Structural Causes of the Exodus from U.S. Treasury Demand: The Weaponization of the Dollar and the BRICS Counterattack [EN]

"There is no reason for us to be exclusively tied to a single currency for trade settlements. A multipolar global economy demands a multipolar infrastructure, and oil is merely the catalyst for that transition."

— Mohammed Al-Jadaan, Minister of Finance of Saudi Arabia (2025)

Prologue: A Market Observer's Perspective

In June 1974, a quiet agreement forged between Henry Kissinger and the Saudi royal family determined the gravity of global capitalism for half a century. The Petrodollar system, dictating that 'oil is settled only in dollars, and surplus dollars buy U.S. Treasuries,' was a magic wand that allowed the U.S. to maintain low interest rates despite massive fiscal deficits. However, as of 2026, this wand is breaking. We observe a gradual decline in the dollar's share in global commodity settlement networks, and BRICS nations leading the fragmentation of settlement networks through their own digital currency bridges. Power grows out of the barrel of a gun, but hegemony stems from settlement networks. What fatal bill will the cracks in the 50-year single-currency monopoly present to the U.S. sovereign debt market, which has surpassed $35 trillion?

EXECUTIVE SUMMARY

As of 2026, the structural dismantling of the petrodollar system is underway, with the non-USD crude oil settlement share of key oil-producing countries, including Saudi Arabia, increasing to a meaningful level. As a reaction to the weaponization of the dollar, which accelerated following sanctions against Russia, global central banks are selling off dollar-denominated Treasuries and evacuating capital into physical gold and their own currency settlement networks (e.g., mBridge). This is not merely geopolitical friction, but a macroeconomic tipping point forcing a structural decline in demand for U.S. Treasuries and a permanent rise in global capital raising costs (interest rates).

01. The End of the Petrodollar Monopoly and the Fragmentation of Settlement Networks

└ Practical Abandonment of the Monopolistic Practice Sustained Since 1974

According to data from the International Monetary Fund (IMF) and major financial institutions, the decline in the U.S. dollar's share in global commodity trade, including crude oil, is evident. Saudi Arabia has practically abandoned the petrodollar monopoly practice that lasted for 50 years, structurally expanding the share of Renminbi (RMB) settlements in its crude oil trade with China since 2025.[¹] This signifies the dismantling of the 'Petrodollar Recycling' mechanism, where energy payments were converted into dollars and re-injected into the U.S. Treasury market.

└ The Technological Bypass of BRICS: The mBridge Project

Emerging countries have gone beyond simply rejecting the dollar to building alternative infrastructures. 'mBridge', a multi-central bank digital currency (mCBDC) platform led by the Bank for International Settlements (BIS) Innovation Hub and joined by China, Thailand, the UAE, Saudi Arabia, and others, moved beyond the Minimum Viable Product (MVP) stage in 2025 and began full-scale operation as a commercial settlement network in 2026.[²] This technically neutralizes the dollar's monopoly on settlement networks by enabling instantaneous and cheap wholesale cross-border payments without going through SWIFT.

02. Structural Cause Analysis: Weaponization of the Dollar and the Collapse of Trust

└ The Geopolitical Trauma Left by the $300 Billion Freeze

The most powerful trigger for the restructuring of the monetary order was the freezing of approximately $300 billion in the Russian central bank's foreign exchange reserves by the West immediately following the outbreak of the Russo-Ukrainian War in 2022. This action imprinted the collision between the weaponization of resources and economic security onto non-aligned nations worldwide. Holding a nation's wealth in the form of U.S. Treasuries was redefined as a Sovereign Risk that could converge to zero at any time in the event of political friction with the United States.

└ Central Banks' Shift to Physical Assets

This erosion of trust directly led to the diversification of reserve assets. Central banks in emerging countries are reducing the proportion of dollar-denominated assets in their foreign exchange reserves and amassing physical 'Gold'—which is nobody's liability and free from geopolitical sanctions—on a historical scale. This is a structural bank run phenomenon where the refuge for capital is shifting from the U.S. Treasury to the underground vaults of central banks.

