The year 2026 may not bring a sudden fall of the US dollar. But it could mark the moment when its quiet decline gathers speed. As the US increasingly uses the dollar as a tool of pressure, other countries are working harder to trade and pay without it.
America’s role in global trade has been shrinking for years. In 2000, it accounted for about one-third of world trade. Today, that share is closer to one-quarter. At the same time, emerging economies are trading more among themselves. As these links grow, the dollar becomes less central.
This change is already visible. India and Russia now settle much of their trade in rupees, dirhams, and yuan. China routes more than half of its trade through its own payment system, CIPS, instead of SWIFT. Other country pairs—such as Brazil and Argentina, India and the UAE, Indonesia and Malaysia—are also testing trade in local currencies.
Central banks are responding too. In 1999, the dollar made up about 72 percent of global foreign exchange reserves. Today, it is down to around 58 percent, and the trend is downward. A reserve currency works on trust. And trust depends as much on perception as on facts. That perception is changing.
Domestic problems in the US are adding to the strain. Government deficits are large and still growing, expected to reach nearly $2 trillion in 2025. The current account gap is widening as well. To cover these gaps, the US relies heavily on creating new money. For years, the dollar’s special status absorbed the shock. Now, that cushion looks thinner.
Even US government bonds no longer feel as solid as they once did. There are now more than $27 trillion worth of US Treasuries circulating worldwide. This means more bonds to trade, settle, and hold. But the banks that are meant to provide liquidity have not expanded fast enough. When markets come under stress, there are simply not enough balance sheets to absorb heavy selling—unless the Federal Reserve steps in.
This weakness was exposed in March 2020, when the Treasury market froze during a crisis and needed direct central bank support. It was a rare moment when the world’s safest market failed to function on its own.
Looking ahead to 2026, the biggest risk to the dollar is unlikely to be another currency replacing it. Instead, the threat comes from new payment systems that bypass the dollar altogether. This is especially true in emerging markets, where access to dollar liquidity has often been costly, slow, or political.
Several alternatives are already taking shape. One is mBridge, a project involving central banks from China, Hong Kong, Thailand, and the UAE, supported by the Bank for International Settlements. It aims to allow countries to pay each other instantly using digital versions of their own currencies. Another is BRICS Pay, which would let BRICS and partner countries settle trade and investment directly in their local currencies.
Then there are stablecoins. These digital tokens allow money to move across borders quickly and cheaply, without traditional banks. Most stablecoins today are linked to the US dollar, which actually strengthens its reach. But that may change. If stablecoins tied to multiple currencies—or not tied to the dollar at all—become common, they could offer a neutral way to settle global trade.
China is unlikely to challenge the dollar openly. Instead, it is likely to build around it. Yuan-linked stablecoins may spread through Hong Kong, the Gulf, and Southeast Asia. Some could be backed by commodities like gold or oil. These tools could be used to pay for ports, energy shipments, or infrastructure projects without using dollars or US banks.
Traditionally, it has taken hundred years for one global currency to replace another. But technology is speeding things up. Digital finance, new trade routes, and shifting power balances are shortening the timeline. The dollar is still dominant. But the cracks are clearer than before. And in 2026, the risk of slipping is higher than it has been in a long time.
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- In the Large States category (overall), Chhattisgarh ranks 1st, followed by Odisha and Telangana, whereas, towards the bottom are Maharashtra at 16th, Assam at 17th and Gujarat at 18th. Gujarat is one State that has seen startling performance ranking 5th in the PAI 2021 Index outperforming traditionally good performing States like Andhra Pradesh and Karnataka, but ranks last in terms of Delta
- In the Small States category (overall), Nagaland tops, followed by Mizoram and Tripura. Towards the tail end of the overall Delta ranking is Uttarakhand (9th), Arunachal Pradesh (10th) and Meghalaya (11th). Nagaland despite being a poor performer in the PAI 2021 Index has come out to be the top performer in Delta, similarly, Mizoram’s performance in Delta is also reflected in it’s ranking in the PAI 2021 Index
- In terms of Equity, in the Large States category, Chhattisgarh has the best Delta rate on Equity indicators, this is also reflected in the performance of Chhattisgarh in the Equity Pillar where it ranks 4th. Following Chhattisgarh is Odisha ranking 2nd in Delta-Equity ranking, but ranks 17th in the Equity Pillar of PAI 2021. Telangana ranks 3rd in Delta-Equity ranking even though it is not a top performer in this Pillar in the overall PAI 2021 Index. Jharkhand (16th), Uttar Pradesh (17th) and Assam (18th) rank at the bottom with Uttar Pradesh’s performance in line with the PAI 2021 Index
- Odisha and Nagaland have shown the best year-on-year improvement under 12 Key Development indicators.
- In the 60:40 division States, the top three performers are Kerala, Goa and Tamil Nadu and, the bottom three performers are Uttar Pradesh, Jharkhand and Bihar.
- In the 90:10 division States, the top three performers were Himachal Pradesh, Sikkim and Mizoram; and, the bottom three performers are Manipur, Assam and Meghalaya.
