This is a war without gunfire, but the alarm has already gone off in everyone’s wallet.

Last week, U.S. President Trump triggered a tariff storm, and the global economy was instantly swept into a violent shock. The U.S. stock market plummeted, wiping out $5 trillion in market value within two days, and even Bitcoin wasn’t spared. But do you know? The true destructive power of this tariff war actually lies in something we are most familiar with—and yet often overlook: currency.

The reason the United States dares to wave the tariff stick so aggressively is not just the excuse of trade deficits; the real trump card lies in dollar hegemony. The U.S. dollar not only controls global trade, but has also become a hidden economic weapon. Whoever controls the dollar controls the lifeline of the global economy. What’s even more worrying is that this war is spreading from the domain of commodities to that of currencies—a global currency devaluation race is now unfolding.

So, how should ordinary people face such a war without gunfire? Let’s peel back the layers of this conflict and see who the real winner might be. No suspense here—let’s give the answer first:

To many people’s surprise, the final winner may not be a nation, but decentralized stablecoins.

First, let’s take a look at how different countries responded to U.S. tariff increases.

1. Tough vs. Mild Responses

​In response to U.S. President Trump’s decision on April 2, 2025, to impose an additional 34% tariff on Chinese goods, China responded firmly and swiftly.

On April 4, China’s State Council Tariff Commission announced that starting April 10, a 34% additional tariff would be imposed on all imported goods originating from the United States, on top of the current applicable tariff rates. Additionally, China imposed export controls on critical resources such as medium and heavy rare earths and filed a lawsuit at the World Trade Organization (WTO), accusing the U.S. of violating international trade rules. These actions demonstrated China’s firm stance in defending its rights amid the trade dispute.

Shortly after, the U.S. stated that if China did not withdraw the retaliatory 34% tariffs, it would impose another 50% tariff—escalating the standoff, with neither side backing down.

In contrast to China’s tough stance, Vietnam adopted a more moderate policy.

As one of the countries most severely affected, Vietnam faces U.S. tariffs as high as 46%. The Vietnamese government acted quickly, seeking to resolve the dispute through diplomatic means. General Secretary of the Communist Party of Vietnam, To Lam, held a phone call with President Trump, expressing Vietnam’s willingness to reduce tariffs on U.S. goods to zero in exchange for the U.S. lifting its high tariffs on Vietnam.

Additionally, the Vietnamese government requested a 45-day delay in the implementation of the tariffs to allow time for both sides to negotiate. Deputy Prime Minister Ho Duc Phuc was dispatched to the United States in the hope of resolving the tariff issue through diplomatic channels.

At an emergency cabinet meeting, Prime Minister Pham Minh Chinh emphasized that despite the challenges, Vietnam would still uphold its GDP growth target of 8% or higher. He noted that this challenge could also be an opportunity to promote structural economic reforms, aiming for rapid and sustainable development, market expansion, and supply chain optimization.

Responses from other countries:

• European Union: European Commission President Ursula von der Leyen stated that the EU is willing to negotiate with the U.S. toward mutual zero tariffs on industrial goods, but warned that if negotiations fail, the EU will take countermeasures.
• Japan: Japan’s Trade Minister Yoji Muto expressed regret over the U.S. tariff decision and said Japan would consider taking appropriate measures.
• Australia: Australian Prime Minister Anthony Albanese criticized the U.S. tariffs as “groundless,” but stated that Australia would not implement retaliatory tariffs.

At this point, aside from China’s strong reaction, other countries have responded relatively moderately. Vietnam stands out in stark contrast to China’s hardline approach—especially in light of Prime Minister Pham Minh Chinh’s comment that the challenge is also an opportunity to adjust the economic structure. This perspective—turning pressure into momentum—is particularly thought-provoking.

In fact, it’s not that Vietnam lacks courage, but rather that the consequences of this tariff war are too much for the country to bear. If it truly escalates, not only would the U.S. suffer, China would as well, and Vietnam’s mild response is more a matter of necessity than choice.

2. Tariff War: Two Blades Splitting the Global Economy

If a tariff war truly breaks out, it will be like two sharp blades slicing through the veins of the global economy, ruthlessly tearing apart its fabric.

2.1 Blade One: The Pain of Supply Chain Restructuring

The most direct and visible impact of the U.S. wielding its tariff weapon is the severe shock it brings to global supply chains. High tariffs act like man-made trade barriers, instantly raising the cost of imported goods. This not only directly increases the spending of U.S. consumers, but also puts tremendous export pressure on Chinese manufacturing, which relies heavily on the U.S. market.

