Warnings grow over gradual erosion of US dollar global dominance

Friday 17 April 2026 - 10:00

By: Dakir Madiha

Warnings grow over gradual erosion of US dollar global dominance

A group of senior policymakers and economists has renewed concerns about the long-term strength of the US dollar as the world’s primary reserve currency, pointing to shifting capital flows, policy risks, and weakening global confidence.

Janet Yellen, speaking at an investment summit hosted by HSBC in Hong Kong, warned that political pressure on monetary policy risks undermining institutional credibility. She criticized calls by Donald Trump to lower interest rates, describing such rhetoric as characteristic of unstable economic governance. Yellen has previously cautioned that rising US debt could lead to fiscal dominance, a situation where central bank policy is constrained by government borrowing needs, potentially fueling inflation.

Concerns about the dollar’s position are also being voiced by market leaders. David Schwimmer, head of the London Stock Exchange Group, said investors increasingly view the United States as a source of geopolitical risk. He noted a shift toward diversification away from US assets, as capital flows begin to favor emerging markets while developed economies face higher volatility.

Academic analysis supports this trend. Barry Eichengreen said recent developments suggest early signs of a decline in the dollar’s global role. He identified two key risks: erosion of the rule of law in the United States and weakening international alliances, both of which underpin confidence in dollar-denominated assets.

Market participants remain divided on whether the dollar’s decline is structural or cyclical. Elias Haddad said conditions point to gradual erosion but stopped short of predicting a loss of reserve currency status. His firm maintains a bearish long-term outlook, citing declining trust in US trade and security policy and growing politicization of the Federal Reserve.

Others argue the dollar’s dominance remains secure. Sonal Desai said no credible alternative currently exists, noting that building a competing reserve currency would require decades of institutional development. She pointed to the size of the US economy, deep financial markets, and institutional strength as enduring advantages.

Data from the International Monetary Fund shows the dollar’s share of global foreign exchange reserves fell to 56.77 percent in the fourth quarter of 2025, its lowest level since 1994. While still far ahead of rivals such as the euro, the steady decline from above 65 percent a decade ago reflects a gradual diversification trend among central banks.