For now, the dollar remains the dominant currency in global reserves and transactions, allowing the U.S. to enjoy an “exorbitant privilege.”

But President Donald Trump has shocked traditional allies and trading partners since taking office. He has warmed up to Russia and said if NATO members don’t pay more for defense, the U.S. may not come to their aid.

‘America’s signature on any document is now meaningless’

That prompted Quantum Strategy’s David Roche to declare earlier this month that “NATO is dead,” adding that “nobody will trust a U.S. treaty again.” As a result, Japan’s yen is now the new safe-haven currency, he said, unseating the greenback.

Doubts about the U.S. commitment to NATO have also prompted Canada and Portugal to have second thoughts about buying America’s F-35 stealth fighter, while Europe is launching a massive military buildup.

Then there’s Trump’s insistence that Canada and Greenland become part of the U.S., not to mention his tariffs against Canada and Mexico—despite the U.S. signing a trade pact with its neighbors during Trump’s first term.

“Mr. Trump has made clear that America’s signature on any document is now meaningless, whether it is the U.S.-Mexico-Canada Agreement—which Mr. Trump himself negotiated—the North Atlantic Treaty Organization, the Columbia and Great Lakes water treaties, or even U.S.-Canada border agreements settled decades ago,” Philip Cross, a senior fellow at the Macdonald-Laurier Institute, wrote in a Wall Street Journal op-ed this month. 

Allies and the dollar

Alliances are key to currencies, according to Barry Eichengreen, an economics and political science professor at the University of California at Berkeley who has written extensively about the dollar.

In a recent column in the Financial Times, he warned that “the dollar’s global role will suffer if the U.S. is perceived as turning its back on its allies.”

He pointed out that throughout history, countries tend to use their partners’ currencies as reserve assets and as methods of payment.

For example, Germany and Japan supported the dollar and helped preserve its global status during the 1960s because they valued their defense pacts with the U.S., Eichengreen said.

Even today, the dollar commands an outsize share of the foreign reserves in Taiwan, South Korea, and Japan because of the U.S. security umbrella.

“Ultimately, the fate of the dollar will turn on the willingness of America’s leaders to uphold the rule of law, respect the separation of powers, and honor the country’s commitments to its foreign partners,” he added.

De-dollarization

Wall Street is starting to consider the effects of the new geopolitical landscape on the dollar’s future, including its worth and its status.

Rabobank strategist Jane Foley said in a recent note that Trump’s trade war, retreat from military alliances, as well as takeover musings about Canada and Greenland “could accelerate the trend to de-dollarize and undermine the value” of the greenback, according to Bloomberg.

Top Deutsche Bank foreign-exchange strategist George Saravelos also warned that the risk of the dollar losing its safe-haven status “needs to be acknowledged as a possibility” as markets price in the world order.

The White House didn’t immediately respond to a request for comment. While the administration has signaled a preference for a weaker dollar to improve the U.S. trade balance, Trump and Treasury Secretary Scott Bessent have said the dollar must retain its dominant position.

The erosion of trust has extended to central banks, which are typically isolated from political pressure. In fact, sources told Reuters that some European central banking and supervisory officials are questioning whether the Federal Reserve, an independent agency, can still be trusted to carry out its foundational financial stability role of providing dollars to ease market stress.

While they consider the possibility of the Fed refusing its backstop duty as highly unlikely, officials have informally discussed scenarios where the U.S. administration pressures the Fed, the report said.

The Fed declined to comment and has given no indication it wouldn’t provide dollar funding in a crisis. For his part, Trump has said he won’t remove Fed Chairman Jerome Powell, who has also said the president can’t fire him.

Dollar vs. gold

To be sure, doubts about the dollar’s future frequently come up. Moody’s warned this past week that massive U.S. debt, which has been hitting extremes for decades, may offset “the unique and central roles of the dollar and Treasury bond market in global finance.”

And Western sanctions against Russia for its invasion of Ukraine in 2022 prompted other countries to reduce reliance on the dollar and diversify their holdings with other assets like gold.

Nassim Nicholas Taleb, who wrote the book The Black Swan about unpredictable events, flagged this concern last year, when he warned the sanctions were one of the biggest financial mistakes of the 21st century.

Meanwhile, central banks and consumers around the world are still loading up on gold, which has seen its price roughly double since 2022, soaring past $3,000 per ounce. Analysts at Bank of America see the trend continuing and recently predicted it could reach $3,500.

“Of course, there is also the question on the incentive for countries to keep using the dollar as the main currency, if the U.S. is to become more inward-looking. Accompanying that are concerns about whether ‘America First’ morphs into a policy of ‘America Alone,’ which could prompt further diversification of FX [foreign exchange] reserves,” they wrote in a recent note, adding that gold will be the winner.