To avoid the burden of high tariffs, global industrial chains are once again being forced to undergo a massive restructuring. The data from the past three years (2022–2024) can be seen as a preview:

• The Rise of Southeast Asia: As shown in reports by the World Bank, ASEAN has become one of the biggest beneficiaries of this supply chain shift. In 2024, foreign direct investment (FDI) in manufacturing in ASEAN surged nearly 30% compared to 2020. This trend is not groundless—we are seeing accelerating relocation of industries such as electronics, textiles, and light manufacturing to countries like Vietnam and Thailand. For example, Samsung Electronics of South Korea closed its last mobile phone factory in China and increased investment in Vietnam and India. Japanese apparel brand Uniqlo also began raising its production share in Southeast Asia to reduce dependency on any single market. These corporate relocations have directly boosted local employment and economic growth.
• Vietnam and Mexico “on the rise”: Thanks to their geographical locations and relatively low labor costs, Vietnam and Mexico have gradually become important alternative manufacturing hubs for U.S. companies outside of China. Take Vietnam as an example—its exports to the United States have continued to rise over the past three years, especially in sectors such as textiles, footwear, and electronic components. Mexico, benefiting from its proximity to the U.S. and the North American Free Trade Agreement (which was replaced by the USMCA in 2020 but still exerts influence), has attracted substantial investment in industries like auto parts and home appliances. In the short term, both countries have indeed reaped the dividends of global industrial relocation.

Now, with U.S. President Trump announcing a 10% tariff on all imported goods, along with an additional tariff of more than 50% on Chinese goods, the previously “win-win” model of supply chain relocation is facing another severe shock. It’s like a post-earthquake tectonic plate experiencing another violent tremor—production “plates” that had already begun shifting are now facing new uncertainties.

For companies that have already moved part of their production to Vietnam, Mexico, and other countries, the new tariff policy is undoubtedly a heavy blow. While they may have avoided the additional 50%+ tariff on Chinese goods, the 10% tariff on all imports imposed by the U.S. still raises their operational costs and weakens their price competitiveness.

Even worse, if their production in Vietnam or Mexico still relies on components and raw materials imported from China, the costs of these intermediate products will also rise significantly due to the over-50% tariffs on Chinese goods—ultimately pushing up, rather than reducing, overall production costs.

This new wave of tariff shocks will further accelerate the fragmentation and regionalization of global supply chains. Companies may become more inclined to set up production bases closer to end-consumer markets or diversify their manufacturing footprint across multiple countries to reduce dependence on a single country or region. This trend may lead to a more complex global trade landscape, lower supply chain efficiency, and increased management costs for enterprises.

In short, the new tariff policies act like an even sharper blade—not only intensifying the existing pain of supply chain restructuring but also causing broader and deeper impacts across every layer of the global economy. Enterprises and countries that were just starting to adapt to the new landscape are now being forced into yet another round of adjustments and challenges.

2.2 Blade Two: The Threat of a “Stagflation Trap”

As renowned investor Ray Dalio warned, tariffs act like a toxic “stagflation” injection into the global economy. Exporting countries face deflationary pressure due to falling demand, while importing countries suffer inflation due to rising goods prices. This simultaneous occurrence of economic stagnation and inflation is exactly the kind of “stagflation trap” that economists dread the most.

Let’s take a look at actual performance data from the U.S. and major exporting countries:

• The U.S.’s Climbing Inflation: Since the U.S. further escalated its tariff policy at the end of 2024, we’ve seen a clear rise in the Consumer Price Index (CPI). According to the U.S. Bureau of Labor Statistics, as of February 2025, the U.S. CPI had risen by 0.684% compared to the end of 2024. Prices rose especially sharply for tariff-affected goods such as electronics, clothing, and furniture. This has led to a continuous increase in the cost of living and a decline in real purchasing power. The annualized inflation rate in the U.S. is now around 2.8% to 3.0%, well above the 2% control target.
• The Chill for Exporting Countries: For export-oriented economies like China, South Korea, and Germany, the increased U.S. tariffs are a heavy blow. In the short term, export demand from the U.S. has dropped significantly, causing order reductions and production slowdowns. To digest excess capacity, some firms are forced to cut prices, leading to shrinking profits or even losses. This will further weaken investment confidence and potentially lead to layoffs and rising unemployment. For example, according to the Economist Intelligence Unit, China’s GDP growth may decline by 0.6% to 2.5% between 2025 and 2027, depending on the severity of the tariffs.

What makes the stagflation trap within a single country so frightening is that traditional monetary policies often fail to address both stagnation and inflation simultaneously. If central banks adopt loose monetary policies to stimulate growth, they risk fueling inflation. But if they tighten to curb inflation, they may push the economy further into decline. This creates a policy dilemma for governments worldwide.

