Author: Zhou Ziheng

Introduction: The Inevitability of Cycles and the Current Turning Point

Throughout history, every major empire and reserve currency system has experienced a complete cycle from rise, prosperity to decline and reset. This pattern is not accidental but driven by structural forces, including excessive debt accumulation, currency devaluation, intensified internal conflict, and the rise of external competitors. Ray Dalio refers to it as the "Big Cycle," emphasizing the transition from rules-based order to an unordered state similar to the "law of the jungle." Currently, the world is in the late stage of this cycle, characterized by a skyrocketing scale of U.S. national debt, a continued decline in the dollar's share as a global reserve currency, and emerging powers building alternative systems through hard assets like gold.

According to data from the U.S. Treasury, as of March 2026, the total U.S. national debt has exceeded $39 trillion, an increase of about $2.64 trillion from the previous year, with a daily growth of over $7.2 billion. The debt-to-GDP ratio continues to climb, with public-held debt exceeding $31 trillion, expected to rise to 120% of GDP by 2036. This level of debt far exceeds historical records, nearing post-World War II peaks, yet occurs during a period of economic expansion, highlighting structural imbalances.

The dollar's share in global foreign exchange reserves has dropped to its lowest level since 1994, about 56.8% in the fourth quarter of 2025. Although the dollar still dominates international trade and transactions (accounting for 89% of foreign exchange trading), its dominance is facing systemic erosion. BRICS countries (Brazil, Russia, India, China, South Africa, and expanded members) are actively promoting de-dollarization by increasing local currency settlements and gold reserves. These changes are not isolated events but contemporary manifestations of the recurring pattern of imperial decline. The complex modern system obscures the underlying patterns but cannot change its inherent logic.

Historical Patterns: Similar Trajectories of the Netherlands, Britain, and the United States

Empire decline follows recognizable patterns. The Dutch Empire of the 16th-17th centuries rose with commercial and financial innovation, and the guilder became an early global reserve currency. The Netherlands accumulated wealth through trade networks and maritime hegemony, but persistent wartime expenditures and debt led to currency devaluation and internal tensions, ultimately being surpassed by Britain. Britain inherited hegemony in the 18th-19th centuries, with the pound dominating global trade until the huge debts and colonial independence waves after World War I caused its decline. After World War II, the United States established a dollar-centered order through the Bretton Woods system, where the gold-backed dollar became the global anchor currency.

Common to these cases is the initial success leading to debt expansion. When growth is strong, borrowing accelerates, and the increase in the money supply creates an illusion of short-term prosperity. Murray Rothbard described inflation as "a prosperity illusion for the victims," where income and asset prices rise in the short term, but actual purchasing power declines, ultimately leading to unstable foundations. Both the Netherlands and Britain entered a decline phase after unsustainable debts, loss of currency credibility, rival competitors building alternative systems, and intensified internal conflicts. War often serves as a catalyst or terminator of cycles.

Since World War II, the United States has played a similar role. The 1944 Bretton Woods Conference established a system linking the dollar to gold, with the United States holding the majority of the world’s gold reserves, dominating trade and financial rules. Initially, this system promoted global stability and growth. However, success itself sowed the seeds of decline: sustained growth depended on injecting more units of currency rather than on real wealth creation. Currency issuance does not generate new wealth but reallocates existing value through dilution.

The Cycle's Starting Point: War Dominance and System Construction

Every cycle begins with a post-war restructuring. The new dominant power establishes a system controlling currency, trade, and global rules. When there are no challengers to its hegemony, the system runs smoothly. This was the case for the United States after World War II: with dual military and economic advantages, along with gold reserves, it constructed the post-war order. Initiatives like the Marshall Plan consolidated this position, making the dollar the preferred choice for international settlements and reserves.

However, the success of the system led to accelerated borrowing. Growth relies on monetary expansion, forming a self-reinforcing cycle of "growth supported by more units of currency." Externally, it appears prosperous, while internally, foundational cracks develop. The structure cannot permanently bear the burden of excessive debt. When growth slows and economic downward pressure becomes apparent, decision-makers typically resort to further monetary issuance. This marks the transition from prosperity to a turning point.

