{"id":16,"date":"2026-01-19T11:51:04","date_gmt":"2026-01-19T17:51:04","guid":{"rendered":"https:\/\/madhusudanraj.com\/?p=16"},"modified":"2026-01-20T18:37:39","modified_gmt":"2026-01-21T00:37:39","slug":"what-if-the-dollar-collapses","status":"publish","type":"post","link":"https:\/\/madhusudanraj.com\/index.php\/2026\/01\/19\/what-if-the-dollar-collapses\/","title":{"rendered":"What if the Dollar Collapses?"},"content":{"rendered":"

Introduction<\/strong><\/p>\n

Multiple news agencies have reported that the US dollar has posted its worst first-half performance ( since Nixon was president. According to Yahoo news<\/a>:<\/p>\n

On Monday, the US Dollar Index ended the first half of the year 10.8% lower. That’s its worst first-half performance since 1973, when Richard Nixon was president. At the time, the index fell 14.8%.<\/p>\n

Analysts have attributed King Dollar’s slump to the “Sell America” trade, as investors dumped US assets, including stocks and Treasury, in response to President Donald Trump’s trade war.<\/p><\/blockquote>\n

Off late BRICS nations are actively trying to move away from the US dollar (the de-dollarization<\/a> process).<\/p>\n

After more than 80 years of global dominance the US dollar is now in its last stages of being an international currency. According to Reuters<\/a>,<\/p>\n

The dollar index, which measures the U.S. currency against six other units, was at 98.243 after registering a 9.4% decline in 2025, its biggest drop in eight years.<\/p><\/blockquote>\n

Since the creation of the US central bank Federal Reserve in 1913, the US dollar has lost almost all of its purchasing power (96-97%).<\/p>\n

Fiat dollar as money is fast losing its relevance. One day in the near future it will collapse. The present fiat dollar system cannot and will not go on forever. In this article I want to analyze a future scenario of when the dollar will no longer be money or an international currency. What impact will it have on the US economy, politics, and society? How will it affect and change our world? Let us see.<\/p>\n

To understand what will happen when the dollar will collapse and not be an international currency we need to understand what major things US dollar is allowing\/enabling at present. These major effects of dollar will roll back when it collapses.<\/p>\n

Firstly, dollar enabled the welfare-warfare state in the USA. As we all know, sound monetary systems like the former gold standard ties hands of the government so it doesn\u2019t become big and authoritarian. I do not want to take up more space here with discussion of US monetary history. I advise my readers to refer to Murray Rothbard\u2019s important works like What Has Government Done to Our Money<\/a><\/em> and The Mystery of Banking<\/a><\/em>.<\/p>\n

Briefly speaking, the post World War II dollar exchange standard and post 1971 fiat paper dollar standard allowed the US government to become big and authoritarian. Fiat dollar enabled the US government to fund its myriad of welfare programs given in table 1 below:<\/p>\n\n\n\n\n\n\n\n\n\n\n\n
Table 1 Various welfare state annual spending<\/span><\/td>\n<\/tr>\n
Program<\/b><\/b><\/span><\/td>\nApproximate Annual Budget (USD)<\/b><\/b><\/span><\/td>\n<\/tr>\n
Medicaid<\/span><\/td>\n$616\u2013742 billion<\/span><\/td>\n<\/tr>\n
Earned Income Tax Credit (EITC) & Child Tax Credit (CTC)<\/span><\/td>\n$84\u2013236 billion<\/span><\/td>\n<\/tr>\n
Supplemental Nutrition Assistance Program (SNAP)<\/span><\/td>\n$99\u2013135 billion<\/span><\/td>\n<\/tr>\n
Housing Assistance (vouchers\/public housing)<\/span><\/td>\n$67\u201380 billion<\/span><\/td>\n<\/tr>\n
Supplemental Security Income (SSI)<\/span><\/td>\n$60\u201362 billion<\/span><\/td>\n<\/tr>\n
Child Nutrition Programs (school meals, etc.)<\/span><\/td>\n$29 billion<\/span><\/td>\n<\/tr>\n
Temporary Assistance for Needy Families (TANF)<\/span><\/td>\n$16\u201316.5 billion<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

The total US government spending on these welfare programs is roughly 2 trillion dollars every year!<\/p>\n

