To understand the enduring resilience of the U.S. dollar and the reality behind the current wave of de-dollarization rhetoric, the Monitor spoke with Professor Ho-fung Hung, whose upcoming book Greenback Empire: Global Dollar Dominance and the New Cold War (Chicago, 2026) focuses on this topic. In this conversation, we explore the historical relationship between U.S. security commitments and dollar hegemony, why China’s state-controlled banking system inherently limits the renminbi’s global rise, and how sanctioned states are using Chinese financial networks not to replace the dollar, but to bypass its weaponization.
Ho-fung Hung is the Henry M. and Elizabeth P. Wiesenfeld Professor in Political Economy in the Department of Sociology and the Nitze School of Advanced International Studies at Johns Hopkins University. He is the author of The China Boom: Why China will not Rule the World (Columbia, 2015), Clash of Empires: From “Chimerica” to the “New Cold War” (Cambridge, 2022), and The China Question: Eight Centuries of Fear and Fantasy (Cambridge, 2026). His academic publications have been translated into at least 12 different languages. His analysis of global and Chinese politics and economy has been cited or featured in major media outlets worldwide.
Elijah Shoaf: Let me start. In your work, you have traced a long history of premature obituaries for the U.S. dollar from the 1970s stagflation to the 2008 financial crisis. And we’re currently seeing a new wave of de-dollarization rhetoric. So economically speaking, why does the global system consistently remain locked into the dollar despite these recurring panics and the emergence of new geopolitical forces?
Ho-fung Hung: Yeah, thank you. And the recurring talk about the dollar crisis goes on, interestingly, as long as the dollar dominance itself. In my book, I talk about the first time people talk about the dollar crisis: the very famous economist, Robert Triffin, who wrote a book based on his testimony to Congress about the gold-dollar crisis in 1960. Because in 1958, there was an economic recession, the first most severe recession after the Second World War, and the U.S. started to have a balance of payments problem, particularly with West Germany at the time. The U.S. was starting to have a dollar outflow to West Germany and the West German government. At that time, the dollar was pegged to gold at a fixed rate of 1 ounce of gold to $35 through the Bretton Woods system. And then West Germany and some other governments started worrying that there were too many dollars around and U.S. didn’t have enough gold, so they started to trade the dollar for gold. There’s also a gold outflow from the U.S. because of it. So, at that time, people were already talking about the fact that the U.S. dollar hegemony was not going to last, so there was going to be a dollar crisis. In the end, the U.S. temporarily solved the problem by threatening to withdraw military support from West Germany and withdraw the troops there. This was even though, at that time, it was the middle of the Berlin crisis.
JFK is the president and is, on the surface, very supportive of West Germany countering communism, but at the same time has this secret memo that the U.S. government is really threatening to withdraw military support of West Germany unless they strike a deal with the United States. Under this deal, West Germany was to recycle the U.S. dollars back to the U.S. by purchasing U.S. military and other equipment and not to trade those dollars for gold.
That is one example of how the global system remained locked into the dollar, now here is another famous one: the petrodollar. Because of the Arab-Israeli conflict of 1973, right after Nixon abolished the gold backing of the dollar, Arab oil exporters imposed an oil embargo on the U.S. and threatened to invoice their oil exports in currencies other than the dollar. Now, the U.S. promised Saudi Arabia a secret channel to buy U.S. Treasury assets and keep the U.S. open for Saudi investment. At the same time, the U.S. was willing to provide advanced weapons and security guarantees to Saudi Arabia. In exchange, Saudi Arabia then continued to invoice all their oil exports in dollars and then used them to buy U.S. treasuries. So, one key argument of my upcoming book: Greenback Empire, is that the U.S. dollar, often encounters confidence crises when the U.S. economy is in bad shape, but at the same time, in the end, the U.S. has managed to uphold a global dollar standard and make sure that these key capitalist countries, like West Germany during the Cold War and Saudi Arabia, continue to use the dollar. And the secret behind this kind of enduring dollar capability is that the U.S. provides the security umbrella, weapons, and also its nuclear umbrella to major capitalist powers and energy exporters. This indispensability of U.S. military power and security protection has not really been relieved since the Cold War.
Now, very recently, we have China coming into the picture, and China is the first major economic power that is outside the U.S. security umbrella. It is a geopolitically independent power that, theoretically, the U.S. can’t use the security protection card to pressure if they want to move away from the dollar. So that is the real, brand new situation now. However, China is still very much in the dollar system; for example, when China lends to the Belt and Road countries, the lending is mostly denominated in dollars. Further, while they want to export more and more using renminbi to settle, many of their trade partners still use the dollar instead.