Illusion of Prosperity and the Redistributive Effect of Inflation

Monetary issuance creates an illusion of prosperity. The cost of living rises, with the prices of necessities like food and housing increasing, while income growth often lags behind. Housing affordability decreases, putting real pressure on the middle and lower income groups. Despite nominal income increases, actual wealth is eroded. This effect is not evenly distributed: the elite closest to the sources of currency creation benefit first, profiting through asset price increases and financial channels; those further away, such as fixed-income earners and ordinary people, suffer the most significant impacts.

Wealth inequality in the United States has reached multi-decade highs. By 2025, the net wealth share of the top 1% is expected to approach 32%, while the bottom 50% only accounts for 2.5%. The Gini coefficient remains elevated, reflecting a K-shaped economic recovery: asset holders benefit from rising stock and real estate markets, while wage-dependent individuals face inflationary pressures. Over the past six years, this gap has accelerated, along with increasing social and political polarization. Internal conflict provides opportunities for external competitors, weakening the cohesion of the dominant power.

History repeatedly demonstrates that monetary expansion cannot sustain prosperity in the long term. Eventually, economic downturns force more money printing, forming a vicious cycle: increased debt, rising inflation, declining real living standards, and the rise of political extremism.

The Intersection of Internal Conflict and External Challenges

When monetary and credit expansions spiral out of control, pressures manifest not only on financial fronts but also extend to political and social domains. National fragmentation intensifies, and disputes over resource allocation escalate. At this point, external competitors are preparing alternatives. Historically, after every hegemony reaches its peak, the only direction is downwards. Competitors build parallel systems that challenge the existing order.

Currently, the United States faces a similar dynamic. The weaponization of the dollar—freezing reserves and severing trade—has sparked global discontent. Many countries seek to reduce reliance on a single currency system. The dollar's share of foreign exchange reserves has significantly declined over the past 25 years, with BRICS countries promoting local currency trade and alternative payment structures. In bilateral trade between China and Russia, over 99% is settled in rubles and yuan. China has also reached similar agreements with countries like Brazil, increasing the share of local currency settlements to about one-third of global trade.

These measures erode the dollar's dominance but do not happen overnight. De-dollarization is a gradual process driven by geopolitical tensions. Since 2022, Russia has accelerated its shift towards gold and non-dollar assets due to sanctions, with its gold reserves' value partially offsetting frozen asset losses. BRICS+ countries currently hold 17.4% of global gold reserves, up significantly from 11.2% in 2019.

The De-dollarization Process and BRICS' Alternative Efforts

De-dollarization manifests across multiple dimensions. First, there is reserve diversification: the dollar's share has dropped to 56.8%, a 31-year low. Second, the shift in trade settlements: the use of local currencies within BRICS has increased, reducing the dollar's intermediary role. Third, the construction of payment infrastructures: systems that gradually replace SWIFT are developing.

Gold plays a crucial role in this process. BRICS countries control about 50% of global gold production and lead in central bank gold purchases. Between 2020 and 2024, BRICS central banks purchased more than half of the global central bank gold purchases. The People's Bank of China has been steadily increasing its gold reserves for 18 consecutive months starting from October 2024, with approximately 2,313 tons as of March 2026 (some estimates place this figure higher), accounting for about 9% of its foreign exchange reserves. Russia's reserves reach 2,336 tons, and India's reserves stand at 880 tons. Together, these three countries hold the vast majority of BRICS' gold holdings.

Even after the gold price correction in March 2026 (with LBMA gold prices falling around 12%, marking one of the worst monthly performances since 2008), China continued its purchasing momentum, viewing gold not as a short-term trading tool, but as a long-term strategic positioning. BRICS builds hard asset buffers through gold accumulation, preparing for a potential monetary reset. Historical experience shows that after currency failure, holders of real value stores (like gold) maintain value, while holders of paper currency suffer heavy losses.

Ray Dalio recently pointed out that the current world resembles 1945 more than the post-war period, as characteristics of debt crises, political disorder, and new world order emerge. He emphasized that no government, economic system, currency, or empire can endure permanently, yet few are prepared for this.

