The dollar's reserve status at risk

Axios

09-05-2025

The United States is ripping up longstanding trade arrangements, developing more hostile relationships with allies, and undermining independent institutions, all while rapidly running up more debt.
The big picture: That's a recipe for the role of the U.S. dollar as global reserve currency — unquestioned since the end of World War II and at a high-water mark just a decade ago — to fade.
So argues Ken Rogoff, the Harvard economist and former chief economist at the International Monetary Fund, in a conversation with Axios and in his new book "Our Dollar, Your Problem."
President Trump's policies have accelerated that process, Rogoff argues, but it was already set in motion.
State of play: When a company in Indonesia does business with one in South Korea, it probably transacts in dollars. When a country in the Middle East runs up huge surpluses from selling oil, it probably parks the money in dollar-denominated investments.
And when a bank in Europe does business with a country that is on the outs with the U.S. government, it can face massive fines and risk losing access to the global dollar payments system.
Alternatives to the dollar — the euro, the Chinese renminbi — have to this point not been true rivals, as neither offers the kind of deep and open debt markets and institutional frameworks that make them particularly attractive outside their home countries.
Zoom out: There have always been aspects of this system that other countries don't like very much — hence the title of Rogoff's book.
The U.S. sets fiscal and monetary policies based on its own interest, so countries tethered to the dollar are along for the ride, losing some control over their domestic economies.
And the U.S. has used economic sanctions in recent years for an increasingly wide array of goals — in the view of rivals and even allies, acting as a geopolitical bully.
That was already setting the stage for other countries to try to bolster their capacity to use other currencies for global commerce. The sense that the U.S. is an unreliable partner is turbocharging that process.
What they're saying: "What's happening under Trump is an acceleration of where we were going," Rogoff tells Axios. "He's a catalyst and an accelerant. But I do think if [former Vice President Kamala] Harris had won, the risk would have been pretty big over a longer arc of time, say, five to seven years, than Trump has managed."
"This isn't something that just turns overnight, but the rest of the world was already seeking more freedom from the dollar, and this lit a fire under it."
"In order for the euro to become more important outside Europe, they need to expand their financial system, the banking networks, in a way that accommodates that, and ditto the Chinese. The Chinese are working very hard at that."
The U.S. response to Russia's 2022 invasion of Ukraine lit a fire under the Chinese, Rogoff adds. "They saw what we did with sanctions and that we froze central bank assets."
"They have open doors, not just from Russia and North Korea, but large parts of Africa, Asia and Latin America. They don't trust the Chinese, but they don't trust the Americans anymore, either."
Several officials in Trump's orbit argue that the U.S.'s reserve currency status — the "exorbitant privilege," as it has been called — comes with a heavy burden and that it is high time for the rest of the world to pay for that.
Top White House economist Steve Miran said recently that "our financial dominance comes at a cost."
"While it is true that demand for dollars has kept our borrowing rates low, it has also kept currency markets distorted," Miran said. "This process has placed undue burdens on our firms and workers, making their products and labor uncompetitive on the global stage."
Yes, but: Rogoff argues that the costs of dollar dominance are more subtle than that, and that the benefits the United States receives are considerable.
"If you have a mortgage, you have something to lose, because the exorbitant privilege brings down all interest rates in the United States. Auto loans, student loans, it's a very direct effect," he says.
"More subtle but important is when the next crisis hits, if we've lost our exorbitant privilege, we will not be able to borrow as much to fight it. The rest of the world looks in awe at how much the United States is able to borrow" in episodes like the COVID-19 pandemic and the 2008 financial crisis.
"There's a national security element. A huge percentage of the global financial network essentially goes through U.S. regulators. The fact that we get all this information makes the U.S. able to ward off terrorist threats, allocate our intelligence services, and use sanctions in place of military interventions."