- Among the 60:40 division States, Orissa, Chhattisgarh and Madhya Pradesh are the top three performers and Tamil Nadu, Telangana and Delhi appear as the bottom three performers.
- Among the 90:10 division States, the top three performers are Manipur, Arunachal Pradesh and Nagaland; and, the bottom three performers are Jammu and Kashmir, Uttarakhand and Himachal Pradesh
- Among the 60:40 division States, Goa, West Bengal and Delhi appear as the top three performers and Andhra Pradesh, Telangana and Bihar appear as the bottom three performers.
- Among the 90:10 division States, Mizoram, Himachal Pradesh and Tripura were the top three performers and Jammu & Kashmir, Nagaland and Arunachal Pradesh were the bottom three performers
- West Bengal, Bihar and Tamil Nadu were the top three States amongst the 60:40 division States; while Haryana, Punjab and Rajasthan appeared as the bottom three performers
- In the case of 90:10 division States, Mizoram, Assam and Tripura were the top three performers and Nagaland, Jammu & Kashmir and Uttarakhand featured as the bottom three
- Among the 60:40 division States, the top three performers are Kerala, Andhra Pradesh and Orissa and the bottom three performers are Madhya Pradesh, Jharkhand and Goa
- In the 90:10 division States, the top three performers are Mizoram, Sikkim and Nagaland and the bottom three performers are Manipur and Assam
In a diverse country like India, where each State is socially, culturally, economically, and politically distinct, measuring Governance becomes increasingly tricky. The Public Affairs Index (PAI 2021) is a scientifically rigorous, data-based framework that measures the quality of governance at the Sub-national level and ranks the States and Union Territories (UTs) of India on a Composite Index (CI).
States are classified into two categories – Large and Small – using population as the criteria.
In PAI 2021, PAC defined three significant pillars that embody Governance – Growth, Equity, and Sustainability. Each of the three Pillars is circumscribed by five governance praxis Themes.
The themes include – Voice and Accountability, Government Effectiveness, Rule of Law, Regulatory Quality and Control of Corruption.
At the bottom of the pyramid, 43 component indicators are mapped to 14 Sustainable Development Goals (SDGs) that are relevant to the States and UTs.
This forms the foundation of the conceptual framework of PAI 2021. The choice of the 43 indicators that go into the calculation of the CI were dictated by the objective of uncovering the complexity and multidimensional character of development governance
The Equity Principle
The Equity Pillar of the PAI 2021 Index analyses the inclusiveness impact at the Sub-national level in the country; inclusiveness in terms of the welfare of a society that depends primarily on establishing that all people feel that they have a say in the governance and are not excluded from the mainstream policy framework.
This requires all individuals and communities, but particularly the most vulnerable, to have an opportunity to improve or maintain their wellbeing. This chapter of PAI 2021 reflects the performance of States and UTs during the pandemic and questions the governance infrastructure in the country, analysing the effectiveness of schemes and the general livelihood of the people in terms of Equity.
Growth and its Discontents
Growth in its multidimensional form encompasses the essence of access to and the availability and optimal utilisation of resources. By resources, PAI 2021 refer to human resources, infrastructure and the budgetary allocations. Capacity building of an economy cannot take place if all the key players of growth do not drive development. The multiplier effects of better health care, improved educational outcomes, increased capital accumulation and lower unemployment levels contribute magnificently in the growth and development of the States.
The Pursuit Of Sustainability
The Sustainability Pillar analyses the access to and usage of resources that has an impact on environment, economy and humankind. The Pillar subsumes two themes and uses seven indicators to measure the effectiveness of government efforts with regards to Sustainability.
The Curious Case Of The Delta
The Delta Analysis presents the results on the State performance on year-on-year improvement. The rankings are measured as the Delta value over the last five to 10 years of data available for 12 Key Development Indicators (KDI). In PAI 2021, 12 indicators across the three Pillars of Equity (five indicators), Growth (five indicators) and Sustainability (two indicators). These KDIs are the outcome indicators crucial to assess Human Development. The Performance in the Delta Analysis is then compared to the Overall PAI 2021 Index.
Key Findings:-
In the Scheme of Things
The Scheme Analysis adds an additional dimension to ranking of the States on their governance. It attempts to complement the Governance Model by trying to understand the developmental activities undertaken by State Governments in the form of schemes. It also tries to understand whether better performance of States in schemes reflect in better governance.
The Centrally Sponsored schemes that were analysed are National Health Mission (NHM), Umbrella Integrated Child Development Services scheme (ICDS), Mahatma Gandh National Rural Employment Guarantee Scheme (MGNREGS), Samagra Shiksha Abhiyan (SmSA) and MidDay Meal Scheme (MDMS).
National Health Mission (NHM)
INTEGRATED CHILD DEVELOPMENT SERVICES (ICDS)
MID- DAY MEAL SCHEME (MDMS)
SAMAGRA SHIKSHA ABHIYAN (SMSA)
MAHATMA GANDHI NATIONAL RURAL EMPLOYMENT GUARANTEE SCHEME (MGNREGS)