03. Data and Statistical Verification: Trajectories of Foreign Exchange Reserves and the Treasury Market

└ COFER Indicators and the Advance of the Renminbi

According to the IMF's official Currency Composition of Official Foreign Exchange Reserves (COFER) data, the share of the U.S. dollar in global foreign exchange reserves, which exceeded 70% in the early 2000s, fell below 58% as of the end of 2025.[³] Conversely, the shares of gold and non-traditional reserve currencies (such as the Australian dollar, Canadian dollar, and Renminbi) are steadily rising. Notably, the People's Bank of China is executing a de-risking strategy, drastically reducing its U.S. Treasury holdings from the $1.3 trillion level in 2013 to under $750 billion as of 2026.[⁴]

└ Foreign Investors' Exodus from U.S. Treasuries

Analyzing the long-term trajectory of the U.S. Treasury's Treasury International Capital (TIC) reports, the share of major foreign central banks, which absorbed more than 40% of U.S. Treasuries until the mid-2010s, has shrunk to less than 25% as of 2026.[⁵] To fill the void left by this structural decline in foreign demand, hedge funds, U.S. domestic sovereign wealth funds, and banks are stepping in, but this signifies an influx of inelastic capital demanding higher yields.

04. Systemic Ripple Effects: A Permanent Rise in Macroeconomic Interest Rates

└ The Materialization of the 'Crowding-Out' Effect

The disruption of petrodollar recycling and the sluggish purchase of Treasuries by foreign central banks are causing severe friction in financing the massive U.S. fiscal deficit (approaching $2 trillion annually). To absorb the volume of Treasury issuances, the U.S. Treasury must offer higher interest rates, which raises the floor of the global risk-free rate. As proven by the new normal of a 1,400 won exchange rate, the elevated U.S. term premium sucks up global private capital, inducing a macroeconomic crowding-out effect that dries up investment capital for emerging markets and private enterprises.

└ Import Price Pass-Through and the Entrenchment of Inflation

As bilateral trade among countries departing from the dollar system (e.g., India-Russia rupee settlements, China-Brazil renminbi settlements) increases, the global commodity price determination mechanism is diversifying. This amplifies friction costs due to exchange rate volatility and ultimately acts as a factor compounding structural inflationary pressures on global supply chains.

05. Historical Analogy: The Fall of Sterling Hegemony (1914-1956)

└ Geopolitical Overload and the Decline of the Reserve Currency

The situation of the dollar in 2026 structurally resembles the trajectory of the British Empire's pound sterling's decline in the first half of the 20th century. Prior to World War I, the pound, which was the absolute standard for global trade and finance, faced three pressures: Britain's massive accumulation of war debt, weakening industrial competitiveness, and the rise of the United States. The replacement of a hegemonic currency did not happen overnight. It underwent a 'multipolar currency phase' where the sterling economic bloc and the dollar economic bloc coexisted for about 40 years, and the pound's status as a reserve currency finally ended with the Suez Canal crisis in 1956. The current BRICS multipolarization trend is the beginning of this long and arduous transition period.

06. Variables and Limitations: The Absence of Dollar Alternatives and U.S. Network Dominance

└ The Closed Nature of the Renminbi and Capital Controls

Despite the multipolarization trend, there is no single currency that can completely replace the dollar in the short term. While the Chinese Renminbi (RMB) is cited as the most likely alternative, the strict capital controls and opaque financial market structure of the Chinese authorities make it difficult to guarantee its reliability as a global foreign exchange reserve asset. The biggest limitation is the 'Triffin Dilemma of the Renminbi', dictating that a currency unable to be freely exchanged cannot become a hegemonic currency.

└ The Massive Depth of the Eurodollar Market

The size and depth of the 'Eurodollar' market, which is dollars circulating outside the U.S., remains overwhelming. More than 80% of global foreign debt issuance, inter-corporate trade credit, and derivatives contracts still rely on the dollar. This immense network effect exerts an inertial force and is the strongest line of resistance slowing down the fragmentation of the settlement network.

Macro Scenario: Probabilistic Future Trajectories

Scenario A (Base Case): Gradual Fragmentation and Coexistence of Multipolar Currency Blocs

The U.S. dollar maintains its status as the primary reserve currency, but its dominance gradually declines to the low 50% range by 2030. The global economy segments into a 'Western-aligned Dollar Bloc' and a 'BRICS-centric Non-Dollar (Digital Currency + Commodities) Bloc.' Exchange rate volatility and conversion costs increase in trade transactions, acting as a constant cost-push inflation factor in the global macro environment.

Scenario B (Structural Shift Case): Successful mBridge Commercialization and Sovereign Debt Crisis

Trigger: Between 2026 and 2027, the mBridge settlement network led by Saudi Arabia and China absorbs more than 30% of commodity trade, and foreign central banks' sell-off of U.S. Treasuries accelerates.
Result: U.S. Treasury auctions experience consecutive sluggishness, and long-term Treasury yields spike uncontrollably. This becomes a structural inflection point that forces massive deleveraging within the U.S. and triggers a global Sovereign Debt Crisis.