It’s important to note that this time, the stagflation caused by the tariff war is not confined within a single country, but is global: inflation for importing countries, stagnation for exporters. Solving such a globally synchronized stagflation crisis is far more complex than resolving a domestic one.

For importing countries like the U.S., the primary challenge is the continuous rise in prices. Traditionally, raising interest rates is used to combat inflation. However, with economic growth already slowing due to tariffs and supply chain disruptions, increasing rates could further hinder economic activities, potentially leading to a recession.

For exporting countries like China, the main issue is economic slowdown caused by insufficient demand. To stimulate the economy, measures such as lowering interest rates and increasing credit supply are typically employed. However, in the context of global trade tensions, such actions might lead to capital outflows and currency depreciation, further intensifying trade frictions with the U.S.

Therefore, this global stagflation predicament renders individual national policies ineffective or even counterproductive. Importing and exporting countries face distinct policy challenges, and unilateral actions are unlikely to find a balance or form a global consensus to resolve the issue.

This is why economists like Ray Dalio are concerned about the situation, as it signals that the global economy may enter a prolonged period of low growth and high inflation.

2.3 Summary

In summary, this tariff war is like two invisible blades silently cutting through the nerves of the global economy.

• The first blade—the pain of supply chain restructuring—forces global companies to pay high costs to readjust their production layouts, leading to reduced efficiency and ultimately higher prices for consumers.
• The second blade—the threat of a “stagflation trap”—places governments in a dilemma. They must deal with inflationary pressures while also avoiding further economic slowdown, but traditional monetary policy tools are proving insufficient.

Facing broken supply chains and the risk of stagflation, some countries may turn to their only remaining shield—currency. A competitive race of beggar-thy-neighbor currency devaluation may already be quietly unfolding.

3. The Currency Shield: A Poison Disguised as a Cure

History has a way of repeating itself—especially in economics. Time and again, we’ve watched the same patterns unfold, yet we keep forgetting the lessons we once learned. Currency wars—this seemingly technical and complex term—have in fact played out repeatedly throughout human economic history.

Today, this “currency shield” is once again being wielded by various countries. It may seem capable of temporarily relieving the sharp pains of the economy. But if history is any guide, it’s less of a remedy—and more of a slow-acting poison.

3.1 Currency Devaluation During the Great Depression

During the Great Depression of the 1930s, economies around the world fell into recession and deflation. In an effort to stimulate exports and save their economies, countries raced to devalue their currencies. In 1931, the United Kingdom was the first to abandon the gold standard, allowing the British pound to float freely. The pound quickly depreciated by about 30% against the U.S. dollar. As a result, the UK gained a significant export price advantage, and its exports experienced a brief rebound.

This move by the UK set off a global storm. France, Germany, and Italy followed suit, using currency devaluation as a tool for economic recovery. This wave of competitive devaluation triggered a chain reaction—countries began erecting high tariff barriers to protect their domestic markets. But the reality was harsh. Global trade volumes plummeted. According to data from the International Monetary Fund (IMF), between 1929 and 1933, global trade shrank by more than 60%, deepening the economic downturn and causing unemployment to surge worldwide. In the United States, unemployment soared to over 25%.

3.2 Currency Devaluation During the Asian Financial Crisis

If the lessons of the Great Depression still feel distant, then we must look to a more recent episode of currency warfare: the 1997 Asian Financial Crisis. At the time, many Asian economies had experienced rapid growth and accumulated massive external debts. The inflow of hot money led to soaring asset prices. When foreign capital suddenly pulled out, Southeast Asian currencies such as the Thai baht, Indonesian rupiah, and Malaysian ringgit collapsed one after another.

Thailand was the first to act—in July 1997, it announced the abandonment of its currency peg to the U.S. dollar, and the baht plummeted by more than 50% in a short time. To maintain export competitiveness, other countries quickly followed with their own devaluations. But what followed was an even more intense wave of capital flight. Within just a few months, South Korea’s foreign exchange reserves were depleted, forcing it to seek an emergency bailout of $58 billion from the International Monetary Fund.

Although devaluation temporarily boosted export competitiveness, it also triggered severe inflation and economic recession. In Indonesia, the crisis sparked widespread social unrest, ultimately forcing President Suharto to resign. During the crisis, Indonesia’s inflation rate soared above 70%, unemployment surged, and the country descended into chaos.

The echoes of history serve as a warning: currency devaluation, though seemingly a simple economic tool, carries enormous and unpredictable risks. Once countries engage in competitive devaluation, not only are the export advantages short-lived and unsustainable, but global capital markets also face violent upheaval—leading to long-term economic downturns and imbalances.

Yet, the short-term effectiveness of this so-called “currency shield” continues to tempt more countries into the abyss.

