This is Part 1 of a 6-part series. Part 1 is free. Parts 2-6 are for paid subscribers.
The series connects AI, semiconductors, military capability, crypto policy, and the dollar into a single thesis: American hegemony isn't ending. It's being rebuilt on silicon. Ray Dalio is wrong.
January 27, 2026
Pax Americana Digitalis: The Invisible Empire
The dollar doomers are having a moment. Scroll through financial Twitter for five minutes and you'll encounter breathless predictions of imminent collapse: the BRICS are building an alternative, China is dumping Treasuries, the deficit is unsustainable, gold is the only safe haven. Ray Dalio's "Changing World Order" thesis has gone mainstream, complete with ominous charts showing the rise and fall of empires on neat 250-year cycles.
They're looking at the right data. They're drawing the wrong conclusions.
The dollar is losing ground as a share of global reserves, falling from 73% in 2001 to roughly 54% today. The United States is running deficits that would have been unthinkable a generation ago. The BRICS nations are meeting regularly to discuss alternatives. All true. But the doomers are missing something fundamental about how reserve currencies actually work, and why the thing that replaces dollar hegemony isn't a yuan or a gold-backed BRICS token.
It's silicon.
This is Part 1 of a six-part series on what I'm calling "The AI Dollar," the thesis that American hegemony isn't ending but being rebuilt on computational foundations that will extend dollar dominance for another generation. But before we can understand where we're going, we need to understand the game we're playing. And that game is, at its core, a confidence trick.
What Is a Reserve Currency?
Strip away the complexity and a reserve currency is simply the money that everyone else keeps in their vaults. When central banks hold foreign exchange reserves, when multinational corporations invoice international trade, when governments borrow on global markets, they're implicitly choosing which currency to trust. That choice creates a self-reinforcing loop: because everyone uses dollars, everyone needs dollars, which means everyone uses dollars.
This network effect is the source of what economists call the "exorbitant privilege," the ability of the reserve currency issuer to borrow cheaply, run persistent deficits, and effectively export inflation to the rest of the world. The United States can print money to fund its government because the world needs those dollars to function. Other countries can't.
But here's the thing about confidence tricks: they work until they don't. All fiat currency is, in the final analysis, a collective fiction. We agree that these pieces of paper (or, increasingly, these database entries) have value because we agree that they have value. The dollar is the most successful confidence trick in human history, but it's still a trick.
The question isn't whether confidence can break. It can. The question is what breaks it.
How Reserve Currencies Die
History offers only two clean examples of reserve currency transitions, and both are instructive.
The Dutch Guilder (1600s-1780s)
The Dutch Republic was the first modern economy to achieve global financial hegemony. The Bank of Amsterdam, founded in 1609, created a currency so stable that merchants across Europe preferred to settle accounts in Dutch guilders rather than their local coins. Amsterdam became the world's financial center. Dutch ships dominated global trade. The guilder reigned for nearly two hundred years.
The decline, when it came, was swift and brutal. The seeds were planted through military overextension across four Anglo-Dutch Wars that drained the treasury while protecting an empire that had become more costly than profitable. But the killing blow came during the Fourth Anglo-Dutch War (1780-1784), fought partially in retaliation for Dutch support of American independence.
What happened next is a case study in confidence collapse. The Bank of Amsterdam, it turned out, had created far more paper claims on the guilder than it held in gold backing. This wasn't fraud exactly; it was the kind of balance sheet engineering that works fine as long as everyone keeps believing. But wars have a way of making people count their gold.
By 1783, the run had begun. Interest rates spiked. The bank was forced to devalue. Within years, Amsterdam was no longer the world's financial center. London was.
Key lesson: Military defeat exposed financial fragility. The confidence broke suddenly, not gradually.
The British Pound (1800s-1944)
The pound's reign was longer but ultimately followed the same pattern. British industrial supremacy plus the Royal Navy plus the empire created a century and a half of "Pax Britannica." London replaced Amsterdam. Sterling replaced the guilder. The sun never set on British financial hegemony.
Then came the wars.
World War I didn't just kill a generation of young men; it killed the pound's credibility. Britain borrowed massively, primarily from the United States, to fund the war effort. The country briefly abandoned the gold standard, returned to it in 1925 at an overvalued rate (a decision Winston Churchill later called the greatest mistake of his life), then abandoned it again in 1931 when the Great Depression made the fiction unsustainable.
World War II finished the job. By 1944, the United States held two-thirds of the world's monetary gold. Britain was functionally bankrupt, dependent on American lend-lease to continue fighting. When delegates gathered at Bretton Woods to design the postwar monetary order, the outcome was predetermined. John Maynard Keynes, representing Britain, proposed an elegant solution: a new international currency called the "bancor" managed by a global central bank. Harry Dexter White, representing the United States, proposed something simpler: the dollar.
The dollar won. It was pegged to gold at $35 per ounce. Other currencies were pegged to the dollar. American hegemony was formalized.
