Since President Donald Trump’s inauguration on January 20, 2025, the value of the dollar has declined by over 9 percent per the D.X.Y. index. The D.X.Y. index measures the value of the dollar relative to six other prominent currencies, including the Japanese yen and the euro. This means that the dollar has underperformed relative to currencies from other developed countries in the past year [1]. In the same period, the value of alternative commodity assets such as gold and silver has risen by nearly 50 percent and 55 percent, respectively, since the beginning of 2025. 

In the reserve banks of foreign central banks, the decline of the dollar has also been evident. The dollar’s share of global foreign-exchange reserves—the foreign currency assets that central banks hold to stabilize their exchange rates and maintain financial stability—has fallen consistently from about 85 percent in the 1970s and over 70 percent in the early 2000s to under 60 percent as of July 2025 [2, 3]. Additionally, central banks around the world have increased their holdings of gold by trillions of dollars in the past few years, so that their gold reserves are now valued higher than their total holdings of U.S. treasuries or government debt [4]. 

Whether current events or underlying issues over the decades have accelerated or caused these trends is not entirely clear, but they underscore the issues that the U.S. dollar is facing in the present day. The foundations upholding the current world order—based on trust in, and dominance of the dollar—have started to show cracks. As concerning as some statistics may be, however, the current decline of the dollar is unlikely to lead to a complete upheaval of the current economic system and may instead lead to a broadening of financial assets.  

Not A Historical Anomaly

Within the past year, the U.S.’ foreign policy under the Trump administration has often led to volatility in the markets, especially pertaining to the dollar’s value, as movement in indexes such as the D.X.Y. has often followed the announcements of Trump’s tariff policies, such as those on “Liberation Day.” Similarly, the prices of gold, silver, and other commodity currencies have also risen following the widespread tariffs issued on April 2, 2025. Based on previous market behavior, the rise of commodities such as gold and alternative currencies has often occurred as a result of uncertain times and political instability, since gold is often considered a safe-haven asset. With the rising political tensions brought on by rhetoric and foreign policy, the dollar has appeared less safe relative to its alternatives than it has been in the past. 

However, despite concerns about the future of U.S. dominance as a global power, the weakness of the dollar as reflected in the D.X.Y. index is not a new occurrence. In the past, the dollar has been just as weak, if not weaker, when compared to its peer currencies. For instance, during the stock market crash of 1987, the D.X.Y. index fell into the low 80s and reached the low 70s in the years after the global financial crisis of 2008 [5]. These periods show that while the dollar is at times comparatively weaker than currencies such as the euro, British pound, and the Japanese yen, the dollar’s current D.X.Y. index levels are still above those of past great financial crises. There have been many times when the dollar was relatively weak, and the U.S. retained its hegemony; now is no different. 

It’s the Best We Have Got

While the second-largest global economy, China, is often seen as a competitor for economic dominance based on its miraculous economic growth to a national Gross Domestic Product of over 19 trillion dollars since the 1980s, the trust in and supposed rise of China’s currency have fallen short of what is needed to completely overhaul a U.S.-dominated economic system. Data from the International Monetary Fund shows that while the U.S. Dollar has shown a decline from a share of 65 percent of global reserves in 2014 to roughly 57 percent in 2024, the moderate shift away from the U.S. dollar has not largely been to China or to any currencies of the BRICs member nations, but rather to currencies of other developed countries such as the British pound, Japanese yen, and Canadian dollar [6]. 

For instance, during the same time period from 2014 to 2024, the Japanese yen grew its share of FX reserves from 3.5 percent to 5.8 percent, and Canada from 1.7 percent to 2.7 percent. Competitors such as China’s renminbi share grew from zero percent to 2.1 percent of global FX reserves [7]. China’s rise to be the world’s second major economic power has no doubt been nominally impressive, but the growth of the adoption of its currency, the renminbi, has actually stagnated at around 2 percent of global reserves from 2019-2025, showing that China is unlikely to uproot the current dollar-based economic system. 

More recently, in 2025, the euro and the British pound saw the largest increases in share of FX reserves of 1.13 percent and from the first to second quarters of the year, while the dollar saw a decrease of 1.5 percent, and the renminbi was virtually unmoved [8]. However, when adjusted for the fluctuation in the U.S. dollar’s exchange value, the share of the dollar in reserves has been insignificantly changed from quarter to quarter, showing its continued resilience despite the political headwinds it has faced. 