3.3 Currency Devaluation: A Desperate Lifeline

In today’s tariff war, countries have once again been pushed to the edge of currency devaluation. Facing the threat of rapidly shrinking exports and waves of unemployment, devaluing the national currency has become a “last resort” that governments feel compelled to grasp. But history clearly shows us that this straw is not salvation—it is a catalyst for further economic deterioration.

Looking at recent data, after the new tariff policy was introduced in April 2025, the RMB fell from 7.05 to 7.20 per U.S. dollar, hitting a two-year low. The Vietnamese dong followed closely, depreciating over 6% against the dollar. Other currencies such as the South Korean won, New Taiwan dollar, Malaysian ringgit, and even the euro also adopted looser monetary policies without exception. The logic behind this competitive devaluation is simple and brutal: when a country’s currency depreciates, its export goods become cheaper in the international market, temporarily boosting exports.

But behind this short-term recovery lies a hidden and significant crisis. Once a currency continues to depreciate, the real value of domestic assets inevitably shrinks. Foreign capital, driven by risk aversion, will withdraw rapidly. For example, in Turkey in 2024, the lira depreciated by over 40% within one year, triggering a massive foreign capital flight. Foreign exchange reserves were quickly depleted, inflation surged past 85%, the cost of living skyrocketed, and the economy teetered on the brink of collapse.

What’s more worrying is that once currency devaluation becomes a defense tactic that all countries are forced to adopt, global capital markets may plunge into panic-induced liquidity flows, with capital flooding into dollar-denominated assets. At that point, the U.S. itself will fall into the “dollar trap”: a rapidly appreciating dollar will crush domestic manufacturing, global liquidity will dry up, and a “lose-lose” situation will inevitably follow.

In reality, if it were any country other than the United States, raising equal tariffs would be a fair request for trade balance. But the U.S. is different. Because of its dollar hegemony, the so-called trade deficit is not as unfair as it claims. Or rather, the trade deficit is only part of the truth.

4. Trade Deficits Under U.S. Dollar Hegemony

To understand dollar hegemony, we must first trace back to the period after World War II. The Bretton Woods system established the dollar’s link to gold, making the U.S. dollar the world’s primary reserve and settlement currency. However, this system collapsed in 1971 when the Nixon administration announced the decoupling of the dollar from gold.

So, how did the dollar manage to maintain its dominant position even after the collapse of the gold standard?

4.1 The Formation of Dollar Hegemony

One of the key factors was the establishment of the petrodollar system. In the 1970s, the United States and Saudi Arabia reached a landmark agreement: Saudi Arabia agreed to use the U.S. dollar as the sole settlement currency for its oil exports, while the U.S. pledged to provide security guarantees for Saudi Arabia. Since oil is the lifeblood of the global economy, this agreement meant that most oil transactions worldwide would have to be conducted in dollars.

Imagine a massive international market where all countries need to purchase oil to keep their economies running. The only way to buy oil is to have U.S. dollars. It’s like having just one universal “admission ticket” to the market—the dollar. To get this ticket, countries must either export goods and services to the U.S. to earn dollars, or hold dollar-denominated assets.

Beyond the petrodollar system, the U.S. dollar’s status as the world’s primary reserve currency further strengthened its hegemonic position. Central banks around the world need to hold a certain amount of foreign exchange reserves to manage balance of payments, intervene in foreign exchange markets, or store national wealth. Given the size of the U.S. economy, the depth and liquidity of its financial markets, and its relative stability, the dollar naturally became the preferred reserve currency for central banks globally.

According to data from the International Monetary Fund (IMF), as of the end of 2024, the U.S. dollar still accounted for about 57.8% of global foreign exchange reserves, far ahead of other currencies such as the euro, yen, and pound (see chart above). This means that more than half of the world’s reserves are still held in U.S. dollars. If you’re curious about how dollar hegemony was established, it’s worth checking out “Escape from the Inflation Trap: Returning to the Time Standard”. It’s not just about the dollar—it outlines the history of nearly every major currency.

4.2 The “Privileges” Brought by Dollar Hegemony: Low-Cost Financing and Seigniorage

It is precisely because of the dollar’s special status that the United States enjoys “privileges” unmatched by any other country. The two most notable are low-cost financing and seigniorage.

Low-cost financing: Due to the enormous global demand for dollar-denominated assets (such as U.S. Treasury bonds), the U.S. can borrow at relatively low interest rates. It’s similar to how a company with excellent credit can easily obtain low-interest loans from banks. When other countries run trade deficits, they often face pressure from currency depreciation and rising financing costs. But thanks to dollar hegemony, the U.S. faces much less of this pressure.

For example, even as U.S. government debt continues to climb, global investors are still willing to purchase U.S. Treasury bonds. This helps suppress U.S. borrowing costs. Imagine if another country had such massive debt—their bond yields would likely soar.

