The US dollar global dominance is at a crossroads not seen in recent decades as it is put to the test by an array of economic, political, and tech issues, which in turn are set to transform the global financial architecture. At a time when the dollar’s value in terms of global reserve assets has dropped to 50% for the first time in 30 years — and at a stage when foreign confidence is at a low point in the wake of unprecedented policy decisions — it is unclear whether the U.S. will be able to weather the perfect storm coming its way in 2025.
The Fall of the US Dollar Global Dominance
The base that which has supported US dollar global dominance is showing signs of structural weakness. In 2025 the dollar index saw its most drastic 6 month drop since 1973 which was over 11% in the first half of the year. Also at the same time we are seeing growth of concern over the fiscal health of the US which is displayed in the fact that the national debt has grown to $36.2 trillion which is 122% of GDP.
America’s debt problem is huge. We are at over a trillion dollars in interest payment annually which also outgrows what we spend on defense and is second only to Social Security. This fiscal issue is also a issue of credibility which for a long time has supported the dominance of the US dollar in the world stage — foreign investors are now questioning America’s ability to maintain stable finance.
Federal Reserve Chief Jerome Powell is under a novel kind of political attack from President Trump which has seen the President criticize the central bank’s independence and also put forth threats to replace him at the end of May 2026. This political intervention is a issue which is threatening the institution’s credibility which has been at the base of the U.S. dollar’s global preeminence for almost a hundred years.
The Rising Challenge: Devaluation and De-dollarization
The BRICS which account for 24% of global GDP and 16% of global trade has seen to it that they put less of a hold on the US dollar. Out front is China which saw its yuan internationalization index go up by 11% in 2024 to 6.06 which in turn saw the dollar’s index drop from 51.52 to 51. Also in play is Beijing’s strategic push out of which is the expansion of the Cross Border Interbank Payment System (CIPS) to off shore centers in Africa, the Middle East and Central Asia which in turn goes after the dollar dominated SWIFT network.
The digital yuan is at the fore of what may be a very complex challenge to the U.S. dollar’s global preeminence. With 261 million wallets issued and reports of an international operations center in Shanghai, China is putting in place its Central Bank Digital Currency (CBDC) to enable global trade settlements outside the dollar dominated systems. Also unlike private crypto currencies the digital yuan is a government run entity which gives China what may be very large scale international transaction control which no other country has.
It has to be earned. The euro at present accounts for some 20% of global foreign exchange reserves which in turn positions it as the U.S. dollar’s main competitor.
The Federal Reserve Under Siege
The Federal Reserve’s which is a very independent body at present is in very great danger of losing that status as political pressure rises. In a survey by Reuters over 70% of economists report that the Fed’s autonomy is at issue and is being affected by political action. Also we see that Treasury Secretary Scott Bessent has put in motion a process to find a new head for the Fed which may be in part a reaction to this political pushback and also we see that former President Trump’s public criticism of the Fed’s policies is damaging the institution’s credibility.
This political action is putting at risk the global role of the US dollar by which it loses some of its prestige which in turn affects trust in American financial institutions. The Fed’s ability to do what is not popular but what is required of it like raising interest rates to fight inflation is a function of its distance from politics. Also we see from the past in Turkey, Venezuela, and Argentina that when central banks play second fiddle to political will economy wide problems follow.
The Stablecoin Paradox: US Dollar’s Global Preeminence Reinforced
Contrarily, as physical dollar use is in decline, digital stablecoins may be which in turn is increasing the U.S. dollar’s global reach into the digital space. Dollar based stablecoins make up over 99% of the global stable coin market which is now a $230 billion plus industry. These digital dollars are facilitating cross border transactions with great efficiency which in turn is to the benefit of America’s monetary power at a time when we see less of the physical notes.
Tether as the largest stablecoin issuer has reported to have become the 7th largest holder of US Treasury bills which in turn has passed over several countries including Canada and Saudi Arabia. This has created a new demand for US debt which in turn is in effect to be underwriting the US fiscal deficits via private crypto markets.
However we see that which digital edge we have is put to the test by the introduction of competing CBDC’s and alternative payment systems. China is very much at it again with push of the digital yuan which in particular goes after the dominance of dollar stable coins in international trade. Also the ECB reports that should dollar stable coins see wide scale use that will weakens the ECB’s hold over monetary policies in the euro zone.
Geopolitical Weapons and Economic Warfare
The issue of which countries are using the U.S. dollar global dominance for political weapons has brought about greater de-dollarization. After Russia was removed from SWIFT post their invasion of Ukraine we saw the full play of what dollar based financial systems can do but also their break down. Also growing is the trend of countries to see dollar dependence as a strategic weakness which in turn is leading them to put their money into other currencies and payment systems.
Trump put forth that he would impose 100% tariffs on BRICS in an attempt to stop them from replacing the “pound sterling of which the US is the issuer”. Also reported are that these aggressive actions may in fact speed up de-dollarization by which foreign countries confirm their fears of dollar weaponization.
The Path Forward: Survival or Extinction?
Despite that we are seeing many issues the U.S. dollar still has a very strong global presence. We see in the U’s which financial markets are at present the deepest and most liquid in the world, also we see that the legal structures in America and the protection of property rights are still very attractive to foreign investors. Also the dollar is still the star player in global foreign exchange which it does for almost 90% of the time and also for over half of international trade.
However at present we see experts report that the U.S. dollar global dominance is a issue which may putreduct over time instead of an abrupt collapse. Hong Cheng from Morningstar reports that should it happen which is very much in a remote future this is a slow play out over several years. We see a very high probability in the transition to a multipolar currency system as opposed to that of a single dollar based replacement.
The stability of U.S. dollar’s global preeminence will rest on the U.S.’s success in tackling its fiscal issues at the same time which it preserves institutional trust. Should the U.S. fail to implement large scale reforms which restore faith in its economic policies this may see the dollar’s “exorbitant privilege” fade away which in turn will bring in an age of multiple currencies that re structures global finance.
The stakes could not be higher. As the world watches America grapple with unprecedented debt, political dysfunction, and rising challengers, the future of US dollar global dominance—and with it, America’s economic supremacy—hangs in the balance.
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News Source: aljazeera
