A Currency Losing Conviction

by Muhammad Asif NOOR

The debate around the future of the US dollar as the world’s leading reserve currency has shifted from theory to observation. What was once considered a stable pillar of global finance is beginning to reveal fractures, with data, sentiment, and structural developments pointing toward a recalibration in global currency preferences. At the World Economic Forum in Tianjin, the message from economists was clear: the dollar’s traditional advantages—anchored in institutional strength, liquidity, and global confidence—are no longer unquestioned. The growing preference for alternatives, from the Chinese renminbi to the euro, is evidence of a larger story unfolding in the background of trade, geopolitics, and technology.

The scale of the shift is no longer a matter of speculation. In the first half of 2025, the US Dollar Index fell nearly 9.4 percent, marking its worst start to a year since 1986. It was not a sudden reaction to a single event but part of a wider loss of confidence in the currency’s role in an increasingly multipolar financial world. What made this development more significant was the confirmation from SWIFT, the global financial messaging system, that the dollar’s share of international payments had slipped below 50 percent for the first time on record. This trend, previously discussed in academic circles, has now entered a phase of visible realignment.

Several experts at Tianjin pointed to long-standing structural inefficiencies in dollar-based transactions. Diana Choyleva of Enodo Economics outlined how dollar transfers remain costly, slow, and burdened by outdated clearing systems. Her observations are consistent with the experience of financial institutions around the world, where even routine settlements require layers of intermediaries and significant time lags. This creates a natural opening for faster and more direct alternatives, especially as new technologies such as digital currencies and blockchain-based payment platforms mature. Choyleva views these emerging tools as more than just technical upgrades. They could become critical enablers in reducing the global system’s dependency on the dollar.

Other economists at the forum went further, identifying a growing trust deficit in American governance. The period of political upheaval and fiscal volatility, especially in recent years, has contributed to doubts about the stability and coherence of US policy frameworks. According to Professor Jeffry Frieden of Columbia University, the challenge is no longer about competitive efficiency but about belief in the overall direction of US decision-making. He noted that contradictions in fiscal and monetary policy are raising long-term concerns among foreign governments and investors, many of whom are reassessing whether the dollar continues to offer the security it once did.

This erosion of trust is being felt across financial corridors globally. Choyleva remarked that the discussion has moved beyond mechanics and into perception. She emphasized that institutional credibility matters as much as transaction utility. Following years of contentious domestic politics and policy volatility, there is a noticeable change in how investors weigh American assets in their portfolios. Euroclear’s Asia Pacific head, Philippe Laurensy, described the trend away from the dollar as fundamental rather than cyclical. In his view, what used to be temporary adjustments in currency exposure are turning into more deliberate hedging strategies based on strategic forecasting.

At the same time, the search for alternatives is intensifying. China’s effort to internationalize its currency has become more pronounced. Through its Cross-Border Interbank Payment System and expanding network of currency swap agreements, China is offering a parallel path to countries seeking to diversify away from the dollar-centric global framework. These tools, though still limited in reach compared to SWIFT, carry significant symbolic weight. They point to an ambition that aligns with China’s broader efforts to consolidate influence in trade, finance, and diplomacy.

The renminbi has gained particular traction among energy-exporting economies and in the BRICS group. As these nations recalibrate their economic relationships, using the Chinese currency has become more viable, especially when Beijing is often the largest trading partner. Eswar Prasad, formerly with the IMF, highlighted a pattern where several countries now reference or manage their currency positions relative to the RMB. This shift may not be immediate or universal, but it is steady and supported by practical incentives.

The euro, once expected to rival the dollar’s status, faces its own limitations. Internal fragmentation within the eurozone and strategic pressures from external conflicts have undercut its appeal as a reliable anchor. Professor Frieden observed that the euro’s inability to serve as a safe haven during prolonged crises illustrates the difficulty of maintaining currency strength in the absence of political unity. The events in Ukraine and the broader security challenges in Europe have only amplified this limitation.

Still, no single alternative currently offers a perfect substitute for the dollar’s scale and convertibility. The shift underway is not about displacement but distribution. Central banks are building multi-currency strategies, investors are diversifying their holdings, and trade invoicing is gradually incorporating a broader set of currencies. The dollar remains essential, but its exclusivity is diminishing.

The transition is subtle but meaningful. It is taking place in how countries structure their reserves, how companies price their contracts, and how policy institutions weigh geopolitical risk. If the United States seeks to retain a leadership role in the global economy, it will have to address more than just interest rates or inflation. The credibility of its institutions, the stability of its governance, and the discipline of its fiscal choices will play an increasingly decisive role in determining whether the dollar remains the preferred choice or merely one among many.