Seigniorage: Seigniorage refers to the difference between the revenue from issuing currency and the cost of producing it. For the United States, since the dollar is the world’s primary reserve currency, many countries need to hold dollars. This is essentially equivalent to the U.S. acquiring wealth “for free,” because other countries must export goods and services to the U.S. in order to obtain dollars.

You can think of it as the U.S. being a “global banker” with the power to issue a universally accepted currency. By printing money, it can effectively purchase goods and services worldwide. While in practice it’s more complex than simply printing money, the dollar’s global role does grant the U.S. a form of seigniorage income.

4.3 The Trade Deficit Isn’t the Whole Story

When we talk about trade deficits, we often focus only on the import and export of goods and services. But in reality, international trade also involves the flow of capital. Under dollar hegemony, U.S. trade deficits are often accompanied by large net capital inflows.

This is because, when the U.S. purchases goods and services from other countries, dollars flow into those countries. These countries often reinvest the dollars they earn back into the U.S. financial market—for example, by buying U.S. Treasury bonds, stocks, real estate, etc. This capital reflux partially offsets the U.S. trade deficit.

You can think of it like a large shopping mall. Customers (other countries) buy goods at U.S. stores (the U.S. economy), and then deposit the money they earn back into the mall’s own bank (the U.S. financial system).

According to data from the U.S. Department of Commerce, over the years, the U.S. has consistently run trade deficits. However, at the same time, the U.S. financial account has shown a surplus, meaning that capital flowing into the U.S. exceeds capital flowing out. This helps explain why the U.S. can run long-term trade deficits without triggering a severe economic crisis.

4.4 The Triffin Dilemma: The Inherent Contradiction of Dollar Hegemony

The U.S. dollar’s role as the global reserve currency inherently contains a famous economic dilemma—the Triffin Dilemma, proposed by American economist Robert Triffin in the 1960s.

Triffin pointed out that to meet the global economy’s growing demand for dollars, the United States must continually supply dollars to the world. This means that the U.S. must maintain long-term trade deficits, because only through trade deficits can dollars flow to other countries and become their reserve currency and medium of exchange.

However, persistent trade deficits will ultimately cause U.S. debt to keep increasing, which may lead to doubts about the dollar’s credibility. If the dollar’s credibility weakens, countries may reduce their dollar holdings and shift to other currencies for their reserves—undermining the dollar’s dominance.

This creates a dilemma: to keep the world economy liquid, the U.S. needs trade deficits—but prolonged trade deficits may destabilize the dollar in the long run.

In short, being the global leader is no easy job.

4.5 Summary: Trade Deficits Under Dollar Hegemony

In summary, under the framework of dollar hegemony, the U.S. trade deficit has a unique nature. It is not merely a simple imbalance between imports and exports of goods and services, but is closely tied to the U.S. dollar’s role as the global reserve and settlement currency. Dollar hegemony grants the United States numerous economic “privileges,” but it also brings inherent contradictions and potential risks.

Returning to the current tariff war—President Trump claims that imposing tariffs will reduce the U.S. trade deficit, arguing that this will protect American jobs and industries. But from the perspective of dollar hegemony, the true intention of the U.S. might be more complex.

Some analysts believe that the real aim of the U.S. in initiating the tariff war is not merely to cut its trade deficit, but rather to preserve its leadership in the global economic and technological spheres. By applying tariff pressure on specific countries and industries, the U.S. may be attempting to force these countries to make concessions on trade rules, intellectual property protection, technology transfers, and more.

Furthermore, tariffs can be seen as a geopolitical tool to adjust economic and political relations with targeted countries. Simply put, due to dollar hegemony, tariffs are being “weaponized.”

For the world, addressing the problem of dollar hegemony is the fundamental solution to countering the U.S.’s weaponization of tariffs.

5. The “Achilles’ Heel” of Dollar Hegemony

Dollar hegemony is like the ancient Greek hero Achilles—no matter how powerful it appears on the outside, it still has a fatal weakness. Behind the strength of dollar dominance lie several serious economic and political vulnerabilities. Once these weaknesses are pierced by market forces or political shifts, both the U.S. and the global economy could face an unprecedented level of turmoil.

5.1 The Unsustainability of Excessive Debt

To understand the problem of dollar hegemony, we must first look at the numbers. As of March 2025, the U.S. federal government debt had exceeded $36.56 trillion, which is more than 124% of its gross domestic product (GDP). What does this figure really mean? Simply put, the U.S. government’s annual debt issuance now exceeds the total value of goods and services it produces in an entire year.

