Three-Tier Dollar Zone Structure And Pathways For Breakthroughs In Yuan Internationalization – Analysis

By Zhang Yi

Recently, a series of moves by the United States may appear fragmented and isolated on the surface, but in reality they could very well be a systematic strategy during Donald Trump’s second term to reshape the global landscape of resources and supply chains, while reinforcing the dominance of the U.S. dollar in international settlement and finance. By strengthening its military presence in the Persian Gulf, the U.S. is enhancing its influence over critical regional maritime routes.

In South America, it is leveraging global commodity pricing conventions and its regional influence to sustain the use of the U.S. dollar in lithium and copper trade in countries such as Argentina and Chile. In the Asia-Pacific, the U.S. is deepening alliance coordination with Japan and South Korea and upgrading its security commitments. Both of the East Asian countries have pledged a combined USD 900 billion in strategic investments in the U.S., covering areas including critical minerals. Meanwhile, through the already signed USD 8.5 billion U.S.–Australia critical minerals agreement, Australia’s supply chains for lithium, rare earths, and other resources are being more tightly integrated into the U.S. dollar system.

These measures are closely tied to the U.S. domestic fiscal and debt situation. According to U.S. Treasury data released in March, total federal debt has reached USD 39 trillion, and net interest payments on that debt are projected to exceed USD 1 trillion this fiscal year. The combination of elevated debt levels and rising interest burdens has become an internal driver behind efforts to reinforce the dominance of the dollar. ANBOUND’s founder Kung Chan noted that as the global geopolitical landscape shifts, the underlying logic of the international monetary system is also undergoing adjustment. The dependence of European and Japanese currencies on the dollar has increased significantly, and the euro’s original ambition to rival the dollar has largely fallen short. The U.S. is now seeking to advance a three-tiered structure for the “dollar zone”: the Americas as the core dollar area, the Asia-Pacific and the Middle East as regions under dollar control, and Europe and Africa as areas within the dollar’s sphere of influence. The evolution of this framework warrants close attention.

The three-tier “dollar zone” structure is a strategic concept developed by the U.S. based on five key dimensions: geographic proximity, holdings of U.S. Treasury securities, the level of military alliance, dependence on dollar-based settlement, and the degree of strategic resource integration. Each tier has clearly defined geographic boundaries, capital characteristics, and functional roles. The “core zone” encompasses the U.S. mainland, Canada, Mexico, as well as all of Central and South America. It is guided in an integrated manner by the U.S. National Security Strategy and relies on regional trade agreements and cross-border financial cooperation frameworks to promote the coordinated integration of capital, resources, and industries within the region. This, in turn, is to build the credit foundation and internal circulation base of the dollar system.

According to the latest data from the U.S. Treasury and the Federal Reserve, domestic U.S. entities hold more than 70% of total U.S. Treasury debt, making them the most stable holders, while other economies in the Americas account for roughly 15% of foreign-held Treasuries, serving as key overseas holders. The Americas possess approximately 30% of the world’s arable land and renewable freshwater resources, and concentrate around 47% of globally economically recoverable lithium reserves, 41% of copper reserves, and 31% of proven oil reserves. In the context of AI computing power and energy infrastructure development, copper functions as the “vascular system” of data centers and next-generation power grids, while lithium serves as the “lifeblood” of energy storage systems. Control over the supply of these two minerals effectively secures upstream influence over global power infrastructure and computing capacity. Such strategic resources provide a solid foundation of tangible assets underpinning the dollar. With respect to food, energy, and critical minerals within the region, the U.S. is leveraging industrial investment and trade rules to guide the entire resource value chain toward reinforcing the role of dollar-based settlement, thereby consolidating a closed-loop internal cycle of “dollar–resources–commodities”.

The “control zone” spans the Asia-Pacific and the Middle East, encompassing countries such as Japan, South Korea, Singapore, the Philippines, and Australia, as well as Saudi Arabia, the United Arab Emirates, Kuwait, and Qatar, serving as a critical hub for global dollar liquidity. As U.S. treaty allies, Japan, South Korea, and Australia have long ranked among the top ten foreign holders of U.S. Treasuries, collectively accounting for roughly 15% of overseas holdings and forming a core group of major buyers. Japanese and South Korean firms are deeply embedded in upstream semiconductor materials, essential equipment, and midstream advanced wafer fabrication, providing essential support for the global supply of high-end chips.

