in the dollar was frustrated, and they exchanged dollars for gold, and the loss of U.S. gold reserves accelerated. On August 15, 1971, the Nixon administration announced the implementation of the "New Economic Policy" and stopped fulfilling the obligation that foreign governments or central banks could exchange dollars for gold with the United States. This landmark event announced the end of the fixed exchange rate system between the dollar and gold, and the Bretton Woods system collapsed. After that, the dollar exchange rate began to float freely, and the gold-dollar system became history. Although the gold-dollar system lasted only a little over 20 years, it laid the foundation for the dollar in the international monetary system. The subsequent evolution of the dollar anchor was all carried out under its influence, laying the groundwork for the United States to build financial hegemony.

II. Petrodollar: Deep Binding of Geopolitics and Finance

After the dollar was decoupled from gold, the international monetary system fell into a brief chaos, and the dollar urgently needed to find a new value anchor to maintain its international currency dominance. At this time, as the world's most important strategic energy, oil's key role in the modern industrial system became increasingly prominent. In the early 1970s, the international political situation was changing rapidly, and the Middle East, as the world's largest oil producing region, was plagued by constant geopolitical conflicts. In October 1973, the Fourth Middle East War broke out. In order to combat Israel and its supporters, the Organization of Arab Petroleum Exporting Countries took measures such as oil production cuts, embargoes, and price increases, triggering the first oil crisis. The international oil price soared from $3.01 per barrel to around $12 in 1974, and the international balance of payments of oil exporting countries showed a huge surplus.

The United States keenly captured this opportunity and actively launched secret negotiations with Saudi Arabia and other major oil-producing countries in the Middle East. As the world's largest oil exporter, Saudi Arabia has a significant influence in the Organization of Petroleum Exporting Countries (OPEC). In 1974, the United States and Saudi Arabia reached an agreement. Saudi Arabia agreed to use the US dollar as the only pricing and settlement currency for oil exports. The United States provided military protection and economic assistance to Saudi Arabia, and promised to buy Saudi government bonds to help it build infrastructure. Subsequently, other OPEC member countries followed suit, and the petrodollar system was initially formed.

After the establishment of the petrodollar system, a unique closed-loop operating mechanism was formed. In order to obtain oil, a rigid energy source, countries around the world must first hold US dollars. This has greatly increased the demand for the US dollar in international trade settlements and consolidated the international currency status of the US dollar. Oil exporting countries earn a lot of US dollar income by exporting oil, and these US dollars are called "petrodollars." Since the domestic economic structure of oil exporting countries is single and cannot absorb such a huge amount of funds, most of the petrodollars flow back to the US financial market to purchase various assets such as US Treasury bonds, stocks, and real estate. The United States uses the returned petrodollars to continue importing global goods and services, maintain its consumption-driven economic model, and redistribute petrodollars to the global economic system through monetary policy and financial market operations.

For example, oil exporting countries deposit petrodollars in US banks, and banks then lend these funds to other countries for oil imports or investments, and funds circulate around the world. In this process, the United States not only controls the pricing and settlement rights of global oil trade, but also absorbs global funds through the financial market, further strengthening its position as a financial center. At the same time, the United States maintains stability in the Middle East through military force to ensure the normal operation of the petrodollar system. The United States deploys a large number of military forces in the Middle East to exert political influence on the oil-producing countries in the Middle East. Once there are unstable factors in the region that threaten the petrodollar system, the United States will quickly intervene, such as launching the Gulf War, to safeguard the core interests of the petrodollar system.

The petrodollar system has had a profound impact on the global economy. On the positive side, it provides a stable energy supply and financial support for global economic growth. Stable oil trade settled in US dollars has promoted the development of international trade, and the status of the US dollar as an international payment and reserve currency has been consolidated, promoting the integration of global financial markets. The large amount of petrodollars accumulated by oil exporting countries has provided cheap funds for the United States through investment in financial assets such as US Treasury bonds, supporting the US fiscal deficit and economic development, and also providing some external financing sources for other countries.

