The U.S. dollar has dominated global trade and finance since the 1950s, but recent market turbulence has shaken confidence in the world’s reserve currency. A sharp decline in the dollar’s value against other developed currencies, triggered by volatility in U.S. stock and bond markets, has prompted economists and investors to rethink the dollar’s long-standing supremacy. With the dollar down nearly 4% since Trump’s tariff announcement, the question arises: Could the dollar be replaced by another currency?

US Dollar in 2025: An Overview!

The US Dollar in 2025 has experienced significant volatility amid economic and geopolitical uncertainties.

• Volatility Amid Uncertainty: The US Dollar has experienced significant fluctuations due to economic and geopolitical factors, including US-China trade tensions and fears of a US economic slowdown.

• Strong Start, Sharp Decline: After a rally in late 2024 and early 2025 driven by strong US economic growth and rising yields, the dollar saw a sharp decline in April 2025 due to escalating trade tensions.

• Rebound of the Dollar Index: The US Dollar Index (DXY) rebounded from lows around 98.00 in late April, driven by easing trade fears and political developments.

• Inflation and Fed Policy: Inflation remains above the Fed’s 2% target, complicating policy decisions and keeping the dollar under pressure.

• Economic Growth Projections: The US economy is projected to grow at 1.8% in 2025, reflecting a slowdown but not a recession, with risks of stagflation.

• USD/INR Volatility: The USD/INR averaged around 86.37 in 2025, with fluctuations between 85 and 88, indicating a volatile outlook for the dollar.

• Complex Outlook: The dollar’s future remains uncertain, influenced by a mix of economic data, inflation concerns, trade risks, and Federal Reserve policies.

How Has the Dollar Performed Since Trump Was Elected?

The dollar rose ahead of the 2024 election, supported by strong US economic growth, and continued to strengthen after Trump’s victory, fueled by hopes of sustained growth. Investors speculated that his tariffs would drive inflation, prompting the Federal Reserve to raise interest rates, which would make the dollar more attractive.

However, uncertainty over the tariffs' impact, along with expectations of weaker US growth, has caused the dollar to decline. Trump's criticism of Fed chief Jerome Powell has also added pressure. As a result, the dollar index has dropped to its lowest level in three years.

How Trump Could Dethrone the Dollar?

President Trump’s policies, including aggressive tariffs and trade disruptions, could weaken the US dollar’s global dominance. His protectionist stance has caused investor uncertainty and slowed US economic growth, with the Dollar Index falling 9% in the early months of his presidency. Additionally, concerns over the Federal Reserve’s role as a global lender of last resort and his use of sanctions have spurred efforts by other countries to "de-dollarize."

Trump’s trade wars and protectionism risk undermining the US economy’s foundations, raising import costs, and eroding investor trust. This could slow global growth, diminish US economic power, and threaten the dollar’s dominance. Such an outcome would harm both the US and global economies.

What Does A Weaker Dollar Mean?

A weaker dollar means Americans will find their money doesn’t go as far when traveling abroad, while foreign tourists in the US will benefit from a stronger exchange rate.

Globally, the dollar’s decline has a bigger impact than other currencies due to its role as the world’s primary reserve currency, used in international transactions and trade. A weaker dollar makes US exports cheaper but increases the cost of imports. It also makes commodities like oil cheaper for countries holding other currencies.

What Happens If The Dollar Keeps Falling?

If the dollar keeps falling, it could weaken the perception of American political strength, and the idea of losing its reserve currency status, once unthinkable, may gain traction. However, experts believe the dollar will maintain its top spot for now, despite some shifting of importance to other currencies.

While the dollar may regain some ground in the short term, it likely won’t return to its previous levels. Market fluctuations could lead to profit-taking, causing shifts in currency values. The markets will closely monitor Trump’s continued attacks on Federal Reserve Chairman Powell, as any pressure on Powell could erode the Fed’s credibility, undermining long-term stability.