So why is it that the U.S. dollar is not truly in crisis right now? Because there’s no alternative. And why is there not yet an alternative? Because the most capable candidate to become the alternative, the renminbi, is not yet fully convertible and freely tradable, because the Chinese financial system is not yet as free and liberal as the U.S.
Elijah Shoaf: Okay, so you spoke about this a little bit, but in your upcoming book, you argue that dollar dominance rests on the U.S. security umbrella provided to wealthy nations and oil producers. So, if you look at the current geopolitical flashpoints, how sensitive is the dollar’s status to the perceived strength or weakness of U.S. security commitments?
Ho-fung Hung: Yeah, that is an interesting point. Of course, the current geopolitical flashpoint is in the Middle East and is still ongoing. I think it very much depends on how it ends. Though it is not going very well right now, we need to separate the military and the financial implications. For example, in the book I talk about another conflict that ended badly for the U.S. militarily: the second Iraq War. In the end, it is a well-known story that it resulted in chaos with ISIS and all these militias, and Iraq is still not very stable today. But in the end, though the Iraq War was a huge problem militarily and politically and gave the U.S. a bad reputation, if you look at the dollar, it benefited its hegemony.
Saddam Hussein, when he was still around in the early 2000s, really seriously was talking to the Europeans that if the international sanctions on Iraq were lifted, then Iraqi oil could be invoiced in euros instead of the dollar, something that would give a big boost to the euro. So, at that time, there’s a lot of talk about the potential emergence of a petro-euro.
If Saddam Hussein had gotten his way and struck a deal with Germany, France, and other European countries, then the Euro would have become much stronger and would have partially displaced the dollar, at least in the oil market. And of course, after Saddam Hussein was toppled, and most of the oil was, and still is, exported and invoiced in the U.S. dollar.
So in the end, even though the whole situation in Iraq was a mess and there were a lot of casualties, making the Middle East very unstable politically, it still ultimately benefited the consolidation of the dollar’s status and prevented the rise of the petro-euro.
And currently, in the war with Iran, it seems like the U.S. is not doing very well, but that is still unfolding. I can’t tell what it will look like in five months. However, when all is said and done, I would expect that the Gulf States will still find the U.S. to be indispensable. Here is an interesting example with regard to Saudi Arabia: for the last few years, they have been actively doing business and talking to China, so much so that a few years ago China brokered a kind of resumption of diplomatic relations between Saudi Arabia and Iran. At that time, the headlines were saying that it was like a new era: “U.S. is out, China is in”. But now you see that when the Houthis are attacking Saudi Arabia, China is not very helpful. Saudi Arabia has instead sought new security partners such as Pakistan and Turkey, but they are not very helpful either. Thus, ultimately they still have to go back to the U.S. to ask for help.
We also know that with these Iranian missile and drone attacks on the UAE and the other Gulf States, if the current Iranian regime is still around after the war, those Gulf states will really need more Patriot missiles and U.S. protection to prevent another Iranian attack. So, it might look like a mess right now, and it might continue to be a mess, and everyone is blaming the U.S. for it. However, the lesson of the last, like, five decades is that international chaos benefits the dollar; even if the chaos can be attributed to the U.S. That is why you see the dollar’s value still going up whenever there’s a major crisis: ultimately, it is the safe haven for international capital.
Elijah Shoaf: Now, you also discussed that the very mechanism that engineered China’s economic rise, which is the state control of the financial system, you say it also prevents the renminbi from dethroning the dollar. So, mechanically speaking, what specific levers of financial control are Beijing most reliant on today?
Ho-fung Hung: Basically, the Chinese state is very successful in steering resources wherever it feels they are needed. The most current examples, of course, are AI, EVs, and other leading high-tech sectors. This is because China’s banking system is totally dominated by state banks. When China joined the WTO, there was a pledge to eventually open the financial system for foreign banks to come in, but it never happened in any significant way. Because state banks dominate, the state can completely decide where credit flows, which sectors it flows to, and what productive capacity needs to be built. This is why China was so successful in weathering the global financial crisis of 2008. In 2009 and 2010, China just opened the floodgates of state bank lending to build high-speed rail, infrastructure, coal power plants, steel mills, and so on. The Chinese state has complete control of the financial system.
On one hand, this is an advantage because the state can directly control the flow of credit to boost whatever sector it chooses. But the drawback is that the state must maintain this total control by keeping the financial system closed. They are very risk-averse and reluctant to open the financial system. There is a fear that if they open it and foreign banks come in, it will create competition for the state banks, and the state will no longer be able to control how credit is allocated.
At the same time, there is a deep worry about capital flight. This anxiety stems from the Chinese system itself. It is constitutionally guaranteed that state and public ownership are the dominant forms of ownership, and all urban land is owned by the state while rural land is owned by local governments. If you buy urban real estate, you only have a time-limited land use right. Because of this lack of protection for private property, the natural tendency for wealthy individuals and successful enterprises is to move their money to places where private property is protected: Hong Kong, Singapore, London, the U.S., or Canada. This results in, as I show in my book, a huge number of Chinese companies and wealth being parked in offshore financial centers in the Caribbean, like the Caymans.
