A new economic order based on tangible assets and raw materials will further erode the dollar's status as a reserve currency.

US President Donald Trump has proposed providing Ukraine with permanent military aid in exchange for access to its abundant reserves of rare earth elements, which are essential for high-tech industries and defense applications. This proposal is consistent with Trump's long-standing view that foreign natural resources should be leveraged to offset US military expenditures. Notably, in 2011, he criticized the US strategy in Iraq, suggesting that the confiscation of oil assets could have compensated the US for its military involvement.

Such payments in kind are not without precedent. Historically, nations have engaged in similar agreements, particularly related to oil. For example, during the 1980s, the US entered into agreements with Middle Eastern countries, exchanging military support for favorable oil terms. In the current context, Ukrainian President Volodymyr Zelensky has expressed openness to this proposal, viewing it as a means of securing necessary defense aid while providing the US with valuable resources. However, challenges remain, as many of Ukraine's mineral deposits are located in conflict zones, complicating extraction efforts.

If implemented, the agreement suggests a broader shift in the global economic landscape, one in which raw materials and strategic resources are increasingly central to international trade and finance. The emerging order has been dubbed Bretton Woods III, in which nations seek alternatives to traditional fiat-based monetary systems by accumulating tangible assets and restructuring the dynamics of global trade. Unlike the original Bretton Woods system (1944-1971), which was based on fixed exchange rates and a dollar pegged to gold, Bretton Woods II (since 1971) has been characterized by fiat money and floating exchange rates. However, Bretton Woods III envisions a system of quasi-fixed exchange rates in which commodities play a more central role as economies intervene in foreign exchange markets to manage their currencies and maintain competitive advantages in trade.

Bretton Woods III

In the modern international financial order, emerging markets (particularly in Asia and the Middle East) accumulate large reserves of US dollars and reinvest them in US assets, particularly Treasury securities. Conceived by Zoltan Pozsar, Bretton Woods III is a global order that emerges as a byproduct of both persistent trade imbalances and the widespread destruction of fiat currencies. For decades, countries such as China, Japan, and oil exporters have kept their currencies undervalued to sustain export-driven growth. In doing so, these economies have become net lenders to the US, effectively financing fiscal deficits and enabling prolonged periods of low interest rates. 

China is a clear example of an economy that actively manages its currency, the renminbi (RMB), by intervening in foreign exchange markets to maintain a competitive advantage in global trade. The People's Bank of China (PBOC) frequently adjusts the yuan's exchange rate through a combination of fixed exchange rates, capital controls, and foreign reserve management, ensuring that Chinese exports remain attractive by preventing excessive currency appreciation.

The implications of the new global economic regime, although only partially realized, are profound. On the one hand, the previous system supported global financial stability by guaranteeing demand for US debt, which has allowed the United States to maintain sustained current account deficits for improbably long periods without fiscal stress. However, the trade-off has been the emergence of structural imbalances, and emerging markets have become dependent on US monetary policy as the United States has become more reliant on foreign financing. This mutual dependence has given rise to a significant risk: the possibility of a rapid and disorderly unwinding or even a sudden collapse of the link. If foreign creditors lose confidence in the sustainability of US debt or abandon the dollar in favor of alternative reserve assets, exchange rate volatility, capital flight, and rapidly rising borrowing costs are likely reactions with broad repercussions for global trade and financial markets. Geopolitical tensions and rapid de-dollarization moves by major economies, such as the BRICS bloc, could accelerate such a breakdown, resulting in a fragmented global monetary order in which multiple reserve currencies compete for dominance.

Another possible outcome of the Bretton Woods III order is the growing role of commodities as a store of value and medium of exchange in global trade: a growing preference for external money over internal money. As resource-rich economies and emerging markets seek alternatives to excessive dependence on the dollar, gold, oil, and industrial metals will increasingly play a role in reserve diversification and transaction settlement. Cryptocurrencies will too. This shift has already begun, as seen in the efforts of the expanded BRICS bloc to settle cross-border transactions in commodity-backed currencies or through bilateral trade agreements denominated in non-dollar assets. Central banks in China, Russia, and the Middle East have been increasing gold purchases, driving the price to record highs while signaling a shift toward tangible, asset-backed reserves rather than the US dollar and Treasury securities. 

