Nearly six months into U.S. President Donald Trump’s second term (2025 to 2028), the dollar’s status as the global currency for payments, reserves, and storing value is increasingly precarious. “The Trump administration’s economic policies bring into question the U.S. role as the central pillar of the global monetary system [and] its ‘exorbitant privilege’ of effectively being able to run indefinite trade deficits,” said an April paper from The Australian National University.

What Trump and his administration intend for the dollar to achieve until 2028 is risky. Policies indicate the greenback needs to attract FDI to reduce trade deficits, retain its global dominance, and compete with cryptocurrencies like Bitcoin and Ethereum. “Managing one … without due attention to the others … could erode the very dominance policymakers seek to preserve,” Alisha Chhangani, assistant director at the Atlantic Council’s GeoEconomics Center, a think tank, wrote in May. 

Compromise is inescapable. “The benefits of the U.S. dollar’s reserve currency status do not come for free; the costs are paid for with a trade deficit,” Ashwin Alankar, head of Global Asset Allocation at Janus Henderson Investors, wrote in April. “Transforming the U.S. trade deficit to a trade surplus similarly is not free, with the long-term cost being a weakening of the dollar’s reserve currency status.”

Stronger dollar

The dollar became the de facto currency for oil and non-oil foreign trade after replacing the gold standard in 1945. “Many countries that run surpluses with the United States value holding and using the dollar in international trade,” Chhangani explained. “It offers ease of trade and convenience of invoicing and settling in a single dominant currency.”

That aligns with what Trump claims to want. Chhangani said his “statements suggest he sees the use of the dollar in global payment systems as a symbol of U.S. nationalism.”

Since January, Trump has rattled governments, central banks, investors, and companies. On one hand, he threatened BRICS, a coalition of 10 emerging markets, with “100% tariffs” if they develop a new currency for cross-border trade or backed an existing one.

On the other hand, he levied and threatened double and triple-digit tariffs on overseas industries and nations, even those with free trade agreements with the United States.

Chhangani said cutting imports would “significantly” reduce the outflow of dollars to the rest of the world. That would cause the dollar’s value to appreciate against almost all other currencies as a global supply-demand gap for dollars starts forming.

Foreign producers whose cheaper home currencies can’t offset the U.S. tariffs will target other markets and prefer using more stable “‘middle power’ currencies like the Australian dollar, the South Korean won, and the Singapore dollar,” The Australian National University paper noted.

For some governments, Trump’s BRICS and tariff policies “signal that the United States is willing to use its dominant position in global trade and finance as a tool of coercion,” said Chhangani. That could accelerate national plans to reduce dependence on the dollar “by developing alternative payment systems, trading in local currencies and diversifying their reserves.” 

Weaker dollar

Stephan Miran, chairman of the White House Council of Economic Advisers, believes the dollar’s current dominance is the primary obstacle to a more industrialized United States. 

“The dollar’s reserve currency status [is] a structural liability — one that forces the United States to run persistent deficits and maintain an overvalued dollar to meet global demand for safe dollar-denominated assets,” Miran said in a November Hudson Bay Capital paper. 

In a White House release in April, he stressed, “These trade deficits have decimated our manufacturing sector and many working-class families and their communities to facilitate non-Americans trading with each other,” adding that America’s $1.8 trillion trade deficit is “unsustainable.” Trump has publicly agreed with Miran’s assessments.

Miran’s November paper proposed devaluing the dollar to “create a multipolar currency system to share the reserve status burden.” Chhangani explained, “The reserve currency status [is] undermined as foreigners do not want to hold a weak currency.” According to data aggregator TradingView, the dollar has depreciated 10% year-to-date. 

Untenable situation

Trump’s policy of maintaining the dollar as the global payment currency is paradoxical to his and Miran’s ambition to lower the U.S. trade deficit.

Retaining the dollar’s dominance requires it to continue flowing freely to the rest of the world, thereby maintaining its liquidity to keep it the preferred currency in cross-border transactions. That means the Federal Reserve must continue printing dollars, maintain limited exchange rate flexibility, and “always pursue a strong dollar policy,” Chhangani said. 

However, Trump and Miran “need the dollar to weaken … to bring manufacturing back,” Alankar explained in April.

Relieving the dollar of its global payment, reserve, and store-of-value status introduces new risks. The country can’t “run persistent trade and fiscal deficits without immediate pressure [nor] insulate its economy from the usual constraints of rising leverage,” Vasso Loannidou, a finance professor at Bayes Business School in London, told Euro News in May. It would also mean “U.S. sanctions against foreign nations [wouldn’t] be particularly influential.” 

Digital twist

In late January, Trump signed an executive order allowing private companies to create dollar-backed stablecoins — cryptocurrencies, such as Tether and USD Coin, whose value is linked to the dollar. 

Chhangani said the Federal Reserve and Treasury see those stablecoins as “an attempt to bolster store-of-value function.” The decision should “enshrine dollar dominance,” Chhangani said. 

The move aligns with Trump’s desire to cement the dollar’s status as a global payment currency. It is the opposite of what Miran and Trump (when discussing trade deficits) want, as the greenback can’t devalue too much to attract significant FDI without risking losing ground to other digital currencies, such as Bitcoin and Ethereum.

Expanding dollar-backed digital currencies is divisive. “Trump’s inner circle of business leaders appears to favor the broader adoption of digital assets to bolster U.S. competitiveness,” Chhangani said. “National security officials seem to worry that stablecoins could facilitate money laundering and terrorism financing, as well as undermine the … ability to effectively wield sanctions.”

Next four years

Responding to the stumbling of Trump and his administration, dollar-denominated asset investors are gradually diversifying. “Foreign investors have sold $63 billion of U.S. equities since the start of March,” Bloomberg reported in April. Daniel Chavez, portfolio strategy team lead at Goldman Sachs, told clients, “This dynamic poses a substantial risk to equity valuations because foreign investors entered 2025 with a record 18% ownership share of U.S. equities.” 

However, that is not the start of a substantial dollar dump. “The dollar remains embedded in global finance despite the uncertainty surrounding U.S. monetary policy,” Barry Eichengreen, professor of economics and political Science at the University of California, said in an April op-ed on East Asia Forum. “[No] other currency can fully substitute for the dollar as a form of foreign reserve. [There is a] shortage of AAA-rated euro-denominated government bonds available to central banks outside the euro area, while China’s financial markets are not fully open and accessible to the rest of the world.” 

However, he argued that such measured diversification is beneficial. “A global economy with multiple reserve currency issuers may have a more robust supply of international liquidity.”  

Predicting the medium-term trajectory of U.S. economic policy is “folly,” The Australian National University paper said. “The Trump administration, as well as Trump himself, seems to be guided by a set of mutually exclusive preferences that will be resolved at the whim of the president.”

Eichengreen said such a decision-making reality raises a critical question: come 2028, when Trump leaves office, “What kind of international economic order can be expected to emerge from [his] shock?”

This article first appeared in July’s print edition of Business Monthly.