The US dollar has dropped by around 9% over the past three months, according to an index that tracks performance against the basket of key trading partners. Since the 1970s, the currency has not functioned badly in the first 100 days of the president.
The drop is no surprise. The US economic outlook is much cloudy than inauguration day as President Trump's tariffs set the stage for slower growth and higher inflation. US assets are now far less attractive.
But is there something more existential? Questions are swirling about the dollar's global status and whether it is at the pinnacle of leaving its position after more than 70 years.
His threats to long-standing norms like Trump's policies and central bank political independence have prompted investors to rethink how much exposure they want to have in their US assets. That skepticism seems likely to be endured. “There's something irreversible going on,” said Jens Nordvig of research firm Exante Data.
There are obvious precautions. Just because the dollar is weak doesn't mean that all advantages have now been lost. The sudden shift from the US seems to be still far away, as there is little to go.
“The International Monetary Fund has been a great opportunity to help people understand the importance of their efforts,” said Eswar Prasad, a former member of the International Monetary Fund, a professor of economics at Cornell University.
Attempts to weaponize the dollar through policies such as sanctions are less powerful and, with multiple sources of liquidity during times of stress, could become a fragile global financial system, some currency experts say.
“But the reality is that there is no robust option,” Prasad said.
The euro is probably best positioned to ultimately take away the opportunity created by Trump. It is a widely used and preferred currency among central banks. As Germany and other countries increase spending, safe assets of the Euro religion are now available. The European Central Bank is also looking to serve more deeply as a lender for the region, a key function of international currencies, a last resort.
When will the euro become a reserve currency? ECB vice president Luis de Gindes said recently. But for that to happen, there is a need for more meaningful economic, financial and regulatory integration across Europe. It will take time.
Other alternatives like the Chinese yuan face even higher hurdles. Investors cannot trade freely in the country's financial markets for capital management, and the currency is heavily controlled by the government. This is two insurmountable barriers to Chinese currency, assuming a more global role.
Another idea that gained traction is the shared currency issued by the so-called BRICS group, including Brazil, Russia, India, China and South Africa. Some participating countries, like Brazil and India, have retreated from the threat from Trump, suggestion that if they do so, they will have to say goodbye to the US.
Stephen Jen, a currency expert who runs the capital of Eurizon SLJ, presents a huge challenge just as trying to move the world away from the use of English from the Dollar.
“People can argue about whether French is more beautiful and German is more accurate, but that's not important. When more people speak English, more people will learn to speak English,” he said. “The liquidity of the dollar is deep. No one can destroy the dollar, and President Trump certainly can't do it in 100 days.”
