Sterling, the Euro, the Yuan: Why Every Challenger to the Dollar Has Stalled So Far

Talk of a world after the dollar usually treats the present as unprecedented. It is not. The international monetary system has changed its center of gravity before, and the way it happened offers a useful benchmark for judging today's contenders, from the yuan to gold to digital currencies. The short version: transitions are rare, they take a generation, and they are usually triggered by the incumbent's own crisis rather than by the brilliance of a rival.

How sterling lost the crown

Before 1914, the British pound was the world's premier currency. London financed global trade, and sterling bills were the standard instrument of commerce. The United States had already overtaken Britain as the largest economy decades earlier, yet the dollar played almost no international role. America lacked a central bank until 1913 and had no deep market for trade finance.

Two things changed that. The Federal Reserve's creation allowed a dollar money market to develop, and the First World War drained Britain's finances while turning the US into a creditor nation. Research by economic historians suggests the dollar briefly overtook sterling in reserves as early as the 1920s, lost ground in the 1930s, and only became decisively dominant after the Second World War. The lesson is that economic size alone is not enough, and that even after the fundamentals shift, incumbency can persist for decades.

Bretton Woods and the Nixon shock

The 1944 Bretton Woods agreement formalized the dollar's role. Other currencies were pegged to the dollar, and the dollar was convertible into gold at $35 an ounce. The system had a built-in contradiction, identified by the economist Robert Triffin: the world needed ever more dollars, but the more dollars accumulated abroad, the less credible gold convertibility became.

In August 1971, President Nixon suspended convertibility. Many expected the dollar's role to fade. Instead, the dollar became the anchor of a system of floating currencies, supported by the growth of offshore dollar markets and, after the 1970s oil shocks, by the recycling of petrodollars into American financial assets. A crisis that looked terminal ended up entrenching the currency it was supposed to weaken.

The dollar has survived its own obituaries so often that the more interesting question is what, specifically, would have to break.

The contenders that stalled

Several challengers have come and gone. In the 1980s, the Japanese yen and the German mark gained reserve share on the back of strong economies, but neither country wanted the burdens of reserve status, such as an overvalued currency and loss of control over capital flows. The euro, launched in 1999, was the most serious rival. Its reserve share rose to roughly a quarter of the total by the late 2000s, before the sovereign debt crisis of 2010-2012 exposed the lack of a common safe asset and a unified fiscal backstop. It has hovered around a fifth since.

The yuan's internationalization began in earnest around 2009, with offshore trading in Hong Kong, swap lines with foreign central banks and inclusion in the IMF's Special Drawing Rights basket in 2016. Yet its reserve share remains in the low single digits. The obstacle is structural: Beijing prioritizes control over the capital account and the exchange rate, and foreign investors want the freedom to exit.

What is different this time

Three features distinguish the current period. First, sanctions. The freezing of Russian central bank assets in 2022 demonstrated that dollar and euro reserves carry political risk, pushing some central banks toward gold, which they have been accumulating at a pace not seen in decades. Second, technology. Multi-CBDC platforms such as mBridge, which the Bank for International Settlements left in October 2024, and China's e-CNY offer a potential path to settle trade without correspondent banks. Third, American policy itself: tariffs and unpredictable economic policy have raised questions about the institutional reliability that underpinned the dollar.

One more difference deserves mention. Past transitions happened in a world where money moved through a small number of banks and central banks, so a shift in official preferences quickly changed the whole system. Today, private actors, from commodity traders to fintech apps to crypto exchanges, make currency choices at enormous scale and with little coordination. That diffusion makes a sudden, state-led pivot away from the dollar less likely, but it also means erosion can happen in ways that official statistics capture only with a delay. Reserve data, for example, tells us little about the currency in which a Nigerian freelancer or a Vietnamese exporter now chooses to hold working capital.

But there is also a feature that works for the dollar. Dollar stablecoins, now supported by US legislation since July 2025, are spreading digital dollars into markets where local currencies are weak. In previous transitions, the incumbent did not have a new distribution channel of this kind.

Reading history without overfitting it

History does not predict, but it filters. It suggests that the dollar is more likely to be eroded by fragmentation, with regional blocs settling more trade in local currencies and gold, than replaced by a single successor. It suggests that any real break would come from a domestic American shock, fiscal or institutional, rather than from a foreign invention. And it suggests patience: sterling's decline, from its first serious challenge to final eclipse, took roughly thirty years. Anyone forecasting a post-dollar world should be clear about which part of that long arc they think we are in.