The Strait of Hormuz is, effectively, the epicentre of geopolitics in 2026. The global economy flinches every time Iran flexes its military muscle to block or allow passage of ships, and with every threatening post as the US and Iran trade words and missiles.
This week, bankers, insurance companies and countries seeking to move their ships through the strait learnt about a new payment system initiated by the Iranians for ships wishing to pass through. Option A: pay $2 million in Chinese yuan. Option B: pay $2 million in crypto. As of Saturday, barely a dozen ships, many of them shadow-Iranian, passed through. There is no record yet of the money collected in yuan or in crypto currencies. Yet, familiar obituaries of the dollar are being scripted yet again.
The role of the US dollar as the world’s reserve currency took root in a deal struck in Saudi Arabia. On July 20, 1974, William Simon, a Wall Street bond trader turned US treasury secretary, met King Faisal at his summer palace in Taif. Simon later also met with Prince Fahd bin Abdulaziz, Finance Minister Mohammed bin Ali Aba Al Khail, and the legendary Oil Minister Ahmed Zaki Yamani to operationalise the idea wrapped as economic cooperation for the world.
The US offered a quid pro quo to the Saudis. The deal: every barrel of Saudi crude would be anchored in US dollars and, in exchange, the US government would offer a security guarantee to the Saudi regime. Smart geopolitics was scaffolded by smart economics—global demand for oil and global pricing in dollars entrenched the domination of the dollar. Five decades later, the ideas of domination by denomination and global currency are losing their sheen.
Geopolitics is redesigning the global financial plumbing. China is the second largest consumer of crude oil, at 16.8 million barrels per day. The bulk of it—37 percent—arrives via Hormuz. China pays for oil from Iran and Saudi Arabia in yuan. Russia’s trade with China is adjusted in yuan and that with India is often in rupees. The petrodollar’s sphere of influence is being challenged by the petro-yuan.
No wonder the debate on the risks and rewards of de-dollarisation is back. The structural shift in payments is fuelling another visible shift—in how countries are parking their foreign exchange reserves. In 2001, over 72 percent of the forex reserves of central banks were parked in US dollars. In 2026, only 56.7 percent, the lowest level in 30 years, is parked in the American paper.
Since 2022, central banks—especially of India and China—have been on a gold-buying spree. Globally, gold has overtaken US treasury bonds as the largest reserve asset held by central banks. The price of gold has boosted both valuation and purchases—central banks have been accumulating about 1,000 tonnes of gold a year. The average dollar share of the reserves slid 12 percent thanks to these gold purchases. Countries are also repatriating gold parked elsewhere—France, for instance, repatriated over 129 tonnes from New York to Paris.
There are both overt and covert moves of de-dollarisation catalysed by the need for de-risking from whimsical US policies and the need for diversification. The emerging economies are creating room for a Plan B—‘just in case’ options after the freezing of $300 billion of Russia’s reserves. A host of countries, therefore, are selling out of US treasuries. India was among the countries cashing out—its holdings of US treasuries slid 26 percent from a peak of $247 billion to a five-year low in January.
This has triggered reactions. Soon after his appointment, US Ambassador Sergio Gor met with RBI Governor Sanjay Malhotra. The aim is unstated, but it’s scarcely a mystery given the expansion of the ‘quit dollar’ movement. A few weeks later, Malhotra said India was not selling US treasuries. Paying in the local currency—as India did and does—trims imported inflation. Unsurprisingly, countries are building a gated community of trades that ring-fences the impact of the dollar’s ups and downs.
For decades, nations bearing the burden of what Charles de Gaulle called “an exorbitant privilege” have aspired to create or consider competitive options. Brazil’s President Lula da Silva said, “Every night I ask myself why all countries have to base their trade on the dollar?” It is equally true that the death of the dollar has always been an exaggeration, declarations and wishes wrapped in hope.
Ever since John Maynard Keynes and Ernst F Schumacher conceptualised the idea of a global currency—Bancor—in 1942, the world has nursed the aspiration for a global currency. The desire has only intensified since the return of Donald J Trump and the advent of Trumponomics. Stephen Miran, now a governor at the US Federal Reserve, mooted the Mar-a-Lago Accord that envisaged debasement of the dollar and tariffs to reduce debt.
Dollar dominance survives thanks to its scale and the complexity of the geopolitical landscape—those opposed to the dollar are opposed to others. The much-lathered Brics currency needs both China and India on the same page. The desire for a global currency is also daunted by the contours it must serve. The military and economic might of the US has enshrined the dollar as a haven. The US has borne the burden of global leadership. Others have not. The yen, won, euro—and now the yuan—haven’t measured up as they lack the stature and depth in markets.
That said, Trump’s tantrums, tariffs and wars have the potential to hasten the process of reconciliation and consensus. Lenin advocated the debasement of currency to dismantle capitalism. The weaponisation of sanctions and tariffs is paving the path for this. Lenin also said, “There are weeks where decades happen.” Stay tuned.
Read all columns by Shankkar Aiyar
SHANKKAR AIYAR
Author of The Gated Republic, Aadhaar: A Biometric History of India’s 12 Digit Revolution, and Accidental India
(shankkar.aiyar@gmail.com)