Foreign Policy: How can Trump Dethrone the US dollar?

The Foreign Policy magazine published an article discussing the threat to the status of the dollar, which constitutes the backbone of the American economy and remains the global reserve currency to this day.

The extensive article explained that the US dollar’s status depends primarily on four factors that any currency hoping to constitute the largest share of most countries’ foreign exchange reserves must possess.

The currency should be liquid, i.e. easy to buy and sell.

Most individuals, banks and companies agree to use it in their transactions.

To act as a common unit of account for globally traded commodities.

To be considered a reliable store of value by individuals, businesses, and central banks.

However, the article raises concerns that Trump’s return to power could pose a real threat to the dollar’s standing for the first time in decades, although the damage would not be immediate given the lack of readily available alternatives.

But the risk of an eventual decline, and the potential pace of decline, have increased.

At the very least, Trump’s actions will erode the factors supporting the dollar’s ​​dominance.

As a result of Trump’s policies largely, according to the article, European stocks outperformed the leading US stock index by about 20% during the first quarter of 2025, the largest gain margin in more than three decades.

The analysis highlighted the significant risks of imposing massive global tariffs, as well as the destabilization of the US economy, which would cause “irreversible damage” to the United States’ credibility as a trading partner.

This, in turn, will undermine the need for and use of the dollar, alienating the United States’ closest allies and driving away countries that were willing to rely on trade facilitated by the US dollar.

Over time, the analysis warns that growing trade relations with China and other major economies may give companies an incentive to substitute the dollar for some transactions.

The US administration’s sanctions campaign against Iran and its stringent measures against Venezuela are raising concerns about the widespread use of sanctions during Trump’s second term, prompting countries to reduce their reliance on the dollar for cross-border trade and currency reserves.

Other payment systems, such as CIPS, a Chinese payment system that offers cross-border trade services in the Chinese renminbi, may seem more attractive.

Since China is the largest trading partner for nearly two-thirds of the world’s countries, if the SIPS system becomes the only way to conduct business with Chinese companies, financial institutions in those countries will have a strong incentive to join.

The analytical article concludes by pointing to the British pound, which surpassed the dollar in global standing in the nineteenth century, but world wars and political and economic decline led to its decline.

Therefore, the choices made by countries determine reserve currencies.