The Dollar, the Turkish Lira, and the New Global Currency War

5 min 5 sec read

George Atsalakis
Economist, Associate Professor
Technical University of Crete – Scientific Data Laboratory

The global economy is entering a new period of financial instability in which the US dollar is once again returning to the center of international power. Despite continuous predictions about de-dollarization and the efforts of the BRICS countries, China, and other emerging powers to create alternative monetary systems, the reality of recent years reveals something very different: in every major crisis, the entire world continues to seek dollars.

The recent collapse of the Turkish lira, Turkey’s aggressive sale of US Treasury bonds, and the growing need of many countries for currency swap lines from the US Federal Reserve are all indications that the world has not yet found a genuine alternative to the American currency. On the contrary, the greater the geopolitical uncertainty becomes, the more the importance of the dollar as the world’s reserve currency increases.

After World War II, the United States built an international financial system based on the dollar. Initially, the dollar was linked to gold through the Bretton Woods system. However, in 1971, when President Richard Nixon closed the “gold window,” the American currency needed a new foundation of support. That foundation became oil.

The United States reached an agreement with Saudi Arabia and the OPEC countries that global oil trade would be conducted exclusively in dollars. The so-called “petrodollar” created a permanent and structural demand for the American currency. Every country that needed oil first had to acquire dollars. States stored dollars in their foreign exchange reserves and reinvested those funds in US government bonds. In this way, American power, technology, military dominance, and economic expansion over the last fifty years were financed.

In recent years, however, China has systematically attempted to challenge this system. Through the Belt and Road Initiative, infrastructure investments, and energy agreements, China sought to persuade oil-producing countries to accept payments in yuan instead of dollars. Russia, Venezuela, and certain Gulf states began conducting limited transactions outside the dollar system. In 2024, the petrodollar agreement between the United States and Saudi Arabia expired without an official renewal, creating fears that the dollar system would begin to unravel.

However, crises always reveal which currency is truly considered safe. And at this moment, Turkey represents the clearest example.

The Turkish economy is facing a multifaceted crisis: energy dependence, trade deficits, high inflation, political instability, and growing geopolitical risk. Rising oil prices due to the conflict with Iran dramatically increased the country’s need for dollars, since Turkey imports nearly all of its energy requirements.

The Turkish lira came under extreme pressure, forcing the government to use its foreign exchange reserves to support the currency. Within just one month, Turkey sold almost all the US Treasury bonds it held, reducing its holdings from approximately 16 billion dollars to only 1.8 billion dollars.

This move is not evidence of weakness in the dollar, but exactly the opposite. Turkey did not sell US bonds because it no longer needs the dollar. It sold them because it urgently needs dollars in order to survive — to buy Turkish lira with those dollars so as to prevent further depreciation of its currency and avoid foreign investors withdrawing their investments from Turkey. This is a crucial distinction that is often ignored in public discussions about de-dollarization.

The same pattern appears in other emerging economies. During periods of energy shocks, wars, or capital flight, central banks are forced to sell US Treasury bonds in order to acquire dollars and defend their currencies.

This creates a vicious cycle. The more countries sell American bonds, the more their yields rise. And the higher the yields rise, the more expensive money becomes globally. Already, yields on US 10-year and 30-year Treasury bonds are moving close to or above 5%, levels reminiscent of periods of severe financial instability. The United States borrows through one-year and two-year bonds at lower interest rates around 3%.

At the same time, the United States faces an enormous debt problem. US public debt has exceeded 39 trillion dollars and continues to grow at snowball-like rates. This means that Washington increasingly depends on maintaining global confidence in the dollar and in the market for US government bonds.

At precisely this point emerges the critical role of the US Federal Reserve’s dollar swap lines. Currency swap lines allow central banks of other countries to gain immediate access to dollars from the Federal Reserve by exchanging their own currencies for US dollars. Essentially, this is an emergency liquidity mechanism activated whenever the international financial system begins facing a shortage of dollars.

During the 2020 pandemic, as well as in later periods of crisis, many countries turned to the United States requesting currency swap lines to stabilize their currencies. This proves that, despite political rhetoric about a “multipolar and multicentric world,” the dollar remains the only currency capable of functioning as a global safe haven.

What is particularly interesting is that even countries seeking to reduce their dependence on the dollar ultimately return to it during times of crisis. The dollar system functions like a global safety mechanism. When everything else fails, the world demands access to Federal Reserve liquidity.

The case of Middle Eastern countries is especially revealing. Most currencies in the region are pegged to the dollar. This means they require a continuous inflow of dollars to maintain stability. When geopolitical tensions and the closure of the Strait of Hormuz disrupted oil flows, several of these countries faced genuine dollar shortages because they had been selling oil in yuan and rupees.

At that moment, the US Federal Reserve stepped in by offering currency swaps and direct access to dollar liquidity. This carried enormous geopolitical significance because it brought these countries closer once again to the American financial architecture.

In October 2025, the United States purchased Argentine pesos and agreed to a 20-billion-dollar currency swap line, of which only 2.5 billion dollars were used to counter depreciation pressures on the peso. A similar mechanism is reportedly being discussed between the United States and the UAE, which withdrew from what many consider the most destructive cartel in human history. The next country likely to move in this direction could be Saudi Arabia, possibly followed by Qatar and Kuwait.

The Turkish lira crisis also proves something deeper: the national currencies of emerging economies remain vulnerable when they are not supported by a strong productive base, institutional stability, and energy self-sufficiency.

For years, Turkey has sought to present itself as a regional power and as the hub of a new Turkish geopolitical sphere through the Organization of Turkic States (OTS). The United States increasingly aims to transfer part of the responsibilities and costs of regional security to its allies and partners. Within this framework, regional powers are expected to develop their own security mechanisms and structures capable of managing local geopolitical balances.

Under Ankara’s leadership, the OTS could gradually evolve into an organized geopolitical axis along Russia’s southern sphere of influence and limit China’s penetration into these countries, as well as Iran’s influence. Furthermore, uncertainty surrounding Iran’s future moves and strategic ambitions increasingly pushes Turkey and its allies in the Caspian region toward adopting a common regional strategy for managing and containing geopolitical risks originating from Iran’s ambitions. Central Asian countries — especially Kazakhstan — play an important role in this process.

However, geopolitical power without monetary stability is limited. Turkey may expand its influence in Central Asia, but it remains dependent on the dollar for energy, imports, and the stability of its financial system.

This is the great paradox of our era. The world talks about de-dollarization, yet crises increase demand for dollars. Countries attempt to create alternative monetary alliances, but when pressured, they once again turn toward the dollar. The real question is not whether the dollar will immediately be replaced. The question is whether the United States can maintain the political, military, and institutional credibility required for the dollar to continue serving as the backbone of the global system.

Because the strength of a currency is not based solely on economics. It is based on trust, geopolitical power, institutions, and a country’s ability to function as the ultimate guarantor of stability during periods of crisis. And so far, despite all its weaknesses, no other power has managed to replace the role of the United States.