What Experts Are Saying About Dollar Dominance?

At the University of Virginia Darden School of Business, Marc Chandler of Bannockburn Capital Markets and Professor Frank Warnock discussed the future of the U.S. dollar, exploring potential alternatives like gold, the euro, the yuan, and cryptocurrency. Chandler emphasized that the dollar's future depends on trust, especially amid political shifts under Trump.

He also addressed the recent bond market sell-off, suggesting factors like the basis trade rather than investor flight from U.S. assets. Finally, Chandler discussed the possibility of the U.S. withholding debt payments, an idea raised by Stephen Miran to address burdens on American exports.

Is De-Dollarization Coming?

Central banks are increasing gold and alternative currency holdings, and non-USD transactions, like Russian oil exports priced in local currencies, are rising. The growth of Central Bank Digital Currencies (CBDCs) further supports this shift, with over 90% of central banks exploring digital currencies.

However, the US dollar remains the dominant global reserve currency, and its decline is expected to be gradual. While alternatives like the euro, yen, and renminbi face stability and liquidity concerns, regional currency initiatives, such as BRICS' local currency trade, suggest a potential long-term change in the global financial system.

Alternatives to the US Dollar as a Global Currency

Alternatives to the US dollar have been widely discussed, but significant obstacles remain for any currency to fully replace the dollar’s dominant role in the global economy.

Main Alternatives Considered

1. Chinese Renminbi (RMB/Yuan)

The renminbi is the leading contender, backed by the world's second-largest economy. China is expanding its financial infrastructure and international trade relations through initiatives like BRICS+ and the Belt and Road Initiative. However, the RMB faces hurdles such as China’s political and legal system, capital controls, and limited convertibility, preventing it from becoming a fully global reserve currency. Its international use will likely be more politically driven than market-driven.

2. Euro

The euro is often seen as the most natural rival to the dollar due to the Eurozone’s large economy, political stability, and the European Central Bank's credibility. However, the euro has not displaced the dollar because of internal political and economic challenges within the Eurozone.

3. BRICS Currency or Basket

Discussions have emerged about a BRICS currency or a multilateral settlement unit based on a basket of member currencies. Due to the differing economic and political interests of BRICS nations, creating a unified currency or monetary policy is unlikely. It may serve as a settlement mechanism but won't replace the dollar as a global reserve currency.

4. Other Currencies

Currencies like the Japanese yen, British pound, Australian dollar, Canadian dollar, and South Korean won offer diversification but lack the scale and liquidity to challenge the dollar globally.

5. Digital and Blockchain-Based Alternatives

Blockchain technology and cryptocurrencies are seen as potential alternatives, with some BRICS countries exploring blockchain-backed currencies. However, these remain experimental and face regulatory and adoption hurdles before they could become viable global currencies.

Challenges to Replacing the US Dollar

The dollar benefits from deep and liquid capital markets, widespread use in global trade and finance, and the political and economic strength of the US. Attempts to bypass the dollar by using national currencies in trade face liquidity issues and higher transaction costs. Additionally, the dollar’s dominance is supported by global financial infrastructure and the central role of US-based finance.

Emerging Trends

• Countries like Malaysia, Indonesia, Singapore, and Thailand are setting up local currency transaction systems to reduce dollar reliance in regional trade.

• Commodity markets are experiencing de-dollarization, with nations like Russia pricing oil in local or friendly currencies. Central banks are also increasing gold reserves to diversify away from the dollar.

• Multi-central bank digital currency platforms (e.g., Project mBridge linking China, Hong Kong, Thailand, UAE, and Saudi Arabia) are being developed to facilitate cross-border payments without the dollar.

Conclusion

Currently, no currency meets all the conditions to replace the US dollar as the global reserve currency. The dollar’s dominance is expected to persist in the near future due to the structural advantages of the US financial system. While the RMB and euro may grow in international use, fundamental changes in political, economic, and financial systems are required for either to supplant the dollar.