The origins of today’s international monetary order lie in the historic Bretton Woods Conference of 1944. While conventional wisdom holds that the postwar system collapsed in 1971 when President Nixon severed the dollar’s convertibility to gold, the institutional foundations established at Bretton Woods remain remarkably intact. The International Monetary Fund continues to serve as a central forum for monetary coordination, balance-of-payments surveillance, and the provision of global liquidity through Special Drawing Rights.

Likewise, the World Bank remains active in financing development, and the Bank for International Settlements persists as a quiet but essential node of central bank cooperation. In this light, it is reductive to claim that Bretton Woods “ended” in the early 1970s. What ended was a gold-dollar link. In its place emerged a more flexible, yet still dollar-centric, system—a system in which the U.S. currency has not only survived but deepened its role as the linchpin of global finance.

What of the euro, or the Chinese yuan, or even the speculative BRICS currency? The euro, while significant, remains largely a regional currency with limited global reach. The yuan’s international influence remains conspicuously small, out of step with the size of China’s economy. This reflects Beijing’s unwillingness to liberalize its capital account—an essential step for a currency aspiring to reserve status. Meanwhile, a shared BRICS currency is more aspiration than reality. The challenge of reconciling the divergent political and economic interests of its member states makes the surrender of monetary sovereignty—required for a common currency—highly unlikely.

The international monetary system, now eight decades old, began with gold convertibility but survives today on the back of U.S. hegemonic power. Yet today’s world is far removed from the postwar era. Since the 1990s, East Asia has experienced dramatic economic transformations. The region’s so-called economic miracles—Japan, South Korea, Taiwan, Singapore, and later China—relied not on classical liberalism but on industrial policy, protectionism, and what economists term “neomercantilism.” These models contributed directly to the imbalances haunting the international economic landscape today.

The structural trade disputes between the United States and China echo an earlier era—specifically, U.S. tensions with Japan in the 1970s and 1980s. Then as now, the U.S. ran persistent and widening trade deficits. Japan, flush with U.S. dollars, recycled them into Treasury securities, financing America’s current account shortfall but at the cost of forestalling necessary adjustments in its domestic economy. Cultural tropes about Asian thrift only partially explain the phenomenon; more fundamentally, currency misalignments and policy choices obstructed the market corrections that theory predicts.

China, like Japan before it, has long kept its currency undervalued—trading in a narrow band between 6 and 8 yuan per dollar—even as its economy grew dramatically. This has suppressed Chinese imports, limited household consumption of foreign goods, and sustained large trade surpluses. For years, China recycled these surpluses into U.S. Treasuries, eventually surpassing Japan as the largest foreign holder. But since the Trump administration, Beijing has reversed course. From a 2015 peak of $1.2 trillion in U.S. bonds, China’s holdings have declined to around $759 billion—the lowest level since 2009.

China is no longer financing America’s deficits. Yet it still expects to export freely to the U.S. without participating in any structural adjustment. While fears of China triggering a bond market crisis by dumping Treasuries are often raised, they remain overstated. A massive selloff would contradict China’s strategy of gradual reserve diversification and would likely inflict self-harm. Moreover, as of late 2024, China holds only about 2.1% of the total U.S. Treasury market—enough to cause short-term volatility, but not systemic shock.

That said, a steady unwinding of Chinese holdings over time could undermine long-term confidence in America’s creditworthiness. This shift—Beijing’s quiet but persistent withdrawal from U.S. debt markets—poses a more credible challenge to the current order than any headline-grabbing trade spat.

Still, China is not the root cause of America’s imbalances. The real drivers are structural: a culture of consumption over saving, persistent fiscal profligacy, and the Triffin dilemma—the paradox in which the global reserve currency issuer must run deficits to supply liquidity, thereby undermining trust in its own currency. China has exacerbated the problem, but it did not create it.

Far more worrying than Beijing’s bond sales is the scale of U.S. debt itself—now exceeding $36 trillion, up sharply from just $5.6 trillion at the turn of the century. This growth has sparked a deeper question: How will this imbalance resolve? Will the adjustment be orderly, as investor Ray Dalio envisions in his notion of a “beautiful deleveraging”? Or will it come chaotically, through crisis?

The contours of the coming adjustment remain uncertain. What is clear, however, is that the trajectory of U.S. debt is unsustainable. The longer the reckoning is delayed, the more turbulent the correction is likely to be.