We’re living in “Leninist times,” i.e., not in the “decades where nothing happens,” but in the “weeks where decades happen,” as Russian revolutionary Vladimir Lenin once famously put it.
Many participants at the 2025 Spring Meetings of the World Bank Group (WBG) and the International Monetary Fund (IMF) last week echoed such sentiments. Some observed that 2015, a peak of international cooperation marked by the adoption of the UN Sustainable Development Goals (SDGs), the Paris Climate Agreement, and the launch of the Finance for Development Agenda, now feels like a century ago instead of just a decade.
Much of the intervening period between 2015 and today has been filled with armed conflicts, pandemics, economic hardships and geopolitical deterioration, feeding a steady erosion of trust and warning of graver dangers ahead.
President of the European Commission Ursula von der Leyen has lamented that “the West as the world has known it no longer exists” and that this signals the end of the Euro-American alliance. Yet, while political and economic ties fray among close allies, shared resentments and disbelief over Washington’s whirlwind tariff hikes have brought yesterday’s rivals closer.
Channels for Chinese-European relations are reopening, and an accelerating wave of regional cooperation among neighbouring countries is heralding a revival of the regionalist approach to economic relations. Meanwhile, confidence is waning in the US dollar as an international reserve currency. With such growing restrictions on trade and investment with the United States, what reasons do other countries have to continue to use its currency as extensively as they do today?
If one or more viable alternative existed, the dollar would have already been gradually or abruptly substituted, as occurred with other international currencies in the past. A note on the international role of the dollar produced by the US Federal Reserve Board of Governors two years ago, in other words before the current world upheaval, noted that in 2022 foreign governments and investors held 31 per cent of the total value of US securities.
Foreign entities still hold half of the US dollars in circulation, and the dollar continues to dominate international trade settlements, financial transactions, and global debt markets.
The euro is the next most widely used international currency after the dollar. However, 50 per cent of global GDP is generated by countries (apart from the US) that rely on the dollar to value their transactions, compared to only five per cent of global GDP by countries outside the Eurozone.
It is important to bear this in mind when comparing the dollar’s current share of global reserves – still at 60 per cent though down from 71 per cent in 2000 – to the euro’s share of 20 per cent. The remainder of global reserves is divided among the Japanese yen (six per cent), the UK pound sterling (five per cent), and the Chinese renminbi (three per cent).
Based on such findings, the Federal Reserve Board report foresaw no decline in the dollar’s international role in the near term. This role continued to be supported by “the size and strength of the US economy, its stability and openness to trade and capital flows, and strong property rights and the rule of law. As a result, the depth and liquidity of US financial markets is unmatched, and there is a large supply of extremely safe dollar-denominated assets,” it said.
The report concluded that “absent any large-scale political or economic changes which damage the value of the US dollar as a store of value or medium of exchange and simultaneously bolster the attractiveness of dollar alternatives, the dollar will likely remain the world’s dominant international currency for the foreseeable future.”
However, this was written in 2023. Recent developments, not least being the measures Trump announced on 2 April (“Liberation Day” he called it), have rocked the basis for the Reserve Board’s assumptions for the present, let alone the foreseeable future. Now, the challenges to the dollar’s pre-eminence mentioned in the report loom larger.
One of these is an increasingly integrated Europe, with its large economy, fairly deep financial markets, generally free trade, and robust and stable institutions making it attractive to investors. The euro will become even more attractive if the EU progresses further towards unified EU bond issuance and closer fiscal cooperation. This appears likely now that Europe is rediscovering its regional strengths in response to US tariffs.
Another challenge lies in China’s renewed surge in domestic growth, which bolsters its currency. China is pursuing a three-fold strategy: first, promoting domestic consumption and investment; second, strengthening regional policy frameworks, as evidenced by its leadership’s frequent visits to the Association of Southeast Asian Nations (ASEAN) countries; and third, reducing dependence on the dollar and dollar-linked mechanisms by fostering bilateral trade settlements in the renminbi and adopting cross-border financial innovations to reduce transaction costs and processing times with its trading partners.
A third challenge could come from crypto-assets like Bitcoin, which should be distinguished from dollar-or gold-pegged stablecoins. However, while increased use of cryptocurrencies could threaten the dollar, these assets are highly volatile. While they have been called “digital gold,” this seems premature. Shifting to them without the necessary expertise could be akin to jumping from the frying pan into the fire.
The accelerating changes are shaking the dollar. But the primary agents of the threat are US policymakers, not any intrinsic weakness in the currency itself. That said, the dollar continues to hold its position as an international currency, not due to any absolute advantage it holds, but because of the relative disadvantage of its potential rivals. In a fast-changing world, none of these advantages, or disadvantages for that matter, should be considered permanent constants.
This article also appears in Arabic in Wednesday’s edition of Asharq Al-Awsat.
* A version of this article appears in print in the 1 May, 2025 edition of Al-Ahram Weekly
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