In 2022 the Biden administration\u2019s curbs on Russia\u2019s access to the currency after the invasion of Ukraine spurred a first round of diversification. <\/p>\n\n\n\n
If the US could freeze out the world\u2019s 11th-largest economy, so deeply entrenched<\/a> in global oil markets, is anyone safe? <\/p>\n\n\n\n The Great Inflation, and a rapidly deteriorating fiscal trajectory since then, has added to doubts about American economic exceptionalism. And most recently, the haphazard rollout and rollback of Trump\u2019s tariff campaign in April sparked a rare weakening in both the dollar\u2019s value and that of US Treasuries. <\/p>\n\n\n\n The US dollar index tumbled more than 10% in the first six months of the year, its worst first-half performance since 1973.<\/strong><\/p>\n\n\n\n Like an uncorked genie, the \u201csell America<\/a>\u201d talk is proving hard to bottle up again. <\/p>\n\n\n\n Banks and brokers are seeing rising demand for currency products that bypass the dollar, and some of Asia\u2019s richest families are cutting exposure to US assets, saying Trump\u2019s tariffs have made the country much less predictable.<\/p>\n\n\n\n Geopolitical rivals within BRICS\u2014a loose group of large economies led by Brazil, Russia, India, China and South Africa\u2014are continuing their long push for a new cross-border payments system. <\/p>\n\n\n\n Even long-term allies such as Europe see an opportunity to erode the dominance of the dollar.<\/p>\n\n\n\n Not everyone is so dour. <\/p>\n\n\n\n JPMorgan Chase & Co.\u2019s Jamie Dimon said in May that the US remains the most \u201cprosperous, innovative nation on the planet\u201d and that he doesn\u2019t fret over short-term fluctuations in the dollar. <\/p>\n\n\n\n Secretary of the Treasury Scott Bessent has tried to convince investors that the strong dollar policy remains intact, and his boss has threatened 100% tariffs against anyone who dares challenge it. <\/p>\n\n\n\n Yet for all the tough talk, the reality is that the greenback\u2019s greatest relative strength is actually the lack of any single challenger to its standing atop the global monetary order.<\/p>\n\n\n\n There\u2019s talk of a \u201cglobal euro moment\u201d in which the European common currency plays a bigger role, but history has shown that the bloc struggles to move in sync, and its institutions are too fragmented to create the markets deep enough to rival those of the US. <\/p>\n\n\n\n China\u2019s central bank governor is talking up his nation\u2019s currency as an option for those seeking to shift from the dollar, but it\u2019s hard to imagine how that will be embraced when capital controls still impede the free flow of assets across Chinese capital borders.<\/p>\n\n\n\n Central banks and investors have piled into the ultimate haven asset\u2014gold\u2014but it\u2019s cumbersome to hold, offers no yield and can\u2019t easily be used in trade or financial transactions the way the dollar can.<\/p>\n\n\n\n Speculation for dollar replacements range as far as Bitcoin and other digital assets, though few outside El Salvador (which in 2021 adopted the cryptocurrency as legal tender) are ready to shift toward anything that\u2019s not government-backed. <\/p>\n\n\n\n Other financial innovations, such as\u00a0stablecoins<\/a>\u2014digital tokens meant to substitute for traditional cash\u2014may entrench rather than dislodge the dollar\u2019s primacy as they peg their value to the greenback.<\/p>\n\n\n\n With no viable alternative to the US dollar as the world\u2019s currency on the horizon, the more likely change is to a multicurrency world. <\/p>\n\n\n\n The dollar would still be dominant, but other currencies would play a larger role. <\/p>\n\n\n\n Although this may not be as revolutionary as a complete breakdown in the global monetary order that some dollar doomsayers are foreseeing, the resulting currency competition will still have profound effects on the US\u2019s hard and soft geopolitical power. <\/p>\n\n\n\n Indeed, no one is really ready for what a feeding frenzy of currency competition will mean in \u00adpractice\u2014especially not Americans.<\/p>\n\n\n\n The US would have to give up some of the benefits of the strong-dollar regime, a key one being lower interest rates as fewer overseas investors buy dollar-denominated bonds. <\/p>\n\n\n\n Barry Eichengreen, an economist at the University of California at Berkeley, who\u2019s written extensively on the dollar, has calculated that in a scenario where the US withdraws from the global stage, the dollar\u2019s share of reserves in countries that rely on its security could decline by about 30 percentage points. <\/p>\n\n\n\n Long-term US interest rates could increase by as much as 0.8 of a percentage point, he estimates.<\/p>\n\n\n\n US banks will need to pay more to raise money and charge more for mortgages as a result. Higher home loan rates tend to slow the economy because they leave less income for consumers to spend on vacations, home improvements and the like. <\/p>\n\n\n\n And though a weaker foreign exchange rate may be good for rebalancing the trade deficit\u2014by making American exports cheaper and more competitive and deterring spending on costlier imports\u2014that\u2019s not great for household wealth.<\/p>\n\n\n\n The federal government will also feel the pinch.<\/p>\n\n\n\n It finances its annual budget gap, a little less than $2 trillion, through Treasuries. In a world where euro- or yen-denominated assets are more strongly vying for investor attention, borrowing costs for the US government would need to rise.