However, the petrodollar system has also brought many negative effects. The price of oil is closely linked to the exchange rate of the US dollar. The depreciation or appreciation of the US dollar will directly affect the fluctuation of oil prices and increase the uncertainty of the global economy. When the dollar depreciates, the price of oil denominated in dollars rises, triggering imported inflation and bringing shocks to the economies of other countries; on the contrary, the appreciation of the dollar may lead to a reduction in the income of oil exporting countries, affecting their economic stability. In addition, the petrodollar system has exacerbated the imbalance of the global economy. The United States has been in a trade deficit for a long time and relies on the return of petrodollars to maintain its economic operation, while other countries have to export a large number of goods in order to obtain dollars, resulting in an increasingly serious problem of global trade imbalance. At the same time, the large inflow of petrodollars has made the economies of some oil exporting countries overly dependent on oil exports, with a single economic structure and weak risk resistance.

Third, US debt dollar: credit support driven by debt

Since the 21st century, the international political and economic landscape has undergone profound changes. On the one hand, emerging economies have risen rapidly, their contribution to global economic growth has continued to increase, and the international trade pattern has gradually diversified, and the petrodollar system is facing shocks. On the other hand, the US's own economic structure has changed, the proportion of the financial services industry in the economy has increased, and the virtual economy has over-expanded. In 2008, the US subprime mortgage crisis broke out and quickly evolved into a global financial crisis, which hit the global economy hard. During the crisis, the US government adopted a large-scale quantitative easing policy to save the market, the fiscal deficit rose sharply, and the size of the national debt expanded rapidly. The total US national debt exceeded 34 trillion US dollars for the first time on December 29, 2023. If this debt is shared among the American people, the per capita debt will exceed 100,000 US dollars.

Against this background, US debt has gradually become a new important support for the US dollar. With its strong national credit and the world's most developed financial market, the United States has made US debt a "safe asset" in the eyes of global investors. In order to maintain and increase the value of foreign exchange reserves, countries around the world have purchased a large number of US debts, and the US debt-dollar system came into being. The US debt-dollar system is essentially based on the US national credit, and absorbs global funds by issuing treasury bonds to maintain the dominant position of the US dollar in the international monetary system. The US government monetizes its fiscal deficit by selling Treasury bonds to the Federal Reserve and global investors. After the Federal Reserve purchases Treasury bonds, it injects base currency to increase market liquidity, allowing the US dollar to flow to the world continuously.

The operation of the US debt-dollar system is based on the trust of global investors in the US national credit. As the world's largest economy, the United States has abundant resources, strong scientific and technological innovation capabilities and military strength, and is considered to have a strong debt repayment ability. US Treasury bonds have the characteristics of strong liquidity and relatively stable returns, which attract global investors. Central banks of various countries regard US Treasury bonds as an important part of foreign exchange reserves to maintain the stability of their own currency exchange rates and international payment capabilities. For example, China, Japan and other countries have long been major foreign holders of US Treasury bonds.

When the US government has a fiscal deficit, it raises funds by issuing Treasury bonds. Treasury bonds are sold globally, and after foreign investors purchase US bonds, US dollars flow back to the United States. The United States uses these funds for domestic infrastructure construction, social welfare spending, etc. to stimulate economic growth. At the same time, the Federal Reserve affects the yield of government bonds and market liquidity through monetary policy regulation. When the economy is sluggish, the Federal Reserve purchases a large number of government bonds through quantitative easing policies, lowers the yield of government bonds, reduces the financing costs of enterprises and governments, and stimulates investment and consumption; when the economy is overheated, it raises the yield of government bonds through interest rate hikes and other means to attract capital to flow back and curb inflation. In this process, the US dollar circulates around the world through US bonds, maintaining its international currency status.

