Dollar Debasement Debate: Is US Currency Losing Global Trust?

Context

The dollar has depreciated against all major currencies over the last 12 months, while gold and other precious metals have skyrocketed, recently hitting all-time highs.

What Is the “Dollar Debasement Trade”?

• The debasement trade refers to a set of investments placed by people who believe the U.S. dollar will lose significant value.
• There are two main fears driving it:
  • Concern 1: The Dollar Losing Safe Haven Status: Investors worry that global discontent with U.S. fiscal and foreign policy could push major money managers to reduce their exposure to the dollar. If enough of them do this, the dollar could stop functioning as a global safe haven and potentially lose its status as the world’s reserve currency.
  • Concern 2: S. Fiscal Deterioration: The U.S.’s worsening debt and deficit situation could eventually trigger a sharp devaluation of U.S. Treasury bonds or in extreme scenarios, even a default which would drag the dollar down with it.

Debasement of the US Dollar: What’s Driving the Shift

• Experts argue that a combination of trade protectionism, sanctions, and the emergence of a multipolar world is gradually pushing global investors away from the US dollar.
• US President Trump has repeatedly asserted the need to preserve the dollar’s global dominance, even threatening BRICS countries with punitive tariffs if they pursue alternatives to the dollar.
• Ironically, his aggressive use of tariffs, sanctions, and economic coercion has accelerated doubts about the dollar’s neutrality and reliability.
• These dynamics have contributed to a sharp weakening of the US dollar—down about 9% in 2025, its steepest fall in nearly a decade.
• As confidence in the greenback erodes, investors and central banks have increasingly turned to gold as a safe-haven asset.

Why It Matters

• De-dollarisation threatens to dilute US financial power, reducing Washington’s ability to shape global trade and financial systems.
• At the same time, policy uncertainty and geopolitical sabre-rattling have boosted demand for gold, reinforcing its role as a hedge against currency debasement and geopolitical risk.

Weaponising Capital Flows: De-Dollarisation Accelerates

• De-dollarisation is most visible in commodities, with a growing share of global energy trade now priced in non-dollar contracts, weakening the dollar’s traditional dominance.
• The trend is extending to government bond holdings.
• The Reserve Bank of India has steadily reduced its US Treasury exposure, with holdings falling to $186.5 billion in November 2025 from $234 billion a year earlier.
• China’s US government bond holdings have also dropped to a 16-year low.

Institutional Investors Start Exiting US Treasuries

• Concerns are no longer limited to states.
• Denmark’s major pension funds announced plans to exit US Treasuries, citing geopolitical uncertainty, including comments by Donald Trump, andDanish pension funds have taken similar positions.
• Earlier this month, Deutsche Bank warned that US threats against Europe could prompt the continent to cut holdings of US debt, effectively weaponising capital flows.
• The European Union holds about $10.4 trillion in US portfolio assets, accounting for nearly 29% of foreign ownership.
• Trump has warned of “big retaliation” if Europe sells US bonds, underscoring how financial flows are becoming tools of geopolitical leverage.

The road ahead:  Uncertainty Ahead

• Despite these shifts, the US dollar remains overwhelmingly dominant, accounting for 89% of global over-the-counter foreign exchange turnover.

However, if current US policies and rhetoric continue, especially under the Trump administration, the pace of diversification away from the dollar could accelerate, leading to more visible structural change in the global monetary system.

Sharing is caring!