Is there really an alternative to the dollar?

In 2025, the US dollar has been one of the most hotly debated topics in global finance – and the year ahead is unlikely to be any different. After several years of sustained strength against other major global currencies, the dollar experienced a sudden and sharp decline in the first half of the year: around 11% against a basket of major currencies, its worst six-month performance since the late 1970s. This drop has revived a recurring question that seems to resurface every decade: is the dollar’s dominance really coming to an end?

A mid-2025 Reuters survey shows that over 80% of foreign exchange strategists (FX – professionals specialising in currency market analysis and investment strategies) expect the currency to weaken further, pointing to rising public debt and renewed trade instability as the main risk factors. In April 2025, during the correction in US equity markets, the dollar lost ground instead of strengthening – a break from its traditional behaviour as a “safe-haven” currency.

All of this helps explain why the dollar’s trajectory is one of the most closely watched themes among global investors. But what is behind the dollar’s apparent weakness in 2025? What might we expect in 2026? And, more importantly, do the recent shifts signal a deeper crisis capable of challenging the dollar’s role as the world’s reserve currency?

Why the cycle has changed

In 2022 and 2023, the dollar’s value against other currencies was exceptionally high, supported by elevated interest rates and an American economy outperforming other developed markets. Early in 2025, the picture began to shift. Not due to a single shock, but because of a combination of cyclical factors that collectively pushed the US currency towards a new balance.

First, there has been growing speculation about a weakening of what we might call “American exceptionalism” – the clear outperformance of the US economy relative to its peers. Inflation started to fall, growth settled at more typical levels, and the competitive advantage that had attracted vast international capital inflows gradually diminished. With inflation coming down in 2025, the Federal Reserve began cutting rates more aggressively than the European Central Bank. This reduced the yield differential between the dollar and the euro, eroding one of the key drivers behind the greenback’s previous strength.

US fiscal policy also weighed on the dollar. In 2025, Congress approved a new spending package worth over $3.3 trillion, while the White House reignited protectionist rhetoric, with renewed tariff threats and a return to more confrontational trade relations. According to a Reuters survey, 37% of FX analysts now see these trade tensions as the primary driver of the dollar’s movements.

Meanwhile, the cycle that had sustained global appetite for the dollar has cooled. On the one hand, the technology boom that once attracted vast pools of global capital to Wall Street has gradually lost momentum. On the other hand, after Liberation Day on 2 April – when US President Donald Trump announced massive import tariffs triggering a trade “war” – the markets saw significant sales of US equities and bonds. This led to a decline in the dollar at a time when it should have been providing protection for investors. As a result, large international inflows diminished and investors began to protect themselves more against exchange rate fluctuations, while short positions on the dollar grew.

Finally, a broader trend is taking shape in the background: diversification. A growing number of Emerging Market countries have begun using alternative currencies in trade settlements. According to the latest estimates, more than half of intra-BRICS transactions are now settled in renminbi (the currency issued by the People’s Bank of China). Countries such as China, Russia, Turkey, the UAE and Argentina are experimenting with bilateral agreements in local currencies, seeking greater autonomy outside the dollar-centric system.

While these factors have certainly weighed on the dollar – and are likely to continue doing so in the short and medium term – we believe it is too early to draw definitive conclusions. The dollar’s pullback does not amount to a structural break. If anything, 2025 looks more like a phase of normalisation than the beginning of a long-term decline.

Is there really an alternative?

To seriously discuss whether the dollar’s leadership might fade, one must first ask: what could realistically replace it? For now, the answer is straightforward: nothing. There is no currency – or system – with the capacity to take over the dollar’s global role.

The dollar is not just another currency; it is the ‘plumbing’ of the global financial system – its lingua franca. The data shows how deeply embedded it remains. According to the Federal Reserve, 58% of official global foreign-exchange reserves are still held in dollars. By comparison, the euro stands at around 20%, and the Chinese renminbi at just over 2%. It is true that the dollar has lost ground since 2001, when it accounted for 72% of global reserves, but it remains firmly in the lead. Even countries under US sanctions, such as Russia, continue to hold meaningful dollar reserves.

In the world of low-risk financial assets and sovereign debt markets, the US system simply has no rival. US Treasuries remain highly liquid and widely regarded as safe. Today, more than $9 trillion – around 32% of all outstanding federal debt – is held by foreign investors. During moments of global stress, central banks rely on dollar swap lines and repo facilities to maintain stability: during the 2008 crisis, $585 billion in swaps were activated; during the 2020 pandemic, $450 billion. No other currency offers instruments of comparable scale. The euro area, for instance, still lacks a common safe asset: EU joint bond issuance in 2025 reached only about $700 billion, a drop in the ocean compared with the US’s $28 trillion federal debt market.

The dollar is also the world’s principal invoicing and settlement currency. According to the Bank for International Settlements (BIS), it is involved in around 89% of all FX transactions. Oil, gas and most commodities are priced in dollars. In the Americas, 96% of cross-border trade uses the dollar; in Asia-Pacific, 74%; elsewhere around 79%. On the SWIFT payment network, 50% of global cross-border payments are made in dollars – a share that rises to 60% when intra-EU flows are excluded. In short: nearly every currency is traded against the dollar, and much of international finance still revolves around it.

Beyond the raw numbers, there is a more intangible yet critical factor: investor trust in US institutions and in the dollar itself, which has not been shaken (except temporarily) even by Liberation Day. The dollar became the world’s standard because it offers a unique combination of liquidity, yield and institutional stability. No other currency presently matches this balance.

The euro, despite the size of the EU economy, is held back by fragmented political governance and the lack of a unified bond market. The Chinese renminbi is constrained by strict capital controls. Even supposed alternatives, such as gold or cryptocurrencies, fall short: gold offers no yield and limited transactional utility; digital assets remain too volatile, too marginal, or – ironically – linked to the dollar itself.

Geopolitical tensions can even strengthen the dollar. When conflict erupts in the Middle East, tensions rise in Asia, or fears of a pandemic emerge, investors flock to Treasuries and dollar liquidity. It is a counterintuitive but well-established pattern: the more uncertain the world becomes, the stronger the dollar tends to be.

For all these reasons, discussing the “end of the dollar’s supremacy” remains more a theoretical exercise than a realistic prospect. A weaker dollar does not mean an unstable dollar. It may lose value, but – at least for now – not its position at the centre of the global financial system.

Please remember that when investing, your capital is at risk. The value of investments can go down as well as up, and you may get back less than you invest. Past performance is not a reliable indicator of future results. Nothing in this article should be taken as investment advice or a personal recommendation. If you are unsure investing is the right choice for you, please seek financial advice.