Although the US debt-dollar system has maintained the dominant position of the US dollar for a certain period of time, it has many hidden dangers and faces severe challenges. First, the scale of US national debt continues to rise, the fiscal deficit continues to expand, and the pressure of debt repayment is becoming increasingly heavy. High debt interest expenditures occupy a large amount of fiscal funds, compress other public expenditure space, and weaken the ability of the US government to deal with economic crises and social problems. Secondly, the US national credit has been eroded. In recent years, the arbitrary fiscal policy of the US government, such as the frequent disputes over the debt ceiling, has caused market concerns about whether the United States will default. In addition, some unilateral actions of the United States in international affairs have also reduced its global credibility and affected investors' confidence in US debt.

Furthermore, the trend of global de-dollarization is gradually emerging. As emerging economies grow and develop, their dissatisfaction with the hegemony of the US dollar is increasing, and they are seeking to reduce their dependence on the US dollar. Some countries have begun to promote local currency settlement, strengthen regional monetary cooperation, and reduce the proportion of holdings of US debt. For example, China has signed currency swap agreements with many countries to promote the use of RMB in cross-border trade and investment; Russia has significantly reduced its holdings of US debt and increased its gold reserves. These measures have all impacted the US debt-dollar system. If they are not resolved, the stability of the US debt-dollar system will be seriously threatened, and the international currency status of the US dollar will also be shaken.

Fourth, Digital Dollar: A New Battlefield for Future Financial Competition

With the rapid development of digital and blockchain technology, the global currency form is ushering in profound changes, and the wave of digital currency is sweeping in. Since 2009, the market has gradually developed a currency network of distributed ledgers, and a new type of currency, digital stablecoin, has been born. Due to the reserve status of the US dollar in the international monetary system, distributed ledger digital currencies have also formed an ecosystem denominated in US dollars in the process of development. The digital dollar is exchanged 1:1 with the legal currency US dollar, and the US debt and US dollar-denominated assets are used as reserves to ensure repayment. This has virtually reshaped a new application scenario for the US dollar and the storage space for US debt, reversing the weak trend of US debt and US dollar in recent years, and injecting new value support into the US dollar.

According to the 2024 VISA survey report, the market value of digital dollar stablecoins has grown from several billion in 2020 to more than 200 billion US dollars in 2024. The settlement amount in the first half of 2024 alone exceeded 2.6 trillion US dollars, and the number of user addresses exceeded 100 million, radiating to many countries and regions in the world. The digital dollar has the characteristics of anonymity, portability, and cross-physical regional restrictions, and has strong expansion potential. At the same time, digital network decentralized finance (DeFi) and RWA tokenization (such as Ondo Finance tokenizing US debt and selling it directly to non-US retail investors and institutions) have the possibility of migrating traditional financial markets to blockchain networks in the future, and its ecosystem mainly uses digital dollars for transactions and settlements, which further expands the depth of the digital dollar system. The new application scenarios of the digital dollar, the support of its reserve assets for the US dollar, and its expansion potential based on blockchain technology have jointly created an ecological opportunity for the development of the digital dollar.

Furthermore, in the real environment, the United States has faced the challenges of the U.S. debt ceiling dispute, the expansion of the fiscal deficit and the surge in debt repayment pressure. The U.S. dollar objectively needs to seek new value-supporting tools to maintain its international status. In terms of the time window, 2024 is the year of the U.S. presidential election. The number of people holding and trading digital currencies in the United States is close to 100 million, and they are mainly young people. The Trump team needs to win over these voters to enhance their campaign chips. Therefore, under the joint influence of market ecology, real pressure and political competition, since Trump was elected president, the United States has reversed its past attitude of denying and suppressing digital currencies, including during his first term, and has turned to actively supporting and promoting regulatory legislation, while also announcing in a high profile that it has become the world leader in the digital currency industry. The digital dollar anchor strategy has thus been established. As U.S. Treasury Secretary Benson said, "We want to consolidate the dollar's position in the international reserve currency, and we want to achieve this goal through digital stablecoins."

