(7 April 2025 – Europe) Persistent concerns over the greenback’s esteemed world reserve status and rising Euro strength are in focus as President Trump recalibrates the country’s trade balance at the expense of cordial relations with close diplomatic and military allies such as Canada and Australia.
The USD’s role as the world’s reserve currency remains undisputed for now, continuing to represent 57 percent of global central bank reserves and unlikely to be challenged in the short term. The Euro’s 20 percent share of world reserves remains the second-largest, yet this proportion has remained steady for the past decade despite the USD share sliding by seven percentage points over the last ten years.
While the potential expansion of Chinese RMB reserves representing a mere two percent of total remains beyond reach, the prospect of enhanced EUR status also remains at arm’s length due to concerns over fragmented underlying debt markets and incomplete aspects of the Euro currency and banking unions.
“US financial hegemony is under pressure. De-dollarization is no longer a fringe theory; it’s becoming front-office policy and it’s happening at speed and scale. Options markets are sounding the alarm. Front-end put premiums are the widest since early 2020, and now the back-end is capitulating too. The bears are back in control for the first time in five years” commented Bloomberg FX & Rates Strategist, Vassilis Karamanis.
“Spot and options weakness, treasuries offered and equities adrift…none of it bodes well for the Dollar. The Euro isn’t just a long trade anymore. It’s becoming a destination.”
A 2022 report from Federal Reserve Board economist Colin Weiss examining the impact on dollar holdings of the decision to freeze Russia’s assets after it invaded Ukraine highlighted the fact that roughly 75 percent of foreign official holdings of US assets are held with nations that have military ties to Washington. These ties are currently under threat as the US wages a trade war on all fronts against friend and foe using oppressive tariffs with inconsistent reasoning.
“Even a geopolitically-motivated move away from the US dollar in trade invoicing would only diminish the dollar’s role as a reserve currency and not destroy it” Weiss asserted.