If that trend accelerates, it could lead to a multipolar monetary system, based on alliances or regions, in which commodities (including gold, among other things) will play a stabilizing role. Among the many consequences of Bretton Woods III is the serious weakening of the US dollar's exorbitant privilege as the world's dominant reserve currency. 

The lines are already being drawn

If this international structure ultimately takes shape, the agreement proposed by the Trump administration (arms trade with Ukraine in exchange for rare earths) may end up being recorded as an early milestone in a broader shift toward commodity-backed transactions, moving away from fully financial global trade. The European Union (EU) has a €900 million agreement with Rwanda aimed at obtaining critical raw materials such as cobalt and lithium, which are essential for technology industries. That agreement has faced criticism due to Rwanda's alleged involvement in the conflict in the Democratic Republic of Congo (DRC), where, on the other hand, China has solidified its influence through substantial investments in the DRC's mining sector. So far, the Chinese have committed $7 billion to infrastructure projects in exchange for access to the country's abundant copper and cobalt reserves. In another case, Turkey and Azerbaijan have strengthened their bilateral relations through trade in natural gas and strategic metals, improving their economic and geopolitical ties. A definitive shift toward resource-based diplomacy is underway, with nations increasingly eschewing role and values in favor of natural assets to forge alliances and promote strategic interests.

Significance

A shift toward a financial order based on real assets may, over time, significantly alter global power structures by elevating resource-rich nations while diminishing the influence of traditional financial centers. Countries endowed with vast reserves of oil, rare earths, or significant and reliable agricultural production could see their geopolitical influence increase as physical assets increasingly become a basis for economic stability. A resulting shift could be the hoarding of critical resources, as nations seek to control strategic materials in favor of exchange. In extreme cases, this development could escalate into resource-driven conflicts as states maneuver to secure deposits of high-value materials. In addition, bilateral and barter-based trade agreements could become more prevalent, with nations exchanging raw materials directly for infrastructure, military aid, or technological expertise rather than using dollar-based financial markets. (During the Cold War, payments in kind between collectivist nations were common; sugar for oil between Cuba and the Soviet Union, for example.) Such a realignment could weaken traditional financial centers such as New York and London, reducing their dominance in global capital flows. 

If fully realized, the Bretton Woods III paradigm could reconfigure the hierarchy of world powers, elevating smaller nations that possess disproportionately large resource reserves (such as Mongolia, which produces 99 percent of the world's supply of terbium, or Namibia, the Earth's fourth-largest supplier of uranium), provided their institutions are stable enough to capitalize on the new wealth. Conversely, countries that have historically maintained economic dominance through finance and technology but lack natural resources or the will to acquire them could become more middle-power players until they secure stable supply chains for raw materials. Storage space and low shipping rates would become a new manifestation of capital sufficiency. A raw materials-driven system could also reorient innovation, diverting investment from technology and speculative finance toward energy optimization, materials science, and supply chain resilience. Financial crises could evolve and take new forms, driven not by credit expansion but by supply chain collapses, extreme weather disturbances, or geopolitical embargoes that trigger cascades of instability. 

It is not inevitable that an order will emerge in which tangible assets (rather than abstract financial instruments) define national economic security and influence. Decades of technological infrastructure, operational practices, and human capital have built global financial markets, and they will not disappear overnight. But fiscal and monetary excesses, combined with the changing importance of previously overlooked resources, are giving way to a stumbling Bretton Woods III. The final phase of slow but steady de-dollarization may have arrived in the form of a US president who bills military arms shipments not for money, but for mining contracts that lead to crates full of white, chalky, and rapidly oxidizing metals.

Peter C. Earle, The Daily Economy