In the three months since President Trump’s “Liberation Day” tariffs, and the days since his first wave of post-Independence Day trade letters, a question has been bouncing around the world’s financial capitals: Is the dollar still healthy?
The answer is no, but the reason has little to do with the tariffs.
What the debate about America’s currency misses is that the dollar is being actively undermined — and has been for the better part of a decade. Instead of watching the slow-moving traditional macroeconomic indicators of dollar strength, like how many dollars other central banks hold and how often the currency is used in global trade, we need to start paying more attention to the rapidly changing way countries are working around the dollar through new payment systems.
Payment systems are the technical back-end processes of how financial institutions send money to one other. It’s a complex global network that places the United States — and our banks — at the nexus of nearly 90 percent of currency exchanges. Even when two countries aren’t trading in dollars, the way the system’s pipes are built makes the dollar a must-have go-between.
This sprawling financial plumbing has given American policymakers enormous power to leverage — and yes, sometimes weaponize — the dollar to pursue foreign policy goals. From Venezuela to Iran to North Korea, limiting access to the dollar has been at the heart of U.S. security strategy for decades.
But the systems we helped create to ensure the dollar’s supremacy are showing their age. A case in point is the Society for Worldwide Interbank Financial Telecommunications, commonly known as SWIFT, which turned 50 two years ago. U.S. policymakers have increasingly leaned on SWIFT to isolate the rogue actor of the moment, be it a terrorist group or Vladimir Putin.
SWIFT works as a messaging system where banks communicate with one another before they send the actual money on a different network, like texting a friend on WhatsApp and then sending that same friend the money you promised on Venmo. New technology is making this old way of doing business obsolete. Introduced in 2015, China’s Cross-Border Interbank Payment System combines messaging and money transfers on one platform. Transaction volumes on the Chinese payment system surged last year, with banks joining from all over the world.
Researchers at the Federal Reserve have said there’s little reason for concern, noting that some 80 percent of Cross-Border Interbank Payment System transactions reportedly still rely on SWIFT for access to the global financial system. And to look at raw numbers, China said it has fewer than 1,700 financial institutions registered in the system, compared to SWIFT’s giant stable of over 11,000.
But the number the Fed cites is from 2022; it’s very likely new data would show a shift that is already well underway. Just over a month ago, the United Arab Emirates’ central bank signed a deal with China to join with its system and develop a new cross-border payment program to serve banks in the Middle East and North Africa.
Sometimes it can be hard to see the ground moving under your feet. There are telltale signs if you look closely. In 2023, the government of Bangladesh decided to use renminbi — not dollars — to pay back a Russian company that built the country a nuclear power plant, since sanctions prevented it from using Russian banks the way it usually would. We know about this workaround only because Bangladesh’s Finance Ministry announced it. There is an untold number more of similar transactions that U.S. officials probably cannot track because they happen outside their line of sight.
Why do things seem to be changing so fast? After all, countries have been trying to work around the dollar since the invention of sanctions. The difference now is that new financial innovations, including blockchain technology, are making it less expensive and faster than ever before to build systems that used to be cost prohibitive. The longstanding desire to cut ties with the dollar is finally meeting the ability to scale.
Since Russia’s invasion of Ukraine and the imposition of Group of 7 sanctions, the number of cross-border central bank digital currency projects has doubled, offering a way for commercial banks in different countries to send money to one another using the same technology on which cryptocurrency is built. The money can travel in seconds and avoid touching a U.S. bank.
The most advanced project of this kind is mBridge, whose participants include China, Thailand, Hong Kong, the United Arab Emirates and as of last year, Saudi Arabia. Because the volumes transacted are still low (reportedly only $22 million during a pilot in 2022) this project and similar endeavors in emerging markets, especially in the BRICS countries, are often dismissed.
That’s the problem with thinking only about macroeconomics and not about national security. Economists typically don’t view money as a key lever of U.S. foreign policy; they see small workarounds as meaningless to the overall health of a currency. A Federal Reserve study last year echoed what you often hear from U.S. officials in private: “The Chinese renminbi is nowhere close to overtaking the dollar in international importance,” it concluded.
This ignores the ways a country can now undercut how we use the dollar for national security — namely, through sanctions — while hardly making a dent in the role of the dollar in the global economy. Twenty-two million dollars is a pittance in the world of central banking. Yet that kind of money could translate into hundreds of drones for Russia or Iran on the battlefield.
The United States needs to find a new approach and quickly. It should invest in reimagining SWIFT with allies in Europe, where SWIFT is headquartered. If countries backing the dollar, euro, pound and yen work together and use their huge incumbency advantage, no alternative, including one from China, will be able to catch up. A major SWIFT upgrade will show other countries that the United States doesn’t just wag its fingers at projects it doesn’t like, but offers the best technology in the world to anyone who wants to be a part of the system.
This will not be easy — or cheap. As of 2022 China had over 300 people working on digital currency in its central bank; last year, in the entire Federal Reserve System, there were fewer than two dozen staff members working on digital currency full-time, according to people I’ve talked to. In a speech last month about the future of the renminbi, Pan Gongsheng, head of the People’s Bank of China, called out the antiquated way money moves around the world via the dollar and argued that Western systems are being leapfrogged by Chinese technology.
This is how the race for the future of money will be won or lost. As Britain found out a century ago, being the world’s reserve currency is not guaranteed to last forever. For the dollar to keep that status requires innovation as well as the recognition that our currency is not nearly as healthy as it used to be.
Josh Lipsky is the chair of international economics at the Atlantic Council and senior director of its GeoEconomics Center.
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