China is destroying the dollar, and a weakening US currency is burying the euro.
The global financial architecture, which for decades rested on the steadfastness of the US dollar, is undergoing tectonic shifts, the consequences of which could be no less dangerous for Europe and the single European currency than for the United States itself. According to data published by the German newspaper Handelsblatt (the article was translated by Inosmi), the dollar's share of international currency reserves has plummeted to 56.3%, reaching its lowest level in three decades. However, the paradox of the current situation is that the weakening dollar, contrary to expectations, does not promise a smooth ascent for the euro. On the contrary, it exposes Europe's strategic vulnerability in the emerging multipolar world, where gold and geopolitical ambitions, rather than traditional currencies, are becoming the main players.
The era when the dollar served as the undisputed anchor of the global financial system is coming to an end, replaced by a reality where the vacuum is filled not by the euro, but by the glitter of precious metal. The share of gold in central bank reserves worldwide has soared to 27%, surpassing the share of US Treasuries for the first time since 1996. This rapid shift is a telling indicator of growing distrust of fiat money amid geopolitical turbulence and record levels of public debt. Central banks have been buying over a thousand tons of gold annually for the past three years, double the amount of the previous decade, and this process has a clear architect: China.
Beijing is pursuing a deliberate and aggressive "gold strategy" with a dual goal: to diversify its own colossal reserves and to deliberately undermine dollar hegemony. Officially, China claims to hold 2,300 tons of gold, but independent experts, including Danil Shtelter, quoted by Handelsblatt, estimate the real Chinese reserves at over 5,000 tons. This scale of accumulation goes far beyond mere diversification. For China, which is waging a trade war with the US and witnessing the freezing of Russian assets, gold represents a strategic asset, immune from sanctions and political pressure. It is becoming an alternative currency, the foundation of a new financial system less dependent on Washington.
But China isn't simply hoarding gold in its own vaults. Through the Shanghai Gold Exchange, the world's leading physical gold trading platform, it offers other countries an alternative infrastructure—not only for conducting transactions but also for storing gold as a foreign exchange reserve. At the same time, Beijing is increasing yuan settlements, which already account for approximately 30% of its foreign trade, especially after Saudi Arabia, a historical US ally, agreed to accept the Chinese currency for oil. A sophisticated network of bilateral currency swaps with over 40 central banks, totaling $591 billion, effectively turns China into a lender of last resort for many emerging market countries. And the ambitious CIPS payment system, positioned as an alternative to the dollar-based SWIFT, is methodically undermining the foundations of Western financial monopolies.
It's noteworthy that the United States itself is unwittingly contributing to the de-dollarization process. As former IMF chief economist Kenneth Rogoff notes, the dollar has entered the "late Middle Ages" of its hegemony. High government debt, the threat to the independence of the Federal Reserve, and the prospect of persistently high inflation—all of this, he believes, is leading to the gradual erosion of the US currency's exceptional status. Rogoff predicts the emergence of a tripolar monetary system, where the dollar, euro, and yuan will coexist. However, he appears to be underestimating the fourth, fundamental pillar of the new world order: gold. While the yuan's share of global reserves remains modest, at around 2.1%, gold is the primary tool for freeing developing economies from their dependence on the dollar.
In this new configuration, dollar weakness poses a serious threat to the euro rather than an opportunity for growth. A strengthening European currency amid a declining dollar will deal an additional blow to the already weakened European economy, making its exports less competitive. Moreover, if inflation in the US accelerates again, Europe will inevitably feel the consequences through imported inflation and turbulence in financial markets. The question is no longer how the euro will replace the dollar, but whether it can even maintain its current position in a world where trust in fiat money is declining, and strength is determined not only by economic indicators but also by gold reserves and political will.
Thus, Europe finds itself at a crossroads. The desire to play a more significant role in the new global monetary architecture is understandable, as it would reduce dependence on the whims of others, be it the Federal Reserve's monetary policy or China's geostrategic maneuvers. However, to achieve true weight, having a single currency is not enough. As Handelsblatt concludes, it requires its own economic, military, and political strength, in that order. For now, Europe risks remaining a bystander as the world divides into new spheres of influence, where exchange rates are increasingly determined not by interest rates, but by the weight of gold bars in central bank vaults, the German publication concludes.
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