What’s strange, however, is that this enormous debt hasn’t led to higher borrowing costs. On the contrary, over the past few decades, the U.S. has used the dollar’s global status to suppress interest rates, keeping borrowing costs unusually low. U.S. Treasury yields have remained at low levels for years—between 2020 and 2024, for example, the average yield on 10-year Treasuries was around 2%, while other heavily indebted countries, like Brazil, saw yields soar above 10% or even higher during the same period.

Behind the seemingly “ideal” combo of massive debt and low-cost financing lies an unsustainable economic miracle. If global investors ever lose confidence in the U.S.’s ability to repay its debts, borrowing costs could spike rapidly, putting the dollar’s credibility to the test.

The 2008 subprime mortgage crisis was the first time dollar hegemony faced serious doubt. Although the Federal Reserve managed to bail out the system with massive quantitative easing (QE), the U.S. only narrowly escaped collapse—and planted the seeds for deeper debt and inflation risks.

Since the COVID-19 pandemic in 2020, the U.S. government and the Fed have launched over $4.5 trillion in QE. Such an astonishing round of “money printing” has once again pushed the dollar’s credibility to the edge of a cliff.

5.2 The Global Backlash Against the Dollar System

The United States has long used the dollar-based system to implement economic sanctions and trade restrictions, which has caused serious dissatisfaction among countries worldwide. Data shows that from 2010 to 2024 alone, the U.S. Treasury imposed over 20,000 financial sanctions and asset freezes through the dollar clearing system on foreign countries, companies, and individuals.

A recent example: after the outbreak of the Russia–Ukraine conflict in 2022, the U.S. swiftly imposed the most severe financial sanctions in history on Russia—freezing approximately $300 billion in Russian foreign reserves and banning Russian banks from accessing SWIFT, the global dollar-based interbank settlement system.

In response to this “financial hegemony” of the dollar, more and more countries have begun actively seeking alternatives in order to bypass the dollar system. Take the BRICS countries (Brazil, Russia, India, China, South Africa): since 2023, they’ve been accelerating efforts to establish non-dollar trade settlement mechanisms. Data shows that by 2024, over 70% of China–Russia trade was settled in non-dollar currencies. In 2023, India and the UAE signed an agreement to use the rupee for bilateral trade. Brazil and Argentina also pushed for local currency settlements to reduce reliance on the dollar.

Going even further, at the BRICS summit in August 2024, a formal proposal was raised to create a “BRICS common currency.” While the idea is still in early stages, it clearly signals that the trend of de-dollarization is gaining momentum.

5.3 The Challenge from Decentralized Currencies

If national de-dollarization efforts are still at an early stage, then the rapid development of digital currencies has opened a whole new battlefield for the global financial market.

Cryptocurrencies represented by Bitcoin, due to their decentralized nature and inability to be controlled by any single country, have increasingly attracted the attention of global investors, companies, and even governments. According to a 2024 research report from the University of Cambridge, over 300 million people worldwide have owned or used cryptocurrency.

Although Bitcoin has not yet truly challenged the U.S. dollar’s status as the global reserve currency, it offers a completely new way to store wealth and conduct cross-border payments. In 2021, El Salvador became the first country in the world to adopt Bitcoin as legal tender, followed by the Central African Republic in 2022. Although these countries are small in scale, their actions sent a clear signal to the world: monetary sovereignty does not have to depend on the U.S. dollar system.

5.4 Possible Paths to the End of Dollar Hegemony

Looking at historical experience, no currency’s dominance lasts forever. The Spanish silver dollar, Dutch guilder, and British pound were all once dominant on the global stage but eventually declined. While the U.S. dollar remains powerful, it too is bound to face cyclical challenges.

Experts generally identify three possible paths that could lead to the end of dollar hegemony:

First, the trend of global multipolarity continues to accelerate. The U.S.’s position in the international economy gradually declines, and the global economic center shifts to emerging markets such as East Asia, South Asia, and the Middle East. More countries, based on their own interests, promote the widespread adoption of non-dollar settlement mechanisms. As demand for the dollar as a reserve currency gradually falls, its dominance becomes diluted.

Second, the creditworthiness of U.S. Treasury debt is seriously questioned by the markets. The U.S. is no longer able to finance itself at low cost, interest rates on debt surge, and a government debt crisis erupts. This leads to an unprecedented credibility crisis for the dollar. In such a scenario, global capital markets may dump dollar assets, triggering the collapse of dollar credibility and the disintegration of the dollar system in an instant.

Third, digital currencies gain rapid popularity, making global cross-border trade no longer heavily dependent on the dollar clearing system. Especially if currencies like the digital yuan or decentralized cryptocurrencies such as Bitcoin become mainstream international payment tools, the world’s reliance on the dollar will significantly diminish. The dollar would then lose its status as an “absolute financial weapon,” and its hegemony would end naturally.

