The Decline of the Dollar

Cover image by Stacey Ngiam

The USD on the decline? Image credit: The Marcus Harris Foundation

For decades, the greenback has reigned supreme as the symbol of global stability, the axis upon which trade and economies turned. Yet now that crown looks shakier than ever as the USD flirts with uncertainty and theatrics, tumbling to multi-year lows ever since President Trump’s inauguration. Is it a barometer of governmental dysfunction, or simply a reflection of an ongoing geopolitical trend? One question lingers: What happens when we stop trusting the most trusted currency in the world?

Plummeting 4.69% over the past year and approximately 15% since its peak in 2022, clearly something is up. Wall Street had banked on Donald Trump’s second empire to revive the greenback, buoyed by his pro-growth stance and floated policies of deregulation, corporate tax cuts and bureaucratic efficiency. Yet, surprise surprise, the king was his own court jester. Political interference, erratic policymaking, and de-dollarisation–it’s hard to pick which straw broke the camel’s back. 

The Empire Strikes Fed (Back)

Once heralded as the sanctum of economic technocrats, the Federal Reserve now stands as a fortress under siege, as the independent stalwart of monetary stability is getting dragged into the political arena. Enter Exhibit A: Trump’s administration has sought to sack Governor Lisa Cook, following allegations circulated by Federal Housing Finance Agency chief Bill Pulte pointing to her role in mortgage fraud before joining the Fed.

The Supreme Court has held the line, recently ruling to allow Cook to stay on in her role as governor for now. However, the saga is far from over as court proceedings are slated for January, adding more uncertainty to policymaking. It's a tasty opening act to Trump’s latest high stakes drama, an effort to reshape the composition of the Fed’s Board of Governors with loyalists, opening the door to a working majority that answers only to the Oval Office. 

Cloudy skies ahead: the Fed has faced unprecedented pressure under the 2nd Trump administration. Image credit: The Wall Street Journal

The implications are earthshattering. If that line is crossed, the most powerful central bank in the world loses its strength as an apolitical organisation capable of making politically unpopular, yet sound fiscal decisions. His endgame? A sharp 3-percentage point slash in interest rates down to 1%, which granted, would juice short term growth, but erase market confidence in the USD’s strength.

Ultimately, investors no longer view the Fed as independent, but as a mouthpiece whose decisions are dictated by the mood swings of Trump, and with it, the dollar’s safety disappears, sending aftershocks rippling throughout the world. 

Everything Everywhere All at Once (Economically speaking) 

A stop-start global tariff war. Open attacks on the central bank. A ticking debt bomb disguised as reform. If the Fed is falling under siege, then surely fiscal policy is becoming a circus. It's no wonder that investors are growing wary of over-exposure to dollar-linked assets. Trump’s economic policies seem more like a chaotic wet marketplace rather than a fiscally sound and cohesive strategy, contradictions flying all over the room.

On Monday, its blanket tariffs on China, Thursday brings a fresh wave of tweets exempting certain suppliers, and by Sunday, the same tariffs apply to China. It’s like a game of Whack-A-Mole, with Trump as Player One. Such games turn reliable global allies into wary partners, treading on glass that might suddenly break. Traditional allies such as the EU, Japan and even Canada are quietly diversifying their foreign reserves, hedging against over-exposure to USD in favour of a mixed basket of currencies. 

Here comes the pièce de résistance: “The One Big Beautiful Bill Act”, with Trump self proclaiming it to be “one of the most important pieces of legislation in American history”. The fiscal largesse extends tax cuts, trims welfare spending, and significantly lifts the debt ceiling by $5 trillion against a backdrop of $36.2 trillion in national debt, pushing debt-to-GDP ratios past the already eye-watering 124%. Higher deficits mean the government must issue more debt to finance the bill, flooding the market with more government bonds.

As uncertainty looms and fears of dollar devaluation mount, investors demand higher returns on long term treasuries. The yield curve paints this picture: the gap between 2-year and 30-year bond yields have steepened sharply, a red flag for confidence in the greenback. Even BlackRock investors known for their optimism have warned that if left unchecked, debt would be viewed as the ‘single greatest risk’ to the throne of the USD. 