The pound's decline from that point was gradual but irreversible. Devalued by 30% in 1949, from $4.03 to $2.80. Devalued again in 1967. By the time Nixon closed the gold window in 1971, Britain was just another country with just another currency.
Key lesson: Decline was gradual (30+ years) but punctuated by crises. Wars didn't cause the decline; debt did. The wars just revealed what was already true.
The Dalio Thesis
Ray Dalio, founder of Bridgewater Associates and one of the most successful macro investors in history, has built an influential framework for understanding these transitions. In his telling, reserve currency empires follow a predictable four-phase cycle:
Phase 1: Rise. A country develops a productive edge, runs trade surpluses, maintains sound money, and begins accumulating financial power.
Phase 2: Dominance. The currency becomes the global reserve. The country can export inflation and run deficits that would bankrupt anyone else.
Phase 3: Overreach. Military spending expands. Debt accumulates. Money printing accelerates. The productive edge erodes as financial engineering replaces real innovation.
Phase 4: Decline. Foreign holders lose confidence. The currency loses reserve status. Living standards fall to match actual productivity.
By Dalio's metrics, the United States is deep in Phase 3. The national debt has crossed $34 trillion. Interest payments alone are approaching $1 trillion annually, soon to exceed defense spending. The Federal Reserve's balance sheet has ballooned from under $1 trillion in 2008 to nearly $8 trillion today. The trade deficit is structural. The infrastructure is crumbling. The politics are polarized.
The pattern fits. But patterns aren't destiny.
What Dalio Gets Right
Credit where due: the historical pattern is real. Empires that issue reserve currencies do tend to follow similar trajectories. The temptation to print money to fund imperial overreach is apparently universal. The Dutch did it. The British did it. The Americans are doing it.
Dalio is also correct that debt and money printing erode trust over time. You can't run 6-8% deficits forever. Eventually, someone asks uncomfortable questions about who's going to buy all those Treasuries and at what interest rate.
And his observation that internal conflict correlates with decline is empirically supported. The Dutch Republic fractured politically during its decline. Britain's empire dissolved amid domestic turmoil. America's political dysfunction is self-evident.
What Dalio Gets Wrong
But Dalio's framework has significant weaknesses that his followers tend to ignore.
First, the determinism. Dalio presents the cycle as near-inevitable, like the turning of seasons. But empires have agency. The United States could reform its fiscal situation. It could reindustrialize. It could restore competitiveness through policy changes. That it probably won't is a political judgment, not an economic law.
Second, the China bullishness. Dalio has been long China for decades. Bridgewater has substantial China exposure. This creates an obvious bias that shows up as underweighting China's problems: the demographic collapse (population shrinking, median age rising), the property bubble ($300 billion in developer defaults), the Xi centralization that's killing the private sector, and the fundamental absence of rule of law that makes foreign capital perpetually nervous. Dalio's framework needs a rising power to replace the declining one. China is the only candidate. So China must be rising.
Third, the timing. Dalio's framework is useless for timing because "decades" can mean anything. He's been warning about the transition since at least 2020. Good luck trading on "sometime in the next 30 years."
Fourth, and most critically, the binary framing. Dalio implies that US decline equals China rise, that there's a handoff coming like Dutch-to-British or British-to-American. But there's another possibility the framework ignores: messy multipolarity where no one has clear hegemony. A world where the dollar weakens but nothing replaces it. A world of competing currency blocs, none dominant. That's arguably worse for global stability than American hegemony, but it's historically precedented (think 1920s-1940s) and increasingly plausible.
The BRICS Mirage
If you read only headlines, you'd think the BRICS nations (Brazil, Russia, India, China, South Africa, plus recent additions) are on the verge of launching a dollar-killer. They've held summits. They've made declarations. They've announced pilots and prototypes.
Let's check what they've actually built.
The "Unit" currency pilot: Launched October 31, 2025, this is a settlement token backed 40% by gold and 60% by a basket of BRICS currencies. It exists as a prototype. It is not in circulation. It has processed exactly zero real transactions at scale.
CBDC interoperability: Russia, China, and India are "targeting" 2026-2027 for linking their digital currencies. They've been "targeting" this for years. The technical challenges are real, but the bigger problem is that none of these countries fully trusts the others.
CIPS (China's SWIFT alternative): Growing, with 1,467 participants across 119 countries. But SWIFT has 11,000+ institutions. CIPS is a rounding error.
BRICS Pay: Prototype demonstrated in Moscow, October 2024. Still in "early pilot stages." Not operational.
Gold reserves: Here's something real. BRICS central banks added nearly 800 tonnes in 2025, bringing combined holdings above 6,000 tonnes. They're diversifying out of dollar assets into gold. This is meaningful but slow.
At the Rio Summit in July 2025, despite all the rhetoric, observers noted "no real desire to break away from the US currency was expressed." De-dollarization remains, in the summit's own framing, "a distant prospect."