Even though the U.S. has had many underlying economic problems since its recovery from the COVID-19 pandemic, with rising youth unemployment, a high cycle of inflation, and a weakening labor market, other countries around the world are not immune to the same, if not worse. For instance, China, while not experiencing high inflation and instead deflation, experiences declining fertility rates, a weak consumer economy, 18 percent youth unemployment rates, and much more, even with a reported over five percent annual G.D.P. growth [9, 10, 11]. Despite continued efforts by the Chinese government to stimulate its economy, consumer spending has largely been flat as China faces its own set of future uncertainties about slowing economic growth [12, 13]. 

Similarly, the European Union faces a moderate inflation rate of around 2.5 percent and an unemployment rate of just under 6 percent in 2025 [14]. Like many developed countries, Europe faces many issues with unemployment and inflation that have, in part, been impacted by the extended duration of the Russia-Ukraine War. While the U.S. faces many challenges in its unemployment rate, G.D.P. growth, and national debt, in comparison to its competitors and peers, the issues of economic growth and stability are not unique to one country. 

The Elephant in the Room: The National Debt

One of the greatest fears that gives rise to doubts about the dollar’s strength is the U.S.’ ever-expanding national debt. While the national debt has reached a high of 38 trillion dollars and counting, it is not abnormal for the world's developed economies to take on large amounts of debt to grow. For example, the European Union, the United Kingdom, and China all have national debt to G.D.P. percentages of around 80 percent, 93 percent, and 88 percent [15]. In nominal terms, the national debts of these countries range from 3 trillion dollars to over 18 trillion dollars individually. 

While U.S. debt—124 percent of its G.D.P. output—is nominally higher than other developed countries, the U.S. government thus far has been able to sustain repaying its large sum of loans to bondholders. With over a 40 percent share of the global bond market, the U.S. is the plurality preferred borrower when compared to alternatives such as the European Union and China [16]. This means that U.S. debt is often viewed as the best debt to hold despite its growth and multiple rating downgrades by credit agencies. 

There is no doubt that an exponentially growing debt poses a threat to U.S. hegemony, as defaulting on it would lead to severe political and economic ramifications. However, given the U.S.’ grip on the world economy and financial instruments, there are few safer alternatives with a comparable track record of repayment in the past century. Furthermore, while government and fiscal policies have not made any meaningful progress in reducing the debt, past examples may offer a long-term solution to the debt. For example, the budget surpluses driven by progressive income taxes and pullbacks in government spending during the Clinton administration can be used as models for potential policy solutions [17].  

Trust in an Independent Federal Reserve

Unlike many other foreign governments and banks, the U.S. Federal Reserve has proven to be one of the main reasons why the dollar has been a dominant currency in the past decades. With its data-driven goals and dual mandate of maximum employment and a low inflation rate of around two percent, the Federal Reserve is one of the few independent institutions that can impact the whole global economy [18]. In its role as the U.S.’ central bank, the Federal Reserve can impact the interest rate consumers face, print U.S. dollars, and adjust the amount of U.S. debt that is out in the open markets, which leads to shifts in the dollar’s value and dominance in reserves [19]. This independence and goal of low inflation help investors and holders of dollars not to worry about having their assets eroded over time, and be swayed by immediate political motives. In comparison to the monetary policy actors and central banks in other countries, such as Argentina and China, the Federal Reserve enjoys a degree of independence away from its government, as its governors are not easily removed once nominated. If a government were to pressure monetary policy actors such as a central bank, it could lead to bad policy and deepen economic hardships. For instance, in Argentina, its central bank, while claimed to be independent, has not been immune to political pressure to lower interest rates amidst an extremely high inflationary period of over 100 percent [20, 21]. This policy action has also correlated with the weakness in the Argentine Peso as its value relative to other currencies, such as the dollar, has sunk since the beginning of Argentina's economic hardships. While the consumers and politicians positively view lowering interest rates, it may not be the most responsible action taken in the long term if not backed by data, and should always be left to independent and data-driven actors. Similarly, while raising interest rates is not popular, it may need to be done in some cases to decrease inflation and stabilize an economy. 

Given the current political climate, this current administration’s economic policies and political rhetoric also lead to concerns about the strength of the U.S. economy as a reliable debtor. But considering the current volatility and global political climate, challenges to the U.S. global order are neither novel nor credible. With roots in almost every country’s economies and banks, the U.S. has been a prominent borrower of debt and is well embedded in the global economy in its reserves and bond holdings. In an era of global uncertainty and constant shifts in the political climate, this moment may give investors, banks, governments, and businesses a moment to rethink and diversify away from their holdings based on trust in one country’s stability, but it does not necessarily mean that the dollar will be going away any time soon given its prominence and a lack of an equally viable alternative. To lose the dollar as the primary currency would be not only costly to the U.S. but also to the world, as it would plunge into a fragmented economic system.