The irony seems almost too poetic. The man who shouted “Make America Great Again” may end up being the one who made the dollar look almost mortal.

Attack of the BRICS (Clones)

If de-dollarisation started out as a marathon, now it has turned into a full-on sprint. What began as a slow methodical decoupling by emerging economies is now a race to the finish line, as America’s fiscal frivolity and politics give the world every reason to look elsewhere. For years, central banks from Brasília to Delhi have been cutting down on dollar holdings, hedging themselves against currency exchange risk. Now, shares of USD in foreign reserves have slid to a 2-decade low, while the Euro and Renminbi gain traction.

Surprisingly, gold, seen as a valuable alternative to fiat currencies facing volatility and economic uncertainty, has seen a resurgence in the marble halls of central banks worldwide. Systems are now in place, meant to insulate countries from the dollar’s whims. In commodity markets, Russian oil now flows east, driven by Western sanctions, and paid in local currencies. Meanwhile, the House of Saud flirts with the idea of yuan-denominated futures contracts on oil pricing, a signal that loyalties may be changing.

It’s a vicious cycle, one of self-reinforcement: the dollar slips up, prompting de-dollarisation, and as it deepens, so too does the fall of the greenback. But just like in the movie, the villains aren't the BRICS. The reality is that the chaos in Washington will ultimately bring about its own downfall.

Image credit: Linkedin/Aman Chadha

These three acts spin a cautionary tale for the dollar and its hopes, each one hammering away at the nail on the coffin. But one force reigns strongest – de-dollarisation. It’s death by a thousand cuts, or more aptly, transactions. Erratic policymaking can rattle investors, political interference can only last as long as power is held (in this case a mere 4 years), but systemic changes last a lifetime. Once upon a time, the gospel was that the dollar’s power was unshakable, and no alternative could ever be viable enough to replace it, but even the most stonge believers are rethinking their faith. With the rest of the world building systems that gradually shun the dollar’s importance and promote independence, will there come a time where the greenback loses its top spot? For now, it still sits mighty on the throne, but with Uncle Sam’s trajectory, don’t be surprised when its crown goes missing.

Crazy Rich ASEANs

As the greenback sinks to its lowest level in 3 years, Asia smells blood, averaging 3% increases across the region. Now, it sees an opportunity to finally decouple from the US and chart its own path. Under the ASEAN Economic Community Strategic Plan 2026-2030, members have agreed to promote the use of local currency settlement (LCS) frameworks and fully adopt an integrated QR payment system, called the Regional Payment Connectivity initiative, designed to reduce vulnerabilities to currency fluctuations and dependence on the USD. When largely integrated by the end of 2025, a Vietnamese tourist could for pay a meal in Malaysia with dong, while the restaurant receives payment in ringgit, and no middlemen or US dollars would have to be used.

In addition to building a layer of insulation against external shocks that once were the bane of the region, it means that businesses, particularly SMEs, have greater financial autonomy and lowered operating costs. Despite short term sacrifices in export revenues, the long term benefits are clear: increased intraregional trade and a fortified ecosystem that puts ASEAN first. As the de-facto financial hub of the region, Singapore stands to benefit by channeling financial inflows into emerging areas like green technology and regional development projects, offsetting potential export losses.

Now, ASEAN no longer waits for others to lead, as they finally have the potential to extend some leverage and enhance bargaining power in trade negotiations. Crucially, it lends credibility to the idea that regional blocs can exert their own agency in global finance. 

When the credits roll on dollar dominance, the sequel is already in the works, and with it comes a brand new diversified cast. Just as Hollywood preaches diversity and new faces on screen, so too does the finance world get its own new ensemble. From Beijing to Jakarta, others are now stepping up, rubbing shoulders with the box office queen and writing their own script.

References

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    https://www.jpmorgan.com/insights/global-research/currencies/de-dollarization

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