Why? Because BRICS isn't a bloc; it's a talking shop. There's no unified monetary policy. No shared capital market. No central bank. India and China have active border disputes. Saudi Arabia and Iran were fighting proxy wars until recently. Brazil's economy is structurally different from Russia's is structurally different from South Africa's.
And underneath it all is a fundamental problem: if you're a central bank holding reserves, you need somewhere safe and liquid to park them. The US Treasury market is $24 trillion deep. You can move billions without moving the price. There is no equivalent in BRICS. There's no equivalent anywhere.
The dollar's share of global reserves is declining, down from 73% to 54% over two decades. But it's not flowing into any single alternative. It's fragmenting into euros, yen, pounds, gold, and increasingly into nothing at all (countries reducing total reserves). That's not a transition. That's erosion without replacement.
The Collapse Cascade
So what would actually break the confidence trick? Let me sketch a scenario, not as prediction but as stress test.
Stage 1: Fiscal Crisis Trigger. Debt interest payments continue rising until they crowd out discretionary spending. A Treasury auction fails, or nearly fails, with yields spiking dramatically. Japan and China accelerate their quiet reduction in Treasury holdings.
Stage 2: Confidence Break. Foreign holders begin selling not because of politics but for self-protection. The Fed faces an impossible choice: let interest rates spike (triggering a depression) or monetize the debt (triggering inflation). Saudi Arabia begins accepting yuan for a meaningful share of oil sales.
Stage 3: Internal Fracture. Inflation plus recession creates political radicalization. States begin defying federal authority (already happening in some domains). Brain drain accelerates to Singapore, Dubai, Portugal. The tax base erodes.
Stage 4: Reserve Status Loss. The transition isn't to a new single reserve currency but to a basket: dollars, euros, yuan, gold, possibly crypto. The US can no longer export inflation or run permanent deficits. Living standards fall to match actual productivity, probably 20-30% from current levels.
This is possible. It's not crazy. But notice the timeline implied: this takes years to decades, not months. And notice the "most likely trigger" that would accelerate everything: a major geopolitical shock (like a Taiwan war) occurring simultaneously with fiscal fragility.
Which brings us to the thing the doomers are missing.
The Thing the Doomers Are Missing
The entire framework above treats reserve currency status as a monetary phenomenon, a matter of debt and deficits and central bank policy. But what if that's not the whole story? What if there's a new foundation being built while everyone's staring at the old metrics?
Here's a question the Dalio framework can't answer: What if the thing that replaces oil as the strategic commodity is compute?
Oil priced the dollar. Nations needed oil to function, oil was priced in dollars, therefore nations needed dollars. The petrodollar system, enforced by carrier groups and occasionally by regime change, has been the hidden architecture of American hegemony since the 1970s.
But oil is becoming less strategic as energy transitions (slowly, incompletely, but directionally). What's becoming more strategic? Artificial intelligence and the computational infrastructure that powers it. And unlike oil, which is distributed globally, AI chokepoints are concentrated almost entirely in the United States and its close allies.
Nvidia controls 80%+ of the GPU market. TSMC, under American security guarantees, controls 90%+ of advanced chip fabrication. AWS, Azure, and Google Cloud are dollar-denominated. Every AI startup in the world, whether in Berlin or Bangalore or Beijing, pays its cloud bills in dollars.
The Dutch had the guilder because they controlled trade. The British had the pound because they controlled the seas. The Americans had the dollar because they controlled oil.
What if the Americans keep the dollar because they control compute?
That's the argument of this series. Not that the old metrics don't matter. They do. But that something new is being built, perhaps consciously, perhaps accidentally, that extends American hegemony for another generation.
In Part 2, we'll examine the AI Dollar thesis in detail: the chokepoint table, the export control weapon, and why cloud computing might be the petrodollar's successor.
The confidence trick continues. It's just running on different hardware.
Notes
Notes
[1] IMF COFER data shows dollar share of allocated reserves falling from 71.0% (Q1 2000) to 58.4% (Q3 2024). Earlier 73% figure from pre-euro calculations.
[2] Ray Dalio, "Principles for Dealing with the Changing World Order" (2021). Core framework in Chapters 1-4.
[3] Bank of Amsterdam history drawn from Stephen Quinn and William Roberds, "Death of a Reserve Currency", Federal Reserve Bank of Atlanta Working Paper.
[4] Fourth Anglo-Dutch War context from standard histories; Dutch financial collapse timeline from NY Fed Liberty Street Economics, "Dutch Treat".
[5] British postwar decline and Bretton Woods from multiple sources including Federal Reserve History, "Nixon Ends Convertibility".
[6] BRICS initiatives status from Watcher Guru, CADTM, and GIS Reports.
[7] Rio Summit assessment from Chicago Policy Review: "no real desire to break away from the US currency was expressed."
[8] CIPS participant count from official CIPS data. SWIFT comparison from SWIFT corporate reporting.
[9] Treasury market depth: US Treasury Securities Outstanding as of January 2026 exceeds $34 trillion, with daily trading volumes averaging $700+ billion.