Fiat dollar also enabled the US empire, and its endless wars. Table 2 below presents all US warfare state expenses in the last century and more:<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Table 2 US warfare state expenses<\/span><\/td>\n<\/tr>\n
Conflict \/ Military Operation<\/b><\/b><\/span><\/td>\nApproximate Estimated U.S. Cost (USD)<\/b><\/b><\/span><\/td>\n<\/tr>\n
World War II (1941\u201345)<\/span><\/td>\n$4.1 trillion (inflation\u2011adjusted)<\/span><\/td>\n<\/tr>\n
Post\u20119\/11 Wars (Iraq, Afghanistan & related)<\/span><\/td>\n$5.8\u202f\u2013\u202f8.0 trillion (through ~2022, includes long\u2011term costs)<\/span><\/td>\n<\/tr>\n
Vietnam War (1965\u201375)<\/span><\/td>\n~$1.0 trillion (inflation\u2011adjusted)<\/span><\/td>\n<\/tr>\n
Iraq War (2003\u20132011\/2023)*<\/span><\/td>\n~$2.9 trillion (long\u2011term estimates)<\/span><\/td>\n<\/tr>\n
Korean War (1950\u201353)<\/span><\/td>\n~$341 billion (inflation\u2011adjusted)<\/span><\/td>\n<\/tr>\n
World War I (1917\u201321)<\/span><\/td>\n~$334 billion (inflation\u2011adjusted)<\/span><\/td>\n<\/tr>\n
Persian Gulf War (1990\u201391)<\/span><\/td>\n~$102 billion (inflation\u2011adjusted)<\/span><\/td>\n<\/tr>\n
Somalia intervention (early 1990s)<\/span><\/td>\n~$1.8 billion (constant FY2002)<\/span><\/td>\n<\/tr>\n
**Ukraine\u2013Russia War (since Feb 2022)**<\/span><\/td>\n~$175 billion in **approved\/allocated U.S. aid** (military, economic, humanitarian, related activities) **as of early 2025**<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

These warfare state total expenses are roughly US$ 16 trillion. Apart from that, the annual budget of the warfare state is close to US$ 1 trillion.<\/p>\n

This welfare-warfare state has bankrupted America, and corrupted its polity and society beyond recognition. They are the reasons why the US government debt is over US$ 37 trillion. The fiat dollar destroyed the America of the Founding Fathers. End of the fiat dollar will start to heal America.<\/p>\n

In the future, when this fiat dollar will collapse, this welfare-warfare state will reverse its course and shrink in size. Without the ability to print (create out of nowhere) paper or digital dollars it will be impossible to fund the welfare programs or continue wars. The US empire will come to an end. Uncle Sam will have to shut down all its foreign bases, and bring the armed forces home.<\/p>\n

The end of the welfare state expenditures will also very likely solve the problems of immigration. By far the most important reason why most migrants come to the US is because they want to earn dollars. Most major immigrant groups from countries like India or Mexico remit substantial amounts of dollars back to their home countries e.g., Indian and Mexican immigrants remit roughly US$ 32 and 56 billion dollars annually respectively. As the recent Minnesota welfare scheme scandal<\/a> shows, without fiat paper dollar welfare state, the major incentive for migrants to come to the US is removed.<\/p>\n

Collapse of fiat paper dollar will end inflation (assuming the US government doesn\u2019t replace it with some unbacked digital crypto dollar), and business cycles.<\/p>\n

Globally speaking, international fiat paper dollar standard allowed the debt fueled consumption boom in the US. This boom allowed countries like China, India, Mexico etc., to become manufacturing hubs by producing and exporting goods to the US. America is the number one global consumer market in the world by far right now (see table 3).<\/p>\n\n\n\n\n\n\n\n\n\n
Table 3 Global consumer markets<\/span><\/td>\n<\/tr>\n
Rank<\/b><\/b><\/span><\/td>\nCountry<\/b><\/b><\/span><\/td>\nEstimated Consumer Market Size (USD)<\/b><\/b><\/span><\/td>\n<\/tr>\n
\n

1<\/span><\/p>\n<\/td>\n

United States<\/span><\/td>\n$25.0 trillion<\/span><\/td>\n<\/tr>\n
\n

2<\/span><\/p>\n<\/td>\n

China<\/span><\/td>\n$13.5 trillion<\/span><\/td>\n<\/tr>\n
\n

3<\/span><\/p>\n<\/td>\n

Japan<\/span><\/td>\n$4.5 trillion<\/span><\/td>\n<\/tr>\n
\n

4<\/span><\/p>\n<\/td>\n

Germany<\/span><\/td>\n$3.8 trillion<\/span><\/td>\n<\/tr>\n
\n

5<\/span><\/p>\n<\/td>\n

United Kingdom<\/span><\/td>\n$3.0 trillion<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Economies of major manufacturing countries like China, Mexico, India etc., heavily depend on their export dollar income. When dollar will collapse and stop being an international currency, a drop in consumer demand in the US will impact global economies. If those economies fail to diversify their exports away from the US then they are going to see some big problems.<\/p>\n

