Lately, headlines have stoked fears that the U.S. dollar is being dethroned as the world’s reserve currency, driven largely by concerns over rising national debt and unchecked government spending. As with many sensational claims, the reports of the dollar’s demise are greatly exaggerated.
Despite the noise, the U.S. dollar still accounts for around 60% of global central bank foreign exchange reserves. The euro, the second most-held reserve currency, lags far behind at just 20%.
While we wouldn’t welcome a sharp decline in the dollar’s value, some fluctuation is entirely normal. In fact, a weaker dollar can provide advantages. It makes U.S. exports more affordable and competitive abroad, potentially boosting revenue and profits for large multinational companies—many of which we recommend in client portfolios. When these companies convert foreign earnings back into dollars, the weaker currency can inflate their reported profits, leading to enhanced earnings growth and potentially higher stock prices. Sectors with significant international exposure—such as Technology, Consumer Staples, and Consumer Discretionary—often benefit the most. From an earnings perspective, currency translation during periods of dollar weakness can be a tailwind for U.S.-based investors.
As for what could realistically dethrone the dollar, there has been speculation about a joint currency among the BRICS nations—Brazil, Russia, India, China, and South Africa—potentially backed by a basket of their currencies and gold. The goal would be to reduce dependence on the U.S. dollar in international trade, especially as geopolitical tensions and sanctions reshape global alliances. However, such a currency isn’t a near-term threat.
Let’s take a step back and consider what makes a world reserve currency: deep, liquid financial markets; a large and stable economy; widespread international acceptance; strong trade relationships; a significant supply of safe, investable assets; political and economic stability; and openness to capital flows with minimal capital controls. None of the BRICS nations check these boxes to the same degree as the United States.
Even with BRICS expansion—including countries like Egypt, Ethiopia, Iran, the United Arab Emirates, and Indonesia—their economies are too disparate to form a stable, widely trusted joint currency. And history has shown that internal conflicts or wars among member nations can quickly destabilize such arrangements. In fact, war and the debt it brings have historically contributed to the fall of reserve currencies. Consider the British pound, which lost its global dominance after the U.K. was nearly bankrupted by World Wars I and II.
Much of the current worry centers on the downgrade of the U.S. credit rating from AAA to AA+. Still, it’s important to view that in context. China was recently downgraded to A, Russia sits at a single B, and India is rated BBB—barely above junk status.
At the end of the day, the U.S. dollar isn’t going anywhere anytime soon. The world still needs a reliable place to invest—and for now, there’s no better alternative. The United States remains home to the deepest and most liquid capital markets, the most trusted legal system, and the most innovative companies worldwide. When uncertainty strikes, global investors continue to seek safety in U.S. Treasuries, real estate, and equities. Simply put, the U.S. is still where the world puts its money when it matters most.
If you’re concerned about how currency fluctuations or global headlines may impact your investments, the experts at Henssler Financial will be glad to help:
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