Is the World Quitting the U.S. Dollar?

Added: 2026-05-11

[00:00:00]Is the US dollar basically just a big scam?

[00:00:04]It's the world's most popular reserve currency and it's used in almost 90% of all foreign exchange transactions. But how does a country that owes 39 trillion dollars in debt maintain such worldwide economic dominance? It's not a Ponzi scheme.

[00:00:20]>> [music] >> It's based on the exorbitant privilege of the dollar. We asked economist Yanis Varoufakis to break down the exorbitant privilege and how it props up the country's power. It is the only country in the world whose currency is in demand [music] even when it's not producing any goods or services that anybody else wants. You know, that can't go on forever. So what does that mean for the rest of the world forced to operate within this system?

[00:00:43]And how much longer can the dollar and the system that prioritizes it stay on top?

[00:00:55]Let's start with international trade.

[00:00:57]Wheat, coffee, aluminum, oil, the majority of these commodities are all bought and sold using US dollars. So when Kenyan tea is sold to a French company at the Mombasa tea auction, the transaction might take place in US dollars. And that means that the US economy benefits from a deal that they have no other connection to simply cuz their currency [music] is always in demand. This exorbitant privilege is a main reason why [music] the United States is hegemonic. Now Yanis Varoufakis is not just an economist. He's a prolific author and the former Greek finance minister [music] who challenged how the EU handled Greece's 2015 debt crisis. In 2025, he published Technofeudalism and [music] bear with me on this because it's almost too hard to believe, but he's also the subject of a fire techno remix.

[00:01:52]>> [music] >> Okay, so we didn't ask him about how people feel about clubbing in his name, but we did ask him, "Why do so many countries sign on to using the US dollar in the first place?"

[00:02:01]>> [music] >> And to answer that, well, we have to go back to 1944. Immediately after the Second World War, when America was the only country that was still functioning, and was the only [music] creditor nation-state. Powers that be in Washington, they designed the post-war international financial system. That system pegged the US dollar to a fixed gold standard.

[00:02:23]>> [music] >> 35 US dollars for every one ounce of gold.

[00:02:27]The idea? Stabilize [music] exchange rates around the world, and use international trade to build up economies ravaged by war. You see, the fighting had left the US mainland pretty [music] much untouched, while its industrial capacity had been majorly boosted by the war effort. The Americans were the surplus country, the country that had net exports. They Their industry was flying high, [music] and so they essentially sent us dollars here in Europe uh to buy their stuff.

[00:02:54]To the extent that the Europeans and Japanese bought [music] American goods than Americans bought European or Japanese goods, they had a surplus.

[00:03:01]With every American car, washing machine, aircraft [music] that we bought, we foreigners bought, they the dollars they had sent us went back.

[00:03:11]>> [music] >> And at first, the system actually worked. But, by the end of the 1960s, US manufacturing output was starting to slow. By the way, this is how the US eventually started its current trade deficit. [music] You know, that word that everyone throws around, but we're all too embarrassed to ask what it actually [music] means. It's basically just when a country imports more goods than it exports. So, at that moment, they had two choices. One was to be Germanic and tighten their belt, to carry out uh austerity. Nixon, and indeed no one in the United States administration or opposition, considered that, because that would simply mean impose austerity upon yourself. Essentially, you shrink You shrink your demand, your investment, your hegemony. The alternative was to say, "Okay, look, we have a deficit. You know what? We're going to make it bigger.

[00:03:56]We're going to go deeper into the red and we're going to make the rest of the world pay for it."

[00:03:59]>> [music] >> We must protect the position of the American dollar as a pillar of monetary stability around the world.

[00:04:06]>> [music] >> Nixon started unpegging the US dollar from the gold standard.

[00:04:12]They're all over the floor, all of them.

[00:04:14]By doing so, it became a fiat currency, meaning US dollars were no longer constrained by a physical commodity.

[00:04:21]Instead, the currency would essentially be backed by how much trust you have in the government that issued it. Without the built-in restrictions of actual commodities, the US government could technically issue unlimited Treasury securities, also known as unlimited [music] debt, because remember, Treasuries is just a fancy [music] way of saying you're lending the government some money and it's promising to pay you back down the line with [music] some interest.

[00:04:48]So, yeah. Basically just a big old IOU from the literal US government.

[00:04:54]So, essentially, the United States after 1971 increased its deficit and they were paying with dollars. That system is still in place today and >> [music] >> it's a tricky loop. You see, foreign buyers keep dollars on hand for certain big ticket commodities that require it, like oil. But the US has been in a trade deficit every year since 1976.

[00:05:15]So, where else can those buyers safely park their cash and still get a modest return?

[00:05:21]Say hello to those [music] Treasuries.