The current overall construction idea of ​​the United States for the digital dollar system is to incorporate the wildly growing digital currency ecosystem in the past into the compliance supervision system to ensure that the development of the digital currency industry is in line with the national interests of the United States. This can be roughly understood as creating a "contractual relationship" between the US dollar and the digital currency network, which is similar to the contractual relationship of the "petrodollar", that is, solidifying the application scenario of the US dollar. On this basis, digital assets will be gradually guided to become mainstream assets and expand their global application scope. Together, the above forms the overall construction path of the digital dollar anchor.

The difficulty lies in the fact that the regulatory framework that is compatible with the traditional monetary and financial system of the United States and the digital ecological regulatory framework that is currently being built will objectively form two parallel systems and rules. The former requires stability and rigor, while the latter requires innovation and flexibility. It is necessary to ensure the compatibility of this "dual track" structure and avoid arbitrage and conflicts in actual operations. This is extremely challenging for the top-level design and rule enforcement of regulatory innovation.

On May 19, the United States passed the United States Stablecoin Innovation Guidance and Establishment Act of 2025 (GENIUS ACT), which for the first time clarified the regulatory requirements for digital stablecoins. At the same time, the United States is also actively exploring the possibility of incorporating digital assets into reserves. On January 23, the Trump administration signed a presidential executive order on digital assets. At the same time, at the federal and state levels, as well as at the regulatory level of the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Commodity Futures Trading Commission, and other regulatory agencies, it has promoted a three-dimensional and multi-dimensional digital asset regulatory framework and implementation rules. These measures represent the substantive beginning of the construction of the digital dollar system.

In addition, the launch of the digital dollar also faces many other considerations. At the technical level, how to ensure the security, stability and privacy protection of the digital dollar system is a key issue. Digital currency transactions have become a target of hacker attacks. Once a security vulnerability occurs, it will lead to serious financial losses and user information leakage. At the policy level, the digital dollar may have an impact on the existing monetary policy and financial regulatory system. The issuance of the digital dollar may affect the statistics and regulation of the money supply and interfere with the interest rate policy. How to effectively regulate the issuance, circulation and use of the digital dollar to prevent illegal activities such as money laundering and terrorist financing is also a problem that needs to be solved urgently. At the same time, the international promotion of the digital dollar may trigger geopolitical games. Other countries may worry that the digital dollar will strengthen the financial hegemony of the United States, and thus take corresponding countermeasures to intensify tensions in the global financial field.

Looking back on the four-stage evolution of the dollar anchor, from the gold exchange standard of the gold dollar, to the geopolitical and financial bundling of the petrodollar, to the debt credit support of the U.S. debt dollar, and now on the road to exploring the digital dollar, each transformation is a strategic choice for the United States to adapt to changes in the international political and economic situation and maintain financial hegemony. The evolution of the dollar anchor has not only profoundly changed the global financial landscape, affecting the economic development and financial stability of various countries, but also reflects the rise and fall of the global economic power comparison and the changes in international political relations.

At present, the global economy is in a period of deep adjustment, with the rise of emerging economies, frequent geopolitical conflicts, and the surging wave of digital technology revolution. The international monetary system dominated by the US dollar faces unprecedented challenges. The inherent contradictions of the U.S. debt-dollar system continue to accumulate, and the future of the digital dollar is full of uncertainty. Against this background, countries should have a deep understanding of the evolution of the dollar anchor, actively adjust their financial strategies, strengthen financial innovation and cooperation, and enhance their own financial strength and risk resistance. For China, it should accelerate the internationalization of the RMB, improve the financial market system, promote the research and development and application of digital currency, seize opportunities in the reshaping of the global financial landscape, enhance international financial discourse power, and contribute China's strength to global economic and financial stability and development. In the future, the global monetary system may develop in a diversified direction, and a new monetary order is being nurtured. The continued evolution of the dollar anchor will be a key variable in this process, which deserves continued attention and in-depth research.