So, there is this immense pressure for money to leave given the Chinese political economy. The greatest fear of the Chinese government is that if they open the financial system and make the RMB freely convertible, people will simply convert their RMB wealth into U.S. dollars or other currencies and move to places with better security and private property protection.
This fear of capital flight is a particularly strong reason why the government is so reluctant to make the RMB freely tradable and convertible. As I said, they also fear losing control of the state’s financial levers, because finance and credit determine everything else in terms of economic development.
Elijah Shoaf: Okay, yeah, that’s great. And I think that you also answered my fourth question about what the issues would be for the CCP if they opened the capital market. So, I’m going to move us to question five: For U.S. policymakers, they are focused on this idea of the threat of the renminbi replacing the dollar, but you think that they may be looking at the wrong problem. If the dollar is structurally secure at the moment, what are the actual financial and geopolitical moves that Beijing might make that we should focus on instead?
Ho-fung Hung: One thing I mentioned implicitly in my book, which I can talk about more explicitly now with the new economic sanctions against Iran, is the diagnosis of Beijing’s intentions. Helping Russia, and then Iran, settle their trade in the renminbi instead of the dollar is not a move to de-dollarize the world economy. Many U.S. commentators see it as Beijing trying to erode the dollar’s role in the world economy. But actually, the help that Beijing, or at least Chinese companies, offers Russia and Iran to bypass sanctions using the renminbi is not an act of de-dollarization. It is actually what I would call a de-weaponization of the dollar. Dollar hegemony is quite stable right now. If you look at the data, world money is still flowing into U.S. assets, though perhaps less into U.S. Treasuries, but certainly into the U.S. equities market and other assets. The dollar is still strong and stable.
One geopolitical advantage the U.S. government derives from this dominant status is that, because everyone uses the dollar, they can monitor all transactions. They can impose sanctions on enemies like Russia and Iran, casting them out of the dollar network to economically strangle them. The idea is that because everyone uses the dollar, the U.S. can weaponize it to put pressure on its enemies, while also monitoring who is doing what, and this includes terrorists and drug cartels.
But what is happening now, following the war in Ukraine and the situation in Iran, is that China is providing a conduit for these sanctioned countries to continue doing business. Just because they are cast out of the dollar network doesn’t mean they are totally cut off from the dollar standard. One fascinating example is documented in U.S. Treasury reports and investigative journalism regarding the Iranian shadow banking network. When Iran is heavily sanctioned and cast out of the dollar settlement and payment systems, they trade with China. They export oil to China and settle those transactions in CIPS: the Cross-Border Interbank Payment System developed by China. CIPS was initially built to supplement, but is now increasingly used to bypass, the U.S.-monitored SWIFT and CHIPS systems.
The drawback for Iran is that by settling these oil exports in CIPS, they are paid in onshore, inconvertible renminbi, or yuan. Because of China’s capital controls, those earnings are trapped in China. Ultimately, Iran can only use that onshore yuan to pay Chinese exporters to send goods back to Iran. It essentially becomes a barter trade: Iranian oil for Chinese goods. This allows Iran to bypass the dollar system and sanctions to export oil and receive supplies, whether that’s weapon components, daily necessities, or manufactured goods from China.
But Iran also needs to buy things from other countries, like Turkey or the UAE. We now know that they use shadow banking and money laundering networks to get that onshore, inconvertible yuan out of China and convert it into U.S. dollars, euros, or other freely convertible currencies. They then funnel those funds back to Iran or to Iranian proxies like the Houthis or Hezbollah to pay soldiers and buy weapons. The mechanics of this shadow banking network are well documented because it’s actually the same system wealthy Chinese citizens use to smuggle their own money out for stealth capital flight.
So, in step one, Iranian oil earns them inconvertible Chinese currency. In step two, through these shadow networks, they manage to convert that yuan into freely convertible U.S. dollars or currencies pegged to the dollar, like the Hong Kong dollar or UAE dirhams. Through this round trip, Iran ultimately gets access to the dollar with the help of Chinese companies and shadow banking networks. So, what China offers Iran, Russia, and other sanctioned states is a way to continue doing business and accessing the dollar without being detected or restricted by U.S. sanctions. It is very similar to how people use crypto stablecoins. People don’t use stablecoins to replace the dollar; they use them to conduct transactions outside the monitoring of U.S. authorities. In the end, stablecoins are backed by U.S. dollar assets, so it’s really just a way to trade in dollars without going through the U.S.-regulated payment and clearance systems.