[00:05:23]Because of the hegemony of the dollar and the centrality of the dollar and the exorbitant privilege of the dollar, uh the trade deficit becomes essentially uh a torrent of capital that finances the budget deficit and therefore the military of the United States.

[00:05:41]>> [music] >> So, the US debt continues to grow, reinforcing the dollar's power. But why does the rest of the world still go along with subsidizing the US economy in this way? That brings us to an investment [music] paradox.

[00:05:54]Paradoxically, the greatest stewards, defenders of the exorbitant privilege of the dollar are non-Americans. This is due in part to the massive investment other countries have in US debt, and also partly because at least 66 other countries have pegged their currency to the US dollar. This is called dollarization. [music] And that leaves them at the mercy of fluctuating US interest rates, which are set by the Federal Reserve. Wait, wait, hold on a second. I need to explain something really quick to you.

[00:06:25]So, breaking down the entire workings of the Fed would be well, that would be a whole video in itself.

[00:06:32]But what you need to know right now is that the Fed sets interest rates. That's how much it costs to borrow money. So, if it wants people and companies to spend more money, it will lower interest rates. And if it wants to slow down spending, like to get inflation under control, then it will raise rates. The ripple effects of these moves are felt all over the world, especially in poorer countries, and especially if interest rates rise. Rising US interest rates can weaken those other countries with dollar backing.

[00:07:02]But on top of that, the dollarized debt held by [music] poorer countries can become incredibly expensive to maintain.

[00:07:09]Okay, if you've got all that, I'll meet you back at the table in a couple of seconds.

[00:07:13]The US national debt amounts to around $39 trillion and counting.

[00:07:19]And around a quarter of that is owned by other countries. [music] Take the Chinese for instance.

[00:07:24]China has upward of $4.5 trillion worth worth of [music] savings. Okay, that's the savings of the Chinese taken together in dollars.

[00:07:36]Now, if you had $4.5 trillion worth of savings, would you want the dollar to lose its value?

[00:07:44]Would you want the dollar to lose its position? A weakening dollar has knock-on effects felt all around the world.

[00:07:50]But quietly, the Chinese have been looking for ways to diversify their investments.

[00:07:55]>> [music] >> For the last 15 years, China has actually been slowly reducing the amount of US debt that it holds. There are a lot of reasons for this, but Varifocus says that China trying to usurp the US dollar is not necessarily one of them.

[00:08:09]Uh China does not want its own currency to replace the >> [music] >> important, crucial, hegemonic position of the US dollar. What they don't want is to be hostages to any occupant of the White House, whether this [music] is Donald Trump or somebody else, who can sanction their own people, their own companies, their own governments at any moment. Countries like China have been planning for what might happen down the line.

[00:08:35]And that includes building entirely new financial structures. [music] As you see, the Chinese haven't just been offloading their treasuries.

[00:08:43][music] They've also built a new digital payment superhighway to offer an alternative to the system currently in place, which heavily favors the US dollar. Since 2008-2009, following the great financial collapse that nearly ended not just the hegemony of the dollar, but the financial circuits [music] of the West.

[00:09:03]The Central Bank of China has been putting together an alternative financial payment system. [music] So, the Chinese payment system started being far more used than before. Still, it's very very very small percentage of the international flow of capital, of money. So, what are the alternatives?

[00:09:24]Look, the US dollar's global dominance is deeply [music] entrenched, spanning more than 80 years. So, an alternative setup to the US dollar and the Western-based banking [music] system that supports it, well, that's not going to happen overnight, but cracks are starting to form in the dollar's stronghold. Is the world dedollarizing?

[00:09:43]Dedollarization. Dedollarization. The fact that the term dedollarization has entered mainstream conversations, that's proof of this [music] progress.

[00:09:52]It's also an affirmation of the BRICS, the block of countries seeking to reform the Western-led world order. All the attempts that you see by the BRICS [music] countries are attempts to remove the threat of sanctions, the threat of not being able to use their own money.

[00:10:09]Not so much attempts to replace the hegemony of the dollar with some other hegemonic currency. [music] Washington considers it a threat if there's even the hint of competition for the dollar.

[00:10:20]But Trump can't decide whether he wants to devote all of his energy to it or dismiss it. So, what does Trump's flip-flopping say about the actual status of [music] dedollarization? Look, the fact remains that the US dollar is still very much in place at the top of the global financial system. But, turbulent geopolitics and trigger-happy politicians in Washington are just some of the reasons that the US dollar's dominance could be losing its grip.

[00:10:45][music] And the rest of the world is planning for a day down the road when that change could come.

[00:10:52]Please let us know in the comments what you like us to cover next. [music] And I've been ripping up fake dollars.

[00:10:57]They're not real. They're all fake. Who knew you could buy [music] fake dollars on the internet? Just please don't go spending them, yeah?