In particular, decentralized stablecoins—especially those not backed by dollar assets—are likely to become powerful competitors to replace the dollar.

6. Decentralized Stablecoins as the Endgame for Dollar Hegemony

Over the past decade, the rapid rise of cryptocurrencies has opened people’s eyes to possibilities beyond the traditional monetary system. Within this trend, stablecoins, with their relatively stable value anchors, convenient cross-border payment capabilities, and decentralization potential, have gradually become a powerful force that could reshape the current monetary order.

However, it’s important to note that not all stablecoins are qualified to be contenders in ending dollar hegemony.

6.1 Categories of Stablecoins and Their Mechanisms

To better understand stablecoins, we can divide them into three major categories:

1.Fiat-Collateralized Stablecoins

As the name suggests, fiat-collateralized stablecoins are backed by traditional fiat currencies such as the U.S. dollar or the euro. These tokens maintain a 1:1 value peg to the underlying currency. The most well-known examples include USDT (Tether) and USDC (USD Coin). As of April 9, 2025, USDT’s market cap reached $140 billion, and USDC’s stood at $60 billion, together accounting for over 85% of the stablecoin market (see chart below).

The biggest advantage of this type of stablecoin is that it is easy to understand and relatively low-risk. As long as the issuer actually holds fiat reserves equivalent to the amount of tokens issued, the token price can be effectively maintained. However, this model is highly dependent on centralized entities such as Tether and Circle for credibility and operational trust.

This leads to a core issue—centralized issuers are inevitably subject to political forces, legal jurisdiction, and financial regulation.

2.Crypto-Collateralized Stablecoins

These stablecoins are backed by other crypto assets (such as ETH or BTC). They maintain price stability through over-collateralization, with DAI (by MakerDAO) and the more recent LUSD (by Liquity) being the most notable examples of decentralized stablecoins.

In August 2024, MakerDAO underwent a major rebranding, changing its name to Sky and renaming DAI to USDS. For simplicity, we will continue referring to it as DAI.

As of the end of March 2025, the combined market cap of DAI and USDS exceeded $10.8 billion, making it the leading crypto-backed stablecoin (see chart). Compared to fiat-backed stablecoins, this type offers much greater decentralization, as both the collateral and issuance process are handled via smart contracts—automated and theoretically manipulation-resistant.

3.Algorithmic (Non-Collateralized) Stablecoins

Algorithmic stablecoins were first introduced by projects like Basis and later TerraUSD (UST). These stablecoins are not backed by fiat or crypto assets. Instead, they attempt to peg their value to fiat (typically the U.S. dollar) by using complex algorithms that adjust token supply automatically. The collapse of TerraUSD in 2022 caused major market turmoil, and many considered algorithmic stablecoins a failed concept. However, newer attempts such as Frax and Reflexer have started to slowly rebuild trust.

That said, due to their lack of real asset backing, the long-term stability of algorithmic stablecoins remains unproven in the eyes of the market.

6.2 Why Can’t USDT and USDC End Dollar Hegemony?

Let’s return to the core question of this article—why can’t USDT and USDC, which are backed by U.S. dollar assets, replace the dollar as the new hegemonic currency?

The key reason lies in this: their value is still firmly tied to dollar-based assets, and the control over those assets ultimately belongs to the U.S. government and its regulatory bodies.

First, let’s look at some real-world data and examples:

During the Russia–Ukraine conflict in 2022, the U.S. launched unprecedented financial sanctions against Russia, freezing over $300 billion of its foreign reserves—including a significant amount of dollar-backed financial instruments. Following this, the U.S. Treasury explicitly warned all U.S.-jurisdiction stablecoin issuers to freeze any accounts related to Russian entities.

Circle (the issuer of USDC) swiftly complied, freezing millions of dollars worth of USDC accounts. This clearly shows one thing: USDC and other fiat-collateralized stablecoins are essentially blockchain versions of the U.S. dollar. Their underlying nature hasn’t changed—their assets remain firmly under the jurisdiction of U.S. regulators.

Now let’s look at USDT. Between 2021 and 2024, USDT froze dozens of wallet addresses, totaling hundreds of millions of dollars, at the request of the U.S. Department of Justice (DOJ) and the New York Attorney General’s Office (NYAG). Although Tether, the company behind USDT, claims to be registered in the British Virgin Islands and outside U.S. legal jurisdiction, it was still compelled to comply under pressure from the global dollar settlement system.

The most crucial point: this type of authority is identical to the traditional SWIFT financial system. The U.S. only needs to issue an order to any issuer of dollar-backed stablecoins, and it can immediately freeze accounts and sever fund flows. This means that fiat-collateralized stablecoins are fundamentally under the control of U.S. dollar hegemony, and therefore cannot truly replace the dollar’s dominance in global trade and finance.