Another huge concern will be US debt in the form of US treasury bills being held by foreigners. When the dollar will not remain an international currency, all dollars which are held by foreign entities will come back home creating a huge inflationary storm. Table 4 below shows major foreign entities holding US treasury debt.<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n
Table 4 Global US government debt holders<\/span><\/td>\n<\/tr>\n
Rank<\/b><\/b><\/span><\/td>\nCountry \/ Territory<\/b><\/b><\/span><\/td>\nApprox. U.S. Debt Held (USD)<\/b><\/b><\/span><\/td>\n<\/tr>\n
\n

1<\/span><\/p>\n<\/td>\n

Japan<\/span><\/td>\n~$1.13 trillion<\/span><\/td>\n<\/tr>\n
\n

2<\/span><\/p>\n<\/td>\n

United Kingdom<\/span><\/td>\n~$780 billion<\/span><\/td>\n<\/tr>\n
\n

3<\/span><\/p>\n<\/td>\n

China<\/span><\/td>\n~$765 billion<\/span><\/td>\n<\/tr>\n
\n

4<\/span><\/p>\n<\/td>\n

Cayman Islands<\/span><\/td>\n~$455 billion<\/span><\/td>\n<\/tr>\n
\n

5<\/span><\/p>\n<\/td>\n

Canada<\/span><\/td>\n~$426 billion<\/span><\/td>\n<\/tr>\n
\n

6<\/span><\/p>\n<\/td>\n

Luxembourg<\/span><\/td>\n~$412 billion<\/span><\/td>\n<\/tr>\n
\n

7<\/span><\/p>\n<\/td>\n

Belgium<\/span><\/td>\n~$402 billion<\/span><\/td>\n<\/tr>\n
\n

8<\/span><\/p>\n<\/td>\n

France<\/span><\/td>\n~$363 billion<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

This is roughly US$ 8-9 trillion dollars. Economists give a crude estimate of US$ 50 to 125 trillion dollar denominated debt (Eurodollars etc.) floating globally. When dollar collapses (and it will one day), these dollars will come back home resulting into massive hyper-inflationary depression.<\/p>\n

Conclusion<\/strong><\/p>\n

A dollar collapse will bring an end to the welfare-warfare US state as we know it today. A society that is forced to be in debt will change into a society which will have to save and invest its way out of the economic, political, and social problems that a dollar collapse will bring. Americans worried about their future will start saving, and this saving will rebuild US capital and production structure setting the stage of revival of its economy and society. The country will slowly start to heal. The US will no longer be a global empire, and that will bring more freedom, prosperity, and peace for its people. Corrupt politicians will be swept away as big government collapses under its own weight. Living standards of the people will fall, but they will still remain higher than most other countries.<\/p>\n

A dollar collapse might bring changes in the political makeup of the constitutional republic too. Nation state might or might not survive this ordeal. It is possible the republic dissolves itself and some other political entity replace it.<\/p>\n

All in all, I strongly believe the collapse of the US dollar will be a good thing for the American people in the long run, notwithstanding short term pain.<\/p>\n","protected":false},"excerpt":{"rendered":"

Dollar is a fiat paper currency and an international payment system since last 80 years or so. Since the founding of the US central bank Federal Reserve it has lost almost all of its purchasing power. Distrust in dollar is building among the BRICS nations who are rivals of the US in the great game of geopolitics. Sooner or later dollar will collapse. This article discusses likely consequences of US dollar collapse.<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[5],"tags":[13,11,17,15,12,9,16,10,14,8],"class_list":["post-16","post","type-post","status-publish","format-standard","hentry","category-economics","tag-america","tag-brics","tag-central-bank","tag-currency","tag-de-dollarization","tag-dollar","tag-federal-reserve","tag-gdp","tag-trade-war","tag-us-dollar"],"post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/madhusudanraj.com\/index.php\/wp-json\/wp\/v2\/posts\/16","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/madhusudanraj.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/madhusudanraj.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/madhusudanraj.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/madhusudanraj.com\/index.php\/wp-json\/wp\/v2\/comments?post=16"}],"version-history":[{"count":16,"href":"https:\/\/madhusudanraj.com\/index.php\/wp-json\/wp\/v2\/posts\/16\/revisions"}],"predecessor-version":[{"id":37,"href":"https:\/\/madhusudanraj.com\/index.php\/wp-json\/wp\/v2\/posts\/16\/revisions\/37"}],"wp:attachment":[{"href":"https:\/\/madhusudanraj.com\/index.php\/wp-json\/wp\/v2\/media?parent=16"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/madhusudanraj.com\/index.php\/wp-json\/wp\/v2\/categories?post=16"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/madhusudanraj.com\/index.php\/wp-json\/wp\/v2\/tags?post=16"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}