Dominant US dollar and the 40 Trillion Debt. What could happen?

Dominant US dollar and the 40 Trillion Debt. What could happen?

I wrote the original article some time ago because I kept coming across one interesting question:

Why does almost everyone seem to need US dollars?

Malaysia exports something to China. China sells something to Germany.

A Malaysian company buys equipment from Japan. An oil company in the Middle East sells crude oil.

Why is the US dollar so often involved? The answer is quite simple.

The US dollar has become the world’s common financial language.

And despite all the talk about de-dollarisation (this is likely to be very far into the future even if it happens), that position remains incredibly powerful.

But today, there is another question I think we should ask.

How sustainable is this system?

Especially when US government debt has just crossed an almost unimaginable number:

US$40 trillion.

#1 – Why do we need US dollars for trade?

Imagine I am a Malaysian company buying machinery from a company in Germany. I have ringgit.

The German company wants euros. Which currency should we use? We could convert ringgit into euros.

But what if the German company doesn’t want ringgit? What if the German company has a supplier in Japan who wants yen?

The US dollar solves much of this problem.

It is widely accepted. It is highly traded. It has deep financial markets. And many commodities and financial contracts are priced in US dollars.

So instead of having hundreds of currency combinations, businesses can often use one major currency in between.

That’s why the US dollar is so important.

#2 – The dollar is still incredibly dominant

The dollar hasn’t disappeared despite years of predictions that its dominance is coming to an end.

According to the European Central Bank’s latest international role of the euro report, the US dollar appeared on one side of almost 90% of global over-the-counter foreign exchange transactions in 2025. 

The IMF also continues to describe the US dollar as the world’s pre-eminent reserve currency, even though its share of global reserves has gradually declined. 

So yes, other currencies are becoming more important.

The euro.

The renminbi.

The yen.

The pound.

And perhaps one day, other currencies.

But replacing the US dollar is not as simple as saying:

“Let’s all use something else.”

The world financial system has been built around the dollar for decades.

There are huge networks, contracts, banks, markets and reserves connected to it.

That’s what makes dollar dominance so difficult to dislodge.

#3 – And then there is US$40 trillion

Now comes the interesting part.

The US national debt has officially crossed:

US$40 trillion.

Reuters reported that total US debt surpassed US$40 trillion on 19 August 2026, for the first time in history. 

US$40 trillion.

That number is almost impossible for an ordinary person to visualise.

So let’s put it another way.

That’s US$40,000 billion.

And it isn’t standing still.

The US Treasury expected to borrow another US$739 billion in privately held marketable debt during July–September 2026, followed by another US$628 billion in October–December. 

The Congressional Budget Office projected that federal debt held by the public would rise from around 101% of GDP in 2026 to 120% by 2036 under its baseline projections. 

This is where I start asking myself:

How long can this continue?

Not because I think the US dollar will suddenly collapse tomorrow.

I don’t. But because eventually, the numbers have to matter.

#4 – What exactly is backing the US dollar?

This is where things become very interesting.

The US dollar is not backed by gold.

It isn’t backed by a pile of physical assets sitting somewhere that we can exchange our dollars for.

The modern US dollar is essentially fiat money.

Its value depends on confidence in the US government, the US economy, the Federal Reserve and the financial system.

And of course, confidence in the fact that other people will continue accepting US dollars tomorrow.

Think about that. I have RM100.

You accept my RM100 because you believe someone else will accept it from you tomorrow.

The same principle applies to the US dollar.

Only on a gigantic global scale.

So the question isn’t simply:

“Does America have US$40 trillion worth of gold or property to back the debt?”

It doesn’t work that way. The more important question is:

“Do investors around the world continue to have enough confidence in US government debt and the US dollar?”

So far, the answer is largely yes.

That is why US Treasury securities continue to attract enormous demand.

But there are signs that investors are becoming more sensitive to the risks.

Reuters recently reported that 10-year Treasury yields reached 4.683%, while 30-year yields reached 5.216%, as investors demanded higher returns amid concerns about inflation and fiscal sustainability. 

That doesn’t mean the system is broken.

It means the market is asking for a little more compensation for the risk.

#5 – Is US$40 trillion sustainable?

This is the question I don’t think we should answer too quickly.

The United States has something most countries don’t have.

It issues the world’s dominant reserve currency.

America can borrow in its own currency.

It has an enormous economy. It has deep and liquid financial markets.

US Treasury securities are still regarded as one of the world’s most important safe assets.

So comparing US debt directly with the debt of Malaysia or another smaller country isn’t entirely fair.

But that doesn’t mean debt doesn’t matter.

Interest has to be paid. And when debt becomes larger, interest costs become larger.

The US government is now spending enormous amounts simply servicing existing debt.

And if interest rates remain elevated, refinancing old debt becomes more expensive.

It’s a bit like taking a very large housing loan.

If your loan is RM500,000 and interest rates rise, you feel it.

Now imagine the loan is US$40 trillion.

A small change in borrowing costs becomes a very large number.

#6 – Could another currency replace the dollar?

Perhaps. But it won’t happen simply because countries want it to.

For another currency to replace the US dollar, you need much more than a currency.

You need:

A huge economy.

Deep capital markets.

Political and institutional stability.

Large amounts of investable assets.

A currency that can be freely traded.

And, most importantly:

Confidence.

That’s why I don’t think the renminbi, euro or any other currency can simply wake up tomorrow and say:

“Okay, today we replace the US dollar.”

It doesn’t work that way. The dollar’s biggest advantage isn’t just America.

It’s the entire ecosystem built around it.

SO, should we be worried?

Yes and No.

I don’t think the US$40 trillion debt means:

“The US dollar is finished.”

No.

The dollar remains extraordinarily dominant.

But I think it is reasonable to ask:

“How much confidence can the system absorb?”

Because the US dollar ultimately depends on confidence.

Confidence that the US economy remains strong.

Confidence that the government can manage its finances.

Confidence that Treasury debt remains a safe place to put money.

Confidence that inflation won’t destroy purchasing power.

And confidence that the rest of the world will continue using dollars.

That confidence is the real asset.

Not gold.

Not property.

Not oil.

Confidence.

And perhaps this is why I find the whole subject so fascinating. We often think money is something physical.

It isn’t. The majority of money today is essentially numbers in financial systems.

And the most important currency in the world is supported by something that cannot be physically measured:

trust.

The US has managed to maintain that trust for a very long time.

At what point does the number become too large for confidence alone to carry?

I don’t know.

For now, the US dollar remains king.

But even kings need to manage their finances.

Because eventually, someone will ask:

“Who is paying for all this?”

And that, my friends, is probably the more important question.

Happy understanding.

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Sources

• Reuters — US debt crosses $40 trillion threshold — report on the US national debt surpassing US$40 trillion on 19 August 2026.
• U.S. Treasury — Understanding the National Debt — explanation of US national debt and why debt-to-GDP is a more useful measure than the absolute debt number alone.
• U.S. Treasury — 2026 borrowing estimates — Treasury’s latest estimates for additional marketable borrowing.
• Congressional Budget Office — The Budget and Economic Outlook, 2026–2036 — projections for US federal debt held by the public.
• European Central Bank — The international role of the euro, June 2026 — latest data showing the dollar’s continuing dominance in global foreign-exchange transactions.
• IMF — Dollar Dominance in the International Reserve System — analysis of the dollar’s continuing role as the world’s leading reserve currency.
• Original Kopiandproperty article — How dominant is the US dollar? Why is it needed for trade? — the original article and the basis for the refreshed discussion on the US dollar’s role in international trade.