- The Trump administration may be pursuing a deliberate strategy to weaken the US dollar.
- Experts warn this could raise US debt costs and destabilize global markets.
- Historical data shows the dollar’s strength doesn’t stem from its reserve role.
- Undermining the dollar may empower China and erode US global influence.
Over the past few weeks, markets have watched with quiet anxiety as the US dollar has drifted downward. At first glance, the cause seems clear: the specter of a looming American recession. Capital tends to flee slowing economies, and the dollar’s depreciation reflects that fundamental reality. But beneath the surface, there is a far more consequential—and deeply unsettling—explanation gaining traction within the corridors of power in Washington.
A faction within the Trump administration appears to be advocating an audacious economic experiment: intentionally weakening the dollar and eroding its status as the world’s dominant reserve currency. If successful, it would mark a seismic shift in the architecture of the global financial system—one whose repercussions could rival the 1971 Nixon Shock that untethered the dollar from gold. The world has not seen monetary disruption of that scale in over half a century.
And make no mistake: such a move would not be a clever act of strategic recalibration. It would be economic vandalism, dressed in the language of “competitiveness” and “rebalancing,” with profound costs for the United States and the world.
The Dollar’s Role: Burden or Backbone?
The central claim of this new economic doctrine is that the dollar’s reserve currency status is no longer a blessing, but a curse—akin to the “Dutch Disease” that plagued the Netherlands in the 1960s. Back then, a surge in natural gas exports led to an appreciated currency that hollowed out Dutch manufacturing. Similarly, say critics within the Trump camp, global demand for the dollar has kept it artificially strong, thereby pricing American goods out of the global market and accelerating deindustrialization.
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It’s an argument Vice President J.D. Vance voiced as a Senator, comparing the dollar’s dominance to Appalachia’s infamous “resource curse.” Steve Miran, now Chair of the Council of Economic Advisers, echoes this line, blaming the greenback’s global role for “persistent currency distortions” that feed chronic trade deficits and gut US industry.
The statistics they cite are sobering: the US manufacturing sector has shrunk from 24% of the workforce in 1974 to just 8% in 2024. Yet this diagnosis is fatally flawed—and dangerously misleading.
A Faulty Diagnosis
For one, currency strength is a moving target. Over the past five decades, the dollar has undergone wild cycles—soaring during the Reagan era, plunging after the dot-com crash, rising again in the 2010s. These fluctuations have not meaningfully shifted its reserve status.
In fact, recent data suggests the opposite. At the end of 2024, the dollar accounted for 58% of global foreign exchange reserves—down from 65% a decade ago. Meanwhile, foreign holdings of US Treasuries have dropped from 50% in 2014 to just over 33% today. The dollar’s strength hasn’t grown because of its reserve role—it has grown despite a slow erosion of that role.
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“There is simply no empirical basis for linking the dollar’s reserve status to its exchange rate in a mechanical way,” says Eswar Prasad, senior fellow at the Brookings Institution and former head of the IMF’s China division. “The idea that if the dollar were somehow dethroned, US manufacturing would come roaring back is pure fantasy.”
Indeed, other countries with no reserve currency—like the UK—have experienced similar long-term trade deficits. These imbalances are primarily driven by domestic savings and investment gaps, not by the international role of the currency. Trying to fix a structural economic problem by tampering with the dollar’s global standing is like curing a fever by smashing the thermometer.
Dollar And American Exceptionalism, Not Monetary Privilege
What really explains the dollar’s recent strength is not privilege, but performance. Over the past decade, the US economy has consistently outpaced Europe, Japan, and emerging markets. With higher growth rates, more robust tech and financial sectors, and relatively greater political stability (until recently), the US has magnetized global capital.
“The rise of the dollar was a reflection of American economic vitality, not a distortion caused by global demand for reserves,” says Kenneth Rogoff, professor of economics at Harvard and former IMF chief economist. “Investors want to put their money where the growth is, and for much of the past decade, that was the United States.”
By this logic, the current trade deficit is not a sign of monetary dysfunction, but of global confidence in the US economy—something that weakening the dollar might actually undermine.
Dangerous Tools, Disastrous Consequences
Nevertheless, the movement to undercut the dollar appears to be gathering steam. While Trump’s Treasury Secretary Scott Bessent reportedly remains skeptical of this approach, other influential voices in the administration are pushing forward. Taxes on foreign ownership of US securities, tighter capital controls, or even halting the Federal Reserve’s swap lines with foreign central banks—all are being discussed as tools to de-globalize the dollar.
Each of these steps would send shockwaves through financial markets. “The Fed’s swap lines are the emergency plumbing of the global financial system,” warns Adam Tooze, a historian of economic crises at Columbia University. “If the US unilaterally cuts those off, it’s like pulling the fire alarm and walking away.”
The consequences at home would be equally severe. Undermining the dollar would drive up US borrowing costs as investors demand higher yields to hold a riskier currency. It could destabilize markets already jittery about inflation and recession, and diminish the strategic reach of US financial sanctions—one of the few non-military tools left in Washington’s foreign policy arsenal.
Ironically, such a move could also hand a geopolitical gift to China. While the renminbi remains far from fully convertible, any move by the US to voluntarily destabilize its own currency would reduce the credibility gap between the dollar and the yuan.
“Beijing doesn’t need to make the renminbi more attractive,” says former Treasury official Nathan Sheets. “It just needs the US to make the dollar less attractive. That would do the job just fine.”
Strategic Self-Harm
Until recently, the dollar’s supremacy seemed unassailable. Even after Russia’s central bank was sanctioned in 2022, hostile regimes had few alternatives. Other major currencies—euro, yen, pound—were equally implicated in Western sanctions. China’s currency remained too tightly controlled. The dollar remained the last refuge.
But reserve currency status is not ordained. It’s earned—and can be squandered.
The global economy rests on trust: in America’s legal system, its institutions, its commitment to the rule of law and global stability. If Washington begins to weaponize or sabotage the dollar for short-term political gains, that trust will erode—and with it, America’s financial centrality.
A Crisis of Choice, Not Circumstance
In a world already reeling from war, inflation, and fragmentation, the dollar remains one of the few global constants. Intentionally dismantling its role is not a necessary correction—it is a choice. A choice to gamble with the foundations of the international monetary system. A choice to turn internal economic grievances into global instability. And ultimately, a choice to inflict lasting harm on America’s own power and prosperity.
Some revolutions are born of necessity. This one would be born of delusion.