Trade and Currency: Is the mighty dollar’s reign coming to an end?

Studying the past can provide clues for the future and open new perspectives – be it on any subject, including politics, culture, economics or currencies. This approach is also evident in the latest book called “Money Beyond Borders: Global Currencies from Croesus to Crypto”, authored by Barry Eichengreen, George C. Pardes and Helen N. Pardes, Chair and distinguished professor of economics and political science, University of Berkeley, California.

The book also figured during a recent panel discussion on “The Fate of the Dollar: Digital Currencies and Geopolitical Challengers” at the Council on Foreign Relations (CFR) in New York. Eichengreen was one of the participants, the others being Zongyuan Zoe Liu, CFR senior fellow for China studies, Staci Warden, chief executive officer with Algorand Foundation, and Edward Fishmann, senior fellow/director of CFR’s Maurice R. Greenberg Center for Geoeconomics, who presided over the discussion.

Eichengreen’s book takes us on a 2,500-year journey into the evolution of international currencies, shedding light on the dollar’s future course and newcomers’ crypto and central bank digital currencies.

The Euro, the European Union’s standard currency, or China’s Renminbi have not come even remotely close to challenging the dollar’s dominance.

While Eichengreen says that doubts will persist over the dollar’s international dominance, with continuing uncertainty about tariffs, political chaos, cracks in the global alliances, etc., he makes a historic assessment of cross-border currencies, taking the long road from the invention of coins in the 7^th century BCE to the new animal called crypto-currency that roams the currency jungle.

The historic road also passes through the British pound sterling’s 19^th-century reign and onto the rise of the dollar during the Second World War, highlighting the reasons for its international assertiveness, defying predictions by soothsayers who saw its imminent downfall.

But Eichengreen also draws our attention to the incongruity of international monetarism: the same factors that boost a currency’s international weight and universality can also cause its downfall, characterizing the life cycles of international currencies.

Historically, there has been a close linkage between geopolitics and finance, as evident in the payment of Roman legions in solid gold under Emperor Constantine; Eichengreen refers to this payment mode as the “dollar of the Middle Ages”, a phrase coined in 1951 by the economic historian Roberto Sabatino Lopez. This currency mode was overtaken by other currencies, followed by the arrival of the gold dinar in the Muslim world. Each such currency faced its demise, preceded by loss on the battlefield of the power that popularized the currency. Italy and Germany are examples in recent history; their old currencies were replaced after the war. Both today use the Euro.

As the US became the largest gold holder, thanks to payments from Allies during World War I, the dollar emerged as the global reserve currency in 1944 under the Bretton Woods Agreement. And, by 2023, some 58.4% of global foreign reserves were held in US dollars. By the first quarter of 2025, global banks held around 57.4% of their reserves in US dollars.

Challenges Facing the Dollar

But can the Euro or a new BRICS currency, under China’s tutelage, replace the dollar? The Euro’s universal acceptance becomes difficult because of the disjointed monetary policies of the individual EU member countries, which do not work in harmony with each other’s monetary interests, thus creating fragmented economic structures.

The BRICS group has been building financial alternatives: it has set up the New Development Bank (NDB) with an authorized capital of $ 100 billion and funding projects in local currencies, as well as a Contingent Reserve Arrangement (CRA), a mini-IMF. China and Russia conduct some 80% of their bilateral trade in RMB or rubles, while India and the UAE have tried payment in rupees. Some BRICS leaders emphasize the need for a payment mode to circumvent the dollar-related system.

While alternative currencies can widen the scope of payment, they cannot compete with the dollar’s universality. The NDB’s volume is not even remotely close to the World Bank’s volume, while the CRA has mostly remained inactive even during a crisis. There is also the question of convertibility that precludes smooth trade and payment settlement between individual BRICS members who need to first fall back on the dollar.

A common BRICS currency, to sum up, would first need banking, financial, and macroeconomic convergence, which is missing, as well as the political will to carry out such a huge undertaking. While two BRICS members, China and Russia, remain hostile to the dollar’s dominance and want a common BRICS currency, others such as India, Brazil and the UAE are less enthusiastic because of their strong trading and economic ties with the US.

Nevertheless, as economists and monetary pundits argue, the dollar could face challenges and possibly lose its coveted crown if the US continued to “weaponize” it against an economic decline by resorting to global tariffs, ignoring the rule of law at home and international law abroad, and not reducing debt, expected to touch $40 trillion soon. Indeed, myopic political decisions for achieving some temporary advantages as well as uncontrolled fiscal expansion, reckless and excessive use of sanctions, and an erosion of political credibility could shake confidence in the dollar.

The four panelists in the CFR discussion did draw nuances in their comments about the dollar’s – still – continuing supremacy over all the other world currencies. “Let’s not be too sure that the dollar’s supremacy will remain unchallenged in the future,” one financial expert in the audience told the American Journal of Transportation on the sidelines of the panel discussion.

The Dollar and the Bond Market

US government bonds have, traditionally, been considered the safest assets globally, providing a reliable place for investors to park their capital, especially during times of uncertainty. The dollar’s status as the world’s primary reserve currency facilitates cross-border investment flows. Changes in the dollar’s value can have a significant impact on the availability of capital and the performance of various assets. High levels of national debt can affect the bond market’s stability.

Pundits point out that the bond market can react sharply, as it did last year when President Trump imposed reciprocal tariffs, though he slowed down with tariffs after the market turbulence.

The bond market reacted sensitively to the uncertainty created by oil prices, as the Strait of Hormuz crisis continued.

Bond traders fear that inflation, exacerbated by the Hormuz closure and denial of passage to oil-transporting vessels, may not be of a short-term nature. This situation could further depress bond prices, which are impacted by a slew of economic factors such as surging inflation, national debt outpacing economic growth, consumer debt, the heavy price of the Iran war, and overall slowing of the economy.

Interestingly, Trump’s frequent statements of ending the war “very soon” did trigger a surge in stocks while pushing oil prices downward; however, his subsequent attacks on Iran triggered a surge in oil prices.

When geopolitical tensions spike, investors usually buy dollars and Treasuries. However, they bought only dollars this time.

Goldman Sachs research identified an unusual divergence in March 2026: the US dollar index climbed more than 2% as the US-Iran conflict escalated, but Treasury did not record the typical boost. Indeed, foreign official institutions, including those from China and Japan, were actively selling US government bonds.

Disruptions in the Hormuz Strait, according to Goldman Sachs, created the largest energy supply shock on record, given that a fifth of global oil consumption passes through Hormuz on any given day; the dollar, it said, benefited from “improved terms-of-trade dynamics”. Being a major energy producer, the US economic position strengthened compared to energy-importing nations amid a tight global oil supply situation.