Current Stage Assessment: Debt Restructuring and System Pressure

Many analyses place the current United States in the fifth stage of the big cycle: a period of debt and political restructuring. The scale of national debt, ongoing deficits (with the cumulative deficit for the fiscal year 2026 reaching trillions), political polarization, and external challenges are occurring simultaneously. The dollar's protection requires more spending and borrowing, forming self-reinforcing pressures.

This stage does not precisely correspond to specific dates but rather continues the pattern. After slow accumulation, changes may suddenly accelerate. Historically, both the Netherlands and Britain faced monetary pressures, war risks, and order restructuring during similar phases. The sustainability of U.S. debt is now in question: interest expenditures are nearing or exceeding $1 trillion per year, squeezing other budget allocations. CBO projections indicate that the debt trajectory is unsustainable unless significant fiscal adjustments are made.

Internally, wealth redistribution exacerbates social tensions. Externally, geopolitical events like tensions in the Middle East (related risks in the Strait of Hormuz) not only affect oil prices but also highlight the vulnerabilities of global supply chains and monetary system pressures. War costs further increase debt, accelerating the cycle.

Reset Mechanisms After Currency Failure

When empires and currency systems collapse, which assets prevail in the reset? Historical answers are clear: paper currency has no intrinsic value, and its value can be arbitrarily changed by government decisions. After revaluation or reset, holders of failed currencies lose most of their wealth. Real money—as a means of storing value—provides protection. Gold has historically played a central role in these resets, anchoring new monetary systems.

Competitors like China are positioning for this scenario through large-scale gold purchases. China is not concerned with short-term gold price fluctuations but looks to the long term: when the existing system significantly depreciates, gold will become a focal point of demand. The price correction in March 2026 did not deter its purchasing momentum, highlighting strategic rather than speculative motivations.

Other assets perform variably in historical resets, but gold's durability makes it stand out. Currency resets are often accompanied by the establishment of new orders, allowing holders of hard assets to cross over cycles.

Risk Assessment and Potential Scenarios

The current cycle faces a confluence of risks: high debt levels limit policy space, inflation coexists with growth dilemmas, and geopolitical conflicts might trigger supply chain disruptions or energy price spikes. Political divisions lower decision-making efficiency while external competition accelerates de-dollarization. Even if the dollar maintains dominance in the short term, its long-term downward trend is clear.

Scenario One: Gradual Adjustment. Through fiscal discipline and structural reforms, the United States may delay its decline, but historical precedents show that once debt exceeds a critical point, reversing becomes extremely difficult. Scenario Two: Accelerated Crisis. External shocks (such as large-scale conflicts or loss of confidence) lead to a sharp devaluation of the dollar, forcing a rapid reset. Scenario Three: Emergence of a Multipolar Order, where the dollar coexists with other currencies/assets but loses its singular advantage.

Regardless of the path, cyclical laws indicate that the sixth stage—potential significant conflicts or order restructuring—is imminent. Sudden acceleration after slow evolution is a typical characteristic.

Conclusion: Pattern Recognition and Long-Term Positioning

The decline of empires is not fate, but a process that can be recognized through historical patterns. Complexity obscures the patterns but cannot erase their power. The United States currently faces a combination of pressures from unsustainable debt, challenges to currency credibility, internal inequality, and the construction of external alternative systems, highly similar to precedents of the Netherlands and Britain. The gold accumulation and de-dollarization efforts by BRICS further validate this transformation.

Ray Dalio's observations are worth noting: nearly everyone is surprised and suffers losses when systems fail. Understanding the difference between currency and real value storage—where the former is easily manipulated and the latter offers cross-cycle protection—is critical. The role of gold in historical resets is repeatedly validated, and actions by entities like China reinforce this signal.

The world is at a critical point in transitioning from a rules-based order to a new dynamic. Those who recognize the patterns can assess risks in advance and consider diversification strategies to address potential volatility. Historical cycles remind us: the illusion of prosperity will eventually fade, and the well-founded value storage will manifest advantages in a reset. This analysis is based on publicly available economic data and historical comparisons, aiming to provide an objective framework rather than specific predictions. Future developments depend on interactions between policy choices and global events, but underlying patterns continue to provide insights.

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