The U.S., together with Japan, South Korea, and Australia, has signed the Pax Silica Declaration, promoting joint investment and R&D in artificial intelligence and semiconductors, thereby strengthening the foundational computing infrastructure of the AI era. Through the Minerals Security Partnership (MSP), the U.S. has also deepened resource cooperation with Australia, developing critical minerals such as rare earths and gallium needed for the semiconductor and AI industries, and securing control over key upstream raw material supplies. In the Middle East, the region is closely integrated with the U.S. through the petrodollar system, with strong linkages in energy trade, security cooperation, and dollar-based settlement. The region accounts for approximately 35% – 40% of global crude oil exports. By leveraging the control zone, the U.S. is constructing a cross-border cycle of “dollar–minerals–energy–technology”, thereby reinforcing the dollar’s global dominance.

The “influence zone” includes regions such as Europe, Africa, ASEAN, and India, forming the outer buffer layer of the U.S. dollar’s global financial architecture. Through interest rate policy, the Federal Reserve generates cyclical “dollar tides,” capturing cross-border returns while reinforcing the dollar’s dominant position. During easing cycles, the U.S. expands the issuance of Treasury securities and injects dollar liquidity, much of which flows into the influence zone. This inflow tends to push up local currencies, weakening export competitiveness. In response, local authorities often passively increase domestic currency supply to counter exchange rate pressures, which in turn drives up regional prices and asset valuations.

Conversely, during tightening cycles, dollar liquidity flows back to the U.S., leading to currency depreciation and asset price corrections in the influence zone, while sharply increasing the cost of servicing dollar-denominated debt. In some cases, high-quality leveraged assets are sold at discounted prices due to liquidity shortages, enabling U.S. investors to acquire them at lower valuations and subsequently strengthen domestic capital through dividends and capital gains, thereby alleviating debt pressures. Although Europe operates within the NATO alliance framework, the euro maintains an independent monetary status and seeks a role in cross-border settlement. Meanwhile, economies in Africa, ASEAN, and India generally hold relatively low levels of U.S. Treasuries and, in most cases, lack high-level military alliances with the United States. These factors constitute the core rationale behind Washington’s classification of these regions as a risk-buffering periphery.

The dollar system during the administrations of Bill Clinton and Barack Obama shared the same fundamental objectives as this three-tier “dollar zone”, i.e., to consolidate the dollar’s role as the world’s primary currency for settlement and reserves, to drive global capital circulation through dollar liquidity cycles, and to anchor energy trade in the Middle East as a foundation for dollar circulation. However, there are significant structural differences in their underlying material bases and geographic configurations. During the Clinton and Obama years, the dollar system relied on oil trade as a single anchor. It was built upon the 1974 U.S.–Saudi petrodollar agreement, which established global pricing and settlement norms for energy, and was reinforced by dollar-denominated mechanisms within institutions such as the International Monetary Fund (IMF) and the World Bank. Policy focus was centered on monetary policy management and the maintenance of cross-border financial order, without incorporating key real-economy supply chains, such as critical minerals, semiconductors, or artificial intelligence, into its structural support. As a result, dollar circulation operated within a relatively singular closed loop of “oil + finance”.

By contrast, the current three-tier dollar zone is attempting to shift from a single energy anchor to a more diversified foundation spanning energy, minerals, and technology. At the same time, while both earlier administrations pursued an open, globalized approach, which was engaging in broad, non-discriminatory financial cooperation worldwide without exclusive barriers, the present framework is moving toward a more alliance-based, tiered configuration. Functional regions are delineated according to technological controls, resource security, and settlement systems, with the U.S., Latin America, Japan, South Korea, and Australia forming the core of an exclusive industrial and resource network. For non-allied countries, clear boundaries on cooperation are being established, marking a shift from broad multilateral coordination to more narrowly defined, alliance-centered alignment.

As for Donald Trump’s two terms, there has been a clear adjustment in dollar strategy. During his first term, he sought to restore U.S. economic competitiveness through tax cuts and trade protectionism, but encountered structural contradictions in balancing domestic interest groups with global capital flows, indirectly weakening the foundations of the dollar system. His protectionist trade policies pushed up inflation and harmed exports. Meanwhile, the fiscal stimulus heightened deficit risks, and monetary policy interventions unsettled markets. At the same time, troop withdrawals and reductions in overseas deployments affected the interests of the military-industrial complex, provoking resistance from Congress and defense contractors. Furthermore, promises of manufacturing reshoring were not fulfilled, rising prices increased the burden on households, and criticism of Wall Street, along with pressure on the Fed, undermined capital market confidence in policy continuity. Having learned the lessons from his first term, Trump, in his second term, is attempting to reconcile competing interests and advance the three-tier “dollar zone” through targeted geopolitical measures.