Scenario C (Tail Risk Case): Failure to Peg the BRICS Single Settlement Currency (Unit) to Physical Assets

Trigger: The reliability of their own gold/commodity-based settlement unit collapses due to extreme economic fundamental disparities and hegemonic struggles (China vs. India) among BRICS nations.
Result: De-dollarization attempts run aground due to internal contradictions. Capital violently flows back into the U.S. dollar, the most liquid safe haven, triggering a chain of emerging market foreign exchange crises as emerging countries struggle with pressures to repay dollar-denominated debt.

Implications from an Investor's Perspective

Short-Term (1-2 years from the date of writing)

Geopolitical fragmentation and the exodus from the dollar settlement network are variables that firmly lock in central banks' purchases of physical assets in the short term. Gold, silver, and primary commodity assets (copper, energy) free from geopolitical supply chain friction are the most certain targets for building Long positions during periods of monetary order instability. The value of the dollar will exhibit strong volatility driven by geopolitical premiums rather than fundamentals.

Medium-Term (3-5 years from the date of writing)

The collapse of global (foreign central bank) backing demand for U.S. Treasuries permanently leaves the upper bound of long-term Treasury yields open. In other words, the traditional bond investment formula of the past 40 years—'buy long-term bonds during interest rate cut cycles'—may no longer work. In an era where the term premium has resurrected, one must minimize exposure to long-duration long-term Treasuries and restructure credit portfolios around ultra-short-term bonds or high-quality corporate bonds with certain cash flows.

Portfolio Perspective

The multipolarization of global monetary hegemony signifies the structural destruction of the traditional '60 (U.S. Stocks) / 40 (U.S. Treasuries)' portfolio. The territory of asset allocation must be expanded outside the dollar economic bloc. It is essential to build a Barbell defense system against currency depreciation by increasing the proportion of emerging market equities—such as India, which has solid domestic fundamentals and can serve as a hedge within the BRICS economic bloc—and global infrastructure and real estate physical assets linked to inflation.

Conclusion

The cracks in the petrodollar monopoly practice that has lasted for half a century do not simply mean the end of the dollar. It is a macroeconomic alarm signaling that the cost of the 'Exorbitant Privilege'—the notion that 'the rest of the world will gladly fund America's deficits'—has begun to skyrocket. In 2026, the world fears the security threats posed by weaponized currencies more than it values the dominant efficiency provided by a single currency. BRICS's mBridge and the gold bullion heading into vaults are physical evidence of this fear. Rather than becoming engrossed in extreme narratives that the dollar will collapse tomorrow, market participants must coolly prepare for the structural expansion of global capital costs occurring as the dollar's 'omnipotent monopoly' is lost. A new era of multipolarization has opened, where the costs of maintaining hegemony erode the returns on capital.

※ Disclaimer

This report does not solicit the purchase or sale of any specific assets, nor does it support or criticize any specific regime, government, or politician. It is a macroscopic system analysis article based on disclosed data and historical indicators. Not all market variables can be predicted, and the responsibility for all judgments and their resulting consequences lies with the reader. The author (Neutral Observer) does their utmost to ensure the reliability of the analysis but does not guarantee the perfect accuracy of the provided information.

Sources and References

[¹] The Wall Street Journal, The End of the Petrodollar Era: Saudi Arabia's Non-Dollar Oil Pivot (2025.07.12) — https://www.wsj.com/finance/currencies/saudi-arabia-non-dollar-oil-trade-petrodollar-end

[²] Bank for International Settlements (BIS), Project mBridge Update: Moving towards a commercially viable mCBDC platform (2026.02.15) — https://www.bis.org/about/bisih/topics/cbdc/mcbdc_bridge.htm

[³] International Monetary Fund (IMF), Currency Composition of Official Foreign Exchange Reserves (COFER) Q4 2025 (2026.03.31) — https://data.imf.org/?sk=E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A4

[⁴] U.S. Department of the Treasury, Treasury International Capital (TIC) System Data 2025-2026 (2026.02) — https://home.treasury.gov/data/treasury-international-capital-tic-system

[⁵] Brookings Institution, The Geopolitics of Multipolar Currencies and US Debt Sustainability (2026.01.20) — https://www.brookings.edu/research/the-geopolitics-of-multipolar-currencies

[⁶] World Gold Council, Central Bank Gold Reserves and De-dollarization Trends 2026 (2026.03.10) — https://www.gold.org/goldhub/research/central-bank-gold-reserves-2026