Currency Hegemony and the Resurgence of Gold in the 21st Century

— The Persistence of Dollar Dominance and the Redesign of Reserve Strategies —

Executive Summary

The evolution of currency hegemony in the 21st century should not be framed as the imminent collapse of the US dollar. Instead, what is unfolding is a qualitative transformation of dollar dependence.

The US dollar remains firmly entrenched at the core of global financial and payment infrastructure. However, at the level of foreign exchange reserves and national economic security, countries are increasingly reluctant to maintain excessive exposure to a single sovereign currency.

In this context, gold has re-emerged not as a yield-bearing asset, but as a non-liability reserve asset capable of hedging geopolitical risk, counterparty risk, and institutional breakdown simultaneously.

This report argues that the contemporary monetary order is defined by a two-layer structure: continued dollar dominance in markets, combined with strategic diversification in reserves.

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Chapter 1: What Has Changed in Currency Hegemony in the 21st Century?

1.1 Currency Hegemony Is No Longer Singular

In the 20th century, currency hegemony could be analyzed through a single-pole model—one dominant reserve and settlement currency.

In the 21st century, the functions of a hegemonic currency have fragmented:

• Financial markets and settlement infrastructure: overwhelmingly dollar-centric
• Foreign exchange reserves and safe assets: under growing diversification pressure
• Geopolitical resilience and economic security: increasingly detached from the dollar alone

As a result, a seemingly paradoxical reality has emerged:
the dollar remains dominant, yet reliance on the dollar alone is no longer considered optimal.

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Chapter 2: Why Dollar Hegemony Persists

The durability of dollar dominance is not rooted in the currency itself, but in the ecosystem surrounding it.

2.1 Irreplaceability as Financial Infrastructure

• The unparalleled size, liquidity, and transparency of the US Treasury market
• The crisis-response capacity of the Federal Reserve System
• The central role of the dollar in collateral management, derivatives clearing, and global liquidity provision

These are structural features that cannot be replicated in the short or medium term.

2.2 Dollar Hegemony as Institutional Hegemony

The post-war international monetary architecture—anchored by institutions such as the
International Monetary Fund and the
World Bank—
continues to operate largely within a dollar-centric framework.

The dollar is not merely trusted; it is embedded at the core of the global system.

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Chapter 3: Why Countries Seek to Reduce Excessive Dollar Dependence

3.1 When Strength Becomes Risk

A defining feature of the 21st century is the weaponization of financial infrastructure.

• Freezing of foreign exchange reserves
• Exclusion from settlement and clearing systems
• Restricted access to securities and deposits

These measures have clarified that reserve assets are not only financial instruments but also politically contingent assets.

3.2 The Structural Risk of Foreign Exchange Reserves

In practice, foreign exchange reserves largely consist of:

• Sovereign bonds (primarily US Treasuries)
• Deposits at foreign financial institutions

Both represent claims on another sovereign or institution.
In geopolitical stress scenarios, this dependency becomes a tangible vulnerability.

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Chapter 4: Why Gold Is Being Revalued (This Is Not Nostalgia)

The resurgence of gold in central bank reserves is not a return to the gold standard.
It is the outcome of modern reserve risk management.

4.1 Gold Is No One’s Liability

• No issuer
• No default risk
• Limited exposure to sanctions or asset freezes

Among reserve assets, gold is uniquely insulated from counterparty risk.

4.2 Portfolio Diversification Under Crisis Conditions

During systemic stress, correlations among traditional safe assets tend to rise.
Gold functions as a shock absorber, particularly when multiple fiat assets weaken simultaneously.

4.3 A Hedge Against Inflation and Fiscal Expansion

The 21st century has been characterized by:

• Repeated financial crises
• Pandemic-driven fiscal expansion
• Persistent geopolitical fragmentation

In this environment, gold is increasingly viewed as a store of value beyond nominal monetary frameworks.

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Chapter 5: The True Shape of 21st-Century Currency Hegemony

The emerging monetary order can be summarized as follows:

• US Dollar
  • The indispensable core of global finance and settlement
  • No longer the sole anchor of reserve security
• Gold
  • Not a yield asset
  • A strategic hedge against geopolitical and institutional failure
• Other Currencies (e.g., the euro)
  • Regional or functional complements, not replacements

This era is best described as:

Not abandoning the dollar, but refusing to rely exclusively on it.

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Conclusion: From Credibility to Resilience

In the 20th century, currency hegemony depended primarily on credibility and trust.
In the 21st century, the decisive question has shifted to:

• How well can a currency and its associated assets withstand worst-case scenarios?
• Gold’s resurgence does not signal the end of the dollar era.
• Rather, it reflects the collective recognition that the global system has entered a phase where resilience matters as much as credibility.
• The accumulation of gold by central banks is the quietest, yet most revealing, indicator of this structural shift.