<\/p>\n\n\n\n In fact, we\u2019re already noticing signs of that: Thirty-year Treasury yields have more than doubled since the start of 2022 and exceeded 5% at one point in May. <\/p>\n\n\n\n That means America will pay more for new borrowing and more to keep rolling over its existing debt too. Annual payments on US government debt by some measures are now larger than what the country spends on national defense.<\/p>\n\n\n\n The globalised dollar has long shielded lawmakers in Washington from having to decide between guns or butter\u2014or tax cuts.<\/p>\n\n\n\n And even as doubts in the dollar grow as the budget deficit swells, legislators still aren\u2019t ready to tighten their belts. <\/p>\n\n\n\n Elon Musk<\/a> promised $1 trillion in savings through the so-called Department of Government Efficiency, or DOGE; the cuts so far have saved less than $200 billion. <\/p>\n\n\n\n Meanwhile, a key legislative win for Trump, the One Big Beautiful Bill, will add as much as $3 trillion to the budget deficit over the next decade, according to estimates from the Congressional Budget Office. <\/p>\n\n\n\n But in a world where investors continue moving away from the greenback, markets could eventually force difficult trade-offs to cut the deficit\u2014meaning that social safety nets and public research-and-development spending that\u2019s long spurred private-sector innovation in areas including Big Tech and Big Pharma will start to have limits imposed on them.<\/p>\n\n\n\n A less hegemonic dollar would affect America\u2019s geopolitical prowess. With a weaker currency, overseas military bases would become more expensive to keep up. <\/p>\n\n\n\n With less use of the dollar in global transactions, economic sanctions would have less bite. <\/p>\n\n\n\n And policing the financial system for malign activities, such as financing terrorist undertakings or laundering money, would be harder because flows outside of dollar-based networks won\u2019t be visible to American policymakers.<\/p>\n\n\n\n \u201cWe don\u2019t appreciate how good we have it,\u201d says Josh Lipsky, senior director of the GeoEconomics Centre at the Atlantic Council in Washington and a former adviser at the International Monetary Fund.<\/p>\n\n\n\n \u201cOwnership of the reserved asset means cheaper credit for Americans and the federal government, it means more transparency of US policymakers in the financial system to carry out economic statecraft that aligns with US foreign policy objectives. That is what\u2019s at risk.\u201d<\/p>\n\n\n\n US Treasury secretaries, the stewards of the dollar and American currency policy, have long said that it\u2019s up to the nation itself to guard the treasure that the reserve asset is. <\/p>\n\n\n\n Whether it\u2019s Bob Rubin, Hank Paulson or Janet Yellen, these leaders have said that a strong economy bolstered by independent institutions and the rule of law will protect the dollar\u2019s status. <\/p>\n\n\n\n Yet the Trump administration has sent mixed signals. <\/p>\n\n\n\n Bessent has stuck largely to the script of predecessors, but Stephen Miran, chair of the White House\u2019s Council of Economic Advisers and Trump\u2019s latest pick to serve as governor of the Federal Reserve, has referred to the dollar\u2019s status as a \u201cburden.\u201d<\/p>\n\n\n\n Trump\u2019s efforts to shift executive authority into independent agencies like regulators and even the Federal Reserve, his consistent challenges to the courts, and Washington\u2019s disregard for record-high federal debt are adding to the dollar\u2019s headwinds. <\/p>\n\n\n\n Trust is the cornerstone of the world\u2019s choice of the dollar as king, and Trump is chipping away at that credibility. <\/p>\n\n\n\n \u201cFor the first time, the dollar\u2019s future status may be determined by how other currencies develop,\u201d Lipsky says. \u201cAnd those will develop faster if people are looking for them\u2014that\u2019s the lesson of capitalism.\u201d<\/p>\n\n\n\n The world economy is more financialised and knit together than the last time it saw a tectonic shift in global currency power about 80 years ago, when the dollar eclipsed the British pound.<\/p>\n\n\n\n Indeed, the dollar\u2019s status has faced a reckoning before and persevered. <\/p>\n\n\n\n President Richard Nixon unilaterally abandoned the gold peg in 1971 and imposed a 10% import tariff after nations including France sought to swap dollars for bullion, threatening the monetary system agreed at Bretton Woods after World War II. <\/p>\n\n\n\n The American-made global financial crisis earlier in the 2000s also triggered questions, particularly in China, about whether the US continued to merit its role as the cornerstone of the global monetary order.<\/p>\n\n\n\n Previous eras have had mixed currency use, but typically those were anchored to either gold or silver. There\u2019s never been a period when multiple fiat currencies competed for dominance. <\/p>\n\n\n\n This fact makes some people nervous about what lies ahead. <\/p>\n\n\n\n A multicurrency era could provoke instability as investors run from one to another in reaction to financial conditions, compounding the challenge for businesses already grappling with how they\u2019ll rewire supply chains in an era of rising tariff walls.<\/p>\n\n\n\n![\"\"](\"https:\/\/businesstech.co.za\/news\/wp-content\/uploads\/2025\/08\/Dollar-in-reserves.jpg\")
<\/a><\/figure>\n\n\n\nA new world order<\/h2>\n\n\n\n
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<\/a><\/figure>\n\n\n\nTrump steamrolls through<\/h2>\n\n\n\n
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