Analysts warn that Greenback’s status as a global reserve currency has been questioned, potentially leading to long-term interest rate hikes and instability in the global market.
In just a week, Dollar has gone from a safe shelter to investor whipping boy. The chaotic tariffs of US President Donald Trump’s friends and enemies undermine decades of trust in the world’s reserve currency.
The sudden loss of trust was less pronounced than in the Treasury market. This saw the biggest increase in borrowing costs since 1982, as offshore funds fled.
“The US appears to have lost its safe attributes almost overnight,” said Ray Atrill, head of Forex Strategy at the National Bank of Australia.
“You’ve lost some confidence… you’re overlaying it with the loss of exceptionalism and the view that it’s the US economy that’s suffering more than anyone else from what’s happening on the tariff front.”
The dollar, which has already continued its course in its worst year since 2017, fell 10 years lower against the Swiss franc on Friday, dropping to its weakest level against the euro in more than three years.
“What we’ve seen since Trump’s election has effectively challenged the entire assumption of the dollar as a reserve currency,” Atrill said.
It was the establishment of the Bretton Woods System in 1944 that solidified the global position of greenback. Postwar planners devised a system that deepened exchange rate stability and international trade, and the dollar remained dominant even after Bretton Woods collapsed in the early 1970s.
But Trump’s recent trade moves have swayed recognition. Within days he imposed heavy tariffs on the world, made a sudden U-turn on his decision, strengthened the trade war with China, and questioned the credibility of the US administration.
Stocks around the world have dumped trillions of dollars, and the global market is in the tail spin.
“No matter how evolution over the next 90 days, the US international reputation has been eroded,” said Richard Yethisenga, chief economist for the ANZ group, in a memo.
“The global economy is in a weaker position than before the tariffs.”
Martin Whetton, Westpac’s head of financial market strategy, said this week’s massive change in the US dollar swap spread, the US Treasury yields saw a high movement of “Sharp Flash-Crash,” and the big sell-off in the dollar showed “depriving the liquidity and safety shield.”
“Dropping or reducing the reliability of a financially safe haven reduces creditors’ willingness to lend money to the United States,” he said.
Things are so bad that the US has to pay more investors to borrow money than Italy, Spain and Greece.
Certainly, some people believe that selling the dollar could be temporary.
“If the uncertainty is more or less gone, then the tariff rate is set and it’s not going to be done before or after. You can see that the dollar will be stronger again because there are tariffs set and this is the new normal.”
But even if it proves short-lived, erosion of dollar security is bad news for investors.
For those who have accumulated trillions of dollars into the US market over the last few decades, if big money rises sharply as price pressures continue at home, it could be longer for bonds and stocks.
The foreigners owned $33 trillion in US debt and stock at the end of 2024.
“The Trump administration’s ambitious agenda for reforming the international financial system appears to have barely forgotten the reality of extreme reliance on American foreign capital, as reflected in its net international investment position.”
Released on April 11, 2025