6.3 The Stablecoin That Can Truly End Dollar Hegemony — Decentralized Stablecoins Not Backed by Dollar Assets

So, the stablecoin that can truly break this deadlock must be completely decoupled from dollar assets, non-censorable, and fully decentralized.

What characteristics would such a stablecoin have? Starting from MakerDAO’s decentralized stablecoin DAI, the ideal model for future stablecoins might include:

• Diversified and decentralized collateral: Instead of using the U.S. dollar or dollar-denominated financial assets as the main collateral, the core would be decentralized assets such as BTC, ETH, or even tokenized forms of gold or other non-dollar assets.
• Fully decentralized governance mechanisms: Collateralization, minting, and liquidation processes would all be executed via smart contracts, with no centralized entity or national power able to unilaterally control or freeze assets.
• No single point of regulatory failure: All collateral assets would be distributed across globally decentralized nodes, such that no single government or institution could freeze or dominate them. This would mean that such a stablecoin would be entirely outside the influence of U.S. financial hegemony.

Once the collateral backing a stablecoin is fully de-dollarized, the United States is effectively removed from the center of the monetary game, directly eliminating the seigniorage revenues it has long enjoyed.

Seigniorage, in essence, refers to the extra profits the U.S. earns by issuing the dollar, as the world voluntarily holds dollar assets. For example, the U.S. government saves hundreds of billions of dollars annually in interest costs because of the dollar’s global reserve status—in 2023 alone, the estimated savings on U.S. Treasury interest exceeded $250 billion.

But once stablecoins turn entirely to BTC, ETH, or gold-backed assets, countries and institutions no longer need to hold dollars or U.S. debt as reserves. That means the U.S. loses the ability to print dollars at zero cost to buy real goods from around the world.

From that moment on, the U.S. Treasury can no longer issue debt backed by dollar dominance to easily tap into global capital. This new stablecoin-driven structure pulls the rug out from under dollar seigniorage, cutting off the hidden channel through which the U.S. has long extracted wealth from the world via low-cost financing.

6.4 Summary: Decentralized Stablecoins Are the Key to Ending Fiat Currency Hegemony

Once such decentralized stablecoins are widely adopted, they will completely disrupt the existing financial order:

• Countries will no longer need to clear trade through dollar-based systems like SWIFT, thereby freeing themselves from the threat of sanctions and account freezes.
• The global flow of capital will become much freer and more secure. Funds will no longer be arbitrarily blocked or frozen, nor weaponized in geopolitical conflicts.
• Funding costs will drop significantly, as there will be no need to pay the hidden “seigniorage tax” or “dollar tax” under dollar hegemony.

As blockchain technology and decentralized governance continue to mature, the global economy may eventually break free from the shadow of U.S. dollar dominance and usher in a truly open and free financial era.

Decentralized, de-dollarized stablecoins could become a new kind of global currency—one that won’t give rise to another form of monetary hegemony.

Conclusion

The era of the U.S. dollar may be coming to an end—not because America is no longer powerful, but because the world is no longer willing to entrust its destiny to a piece of paper that can be turned into a weapon at any time.

History reminds us time and again: behind every currency lies not just cold numbers, but human trust and freedom. When the dollar repeatedly uses its hegemonic position to drag the global economy into fragmentation and stagflation, a new financial order will quietly emerge.

The rise of decentralized stablecoins is not just a financial innovation, but an awakening of the human spirit for monetary freedom. True wealth security has never relied on power, but on technology and shared consensus. The future of the global economy belongs to currencies that cannot be frozen or censored by any centralized authority.

Once stablecoins no longer depend on dollar assets as collateral, the dominance of the dollar will begin to fade. We are standing at a turning point in history—not just witnessing the outcome of a tariff war, but the historical moment when monetary hegemony begins to unravel.

If stablecoins are no longer backed by the dollar, then what should they be backed by? The answer is Bitcoin, the native digital asset. As for the question we raised at the beginning—how should the average person respond? The answer becomes clear: start now, set aside your living expenses, and DCA into Bitcoin. For more detailed insights, refer to: “Bitcoin: The Ultimate Hedge for Long-Term Thinker?“

Perhaps years from now, when people look back on today, they will be amazed to realize:

The dawn of monetary freedom began quietly, in the midst of this silent war.

It may not have been loud or dramatic, but it will profoundly change the world.

Disclaimer:

1. This article is reprinted from [Mirror]. All copyrights belong to the original author [Daii]. If there are any objections to this reprint, please contact the Gate Learn team, and the team will handle the matter according to the relevant process.

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