Ultimately, what China offers sanctioned states is not a de-dollarization process; it is the de-weaponization of the dollar. These states and sanctioned entities can still do business and access the dollar with a minimized risk of being caught and sanctioned. Many commentators and policymakers incorrectly believe China wants to de-dollarize the world economy and replace the dollar. But what I see, at least up to now, is that China is offering a way to de-weaponize the dollar. This won’t necessarily hurt the standing of the dollar in the international economy, but it does hurt the U.S. government’s ability to take advantage of the dollar’s dominance to conduct economic statecraft, execute diplomacy, and achieve its geopolitical ends.
Elijah Shoaf: All right, so that would bring us to the final question, which is, given this, what do you think is the best path forward for U.S. economic statecraft? Should Washington be pursuing policies to constrain China’s financial reach, or should they focus instead on strengthening the domestic economy and the security alliances to maintain the gravitational natural pull of the dollar?
Ho-fung Hung: I think that with U.S. dollar dominance, a lot of people naturally complain about it. There are a lot of drawbacks to the world using the dollar. For example, many developing countries complain that they inevitably have to use the dollar, but U.S. monetary policy and interest rates are driven by U.S. domestic needs, the domestic economy, and domestic politics, which they have no control over.
As a result, many developing countries, which are commodity exporters and manufacturers using the dollar, face a very uncertain macroeconomic environment. For example, when the U.S. suddenly raises interest rates, financing dries up, and these economies face unexpected challenges. Many developing countries encountered this in the 1980s in the form of a debt crisis when Paul Volcker raised interest rates to double digits; countries that were previously doing very well suddenly tanked because of the drying up of finance and exponential increases in debt servicing costs.
So that is one drawback of the whole world using the dollar while U.S. monetary policy is determined by internal needs. However, this is an issue that can be addressed. If you look at former U.S. central bankers at conferences, many of them talk about this problem. Some openly advocate that, even though the mandate of the Federal Reserve is only to fulfill its goals regarding U.S. employment and controlling inflation, it may be time for the Federal Reserve to consider the impact of U.S. monetary policy on the developing world and smaller economies, thus having some international accountability and responsibility. The drawbacks can at least be minimized by a policy shift on the part of the Federal Reserve.
At the same time, the U.S. dollar standard provides a kind of public good to the world. Imagine a world without a dominant currency, where everybody trades using their own currency. There would be a huge transaction cost. If you have 100 different currencies, everyone must constantly convert their currency to trade. You would have to constantly change the measure of the value of goods into many different currencies. It would be a very complicated, high-cost system. With one single currency as the world standard, transaction costs are lower, and trade is much smoother because everybody just converts their currency into U.S. dollars to trade with one another. It is a public good, so it is worth maintaining unless there is a real alternative. As I mentioned, China is not up to the challenge yet, so there really is no alternative right now. Facing the choice between the continuation of U.S. dollar dominance and total chaos in the monetary system, I definitely think maintaining the U.S. dollar system is the better way forward.
Domestically, however, the U.S. dollar system also creates some problems within the U.S. economy. If you look back at the history of the decline of the Spanish Empire, they controlled the global money supply by controlling all the silver mines in the Americas for more than 200 years. But in the end, controlling the world’s money didn’t give the Spanish Empire much of an economic advantage. Instead, it created a lot of problems and accelerated the empire’s decline. This abundance of money discouraged productive investment in Spain and created an unproductive rentier class living on indebtedness; they kept borrowing money simply because they could claim they had all this silver coming from the Americas. The crown also kept borrowing money against future shipments of American silver to wage unnecessary wars. It created massive fiscal indebtedness, led to the decay of the elite, and made the whole country highly unproductive and heavily indebted. So, controlling world money is not necessarily a good thing for a domestic economy.
This is a kind of ‘resource curse’ driven by the control of world money, which you can also observe in the U.S. over the last 20 or 30 years. Much like the Spanish Empire, you have seen huge growth in a financial sector that earns super profits but is not very productive. Meanwhile, U.S. manufacturing is hollowing out, resulting in job losses and increasing inequality. You see all these problems alongside the fiscal indebtedness of the federal government and governments at all levels.
This is the disadvantage of controlling the world’s money. While maintaining the global dollar standard is generally good for the world, it is not necessarily good for everybody within the domestic economy. The U.S. really needs to focus on counteracting some of the domestic drawbacks of maintaining the dollar standard for the global economy. Otherwise, we will continue to face these issues of indebtedness, deindustrialization, and the dominance of a super-profitable, super-wealthy rentier class that is ultimately unproductive.
This interview was conducted by Elijah Shoaf. It was originally published in The Monitor, a newsletter and blog produced by The Carter Center’s China Focus initiative, and is republished here with permission.
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