In the “core zone” of the Americas, efforts are focused on reshaping governance dynamics in Venezuela and encouraging South American resource alliances to align more closely with the dollar system. This is done simultaneously with balancing domestic capital arbitrage, military-geopolitical control, and energy price stability. In the Middle Eastern “control zone”, the strategy emphasizes intensifying strategic competition with Iran, sustaining the petrodollar system, repairing alliances with Japan, South Korea, and Australia to stabilize demand for U.S. Treasuries, and advancing cooperation in critical minerals and semiconductors. In the outer “influence zone”, the U.S. is increasing its resource engagement in Africa and leveraging Europe’s energy challenges to weaken the euro’s competitive position, while recalibrating the balance of interests among capital, the military, and the public. Overall, this approach aligns closely with the underlying logic of the three-tier dollar zone framework.

It is important to pay attention to the issue of the internationalization of the Chinese currency amid the accelerated strategic expansion of the U.S. dollar. While the internationalization of the yuan or renminbi has been discussed for decades, first advanced as a major policy proposal by ANBOUND in the late 1990s (Kung Chan and Zhong Wei, 1998), the context today is fundamentally different. Yuan’s internationalization is now unfolding within the framework of a G2 relationship between major powers (Kung Chan, 2025).

The escalation of conflict in the Middle East is disrupting the advancement of the three-tier “dollar zone” and increasing the risks surrounding its evolution. Following the outbreak of hostilities, Iran has accelerated efforts to de-dollarize its oil trade. At the same time, Saudi Arabia and the United Arab Emirates have expanded the use of the yuan settlement in trade with China, with the conflict acting as a catalyst for this trend. Data show that in March this year, the share of yuan settlement in Saudi Arabia’s oil trade with China exceeded 40%, a marked increase from previous levels. Meanwhile, First Abu Dhabi Bank (FAB) has formally connected to the Cross-Border Interbank Payment System (CIPS), further improving the efficiency of yuan clearing in the Middle East.

At the same time, driven by geopolitical uncertainty and the need for diversified asset allocation, Middle Eastern countries have been reducing their holdings of U.S. Treasuries. In January this year, Kuwait, Saudi Arabia, and the United Arab Emirates collectively held approximately USD 313 billion in U.S. government debt, but the subsequent escalation of regional conflict has led to continued reductions. U.S. defense spending has surpassed USD 900 billion this year, and orders for Lockheed Martin Corporation have surged. However, Vanguard, a key stakeholder in the military-industrial complex, is simultaneously heavily invested in defense stocks while issuing warnings about systemic risks involving global market interconnectedness and mounting debt. This structural contradiction between “defense dividends” and “capital market stability” reflects the complex and multifaceted position of American capital groups”.

Geopolitical shifts in the Middle East are introducing new uncertainties into the advancement of the three-tier “dollar zone”, while also creating a strategic window of opportunity for yuan’s internationalization. Advancing the international role of the Chinese currency will require coordinated efforts among China’s central state-owned enterprises (SOEs), private enterprises, and the state, with a focus on key regions such as Europe, Africa, the Middle East, and Southeast Asia. Under the coordination of the country’s State-owned Assets Supervision and Administration Commission (SASAC) and its overseas asset management framework, central SOEs can promote yuan settlement in Middle Eastern oil and African mineral trade, using a “resource cooperation + associated equity” model to secure long-term supply stability. Private enterprises, supported by policy incentives and cross-border financial services, can expand yuan settlement scenarios in sectors such as e-commerce logistics in Southeast Asia and commercial services in the Middle East and Africa.

At the national level, efforts should accelerate the development of institutional infrastructure, including the establishment of cross-border payment risk protection mechanisms and geopolitical risk compensation funds. Promoting the use of digital currency bridge platforms can enable low-cost, multi-currency clearing, while leveraging the Regional Comprehensive Economic Partnership (RCEP) to expand the Chinese currency’s usage in cross-border trade. At the same time, increasing the scale and application of local currency swap arrangements will help build a coordinated framework in which “central SOEs expand use cases, private firms enhance services, and the state provides strong guarantees”, encouraging partners to adopt yuan settlement based on tangible economic benefits and thereby steadily advancing its internationalization.

Final analysis conclusion:

ANBOUND notes that the three-tier “dollar zone” is the United States’ current effort to implement a hierarchical dollar-based framework, with the Americas as the core zone, the Asia-Pacific and the Middle East as the control zone, and Europe and Africa as the influence zone. Compared with the dollar system during the Clinton and Obama eras, this strategy marks a shift from reliance on a single petrodollar anchor to a more diversified foundation spanning energy, minerals, and technology, as well as a transition from a globally open approach to a more alliance-based, tiered configuration. While the Middle East conflict introduces uncertainties into the advancement of this framework, it also creates a window of opportunity for yuan internationalization. Progress in this area will require coordinated efforts among central state-owned enterprises, private enterprises, and the state, with a focus on deepening yuan settlement and local currency cooperation in key regions, thereby steadily advancing the internationalization of the Chinese currency.