As Americans celebrate the Fourth of July, waving the Stars and Stripes proudly, it is essential to reflect on another critical asset of American power: the US dollar.
While there is no immediate threat of the dollar collapsing or being replaced, its gradual erosion is increasingly alarming. This reality is reflected in discussions among global investors and economic analysts, demonstrating a growing concern for what is often regarded as America’s strongest symbol.
The US dollar has historically served as the backbone of global finance for over 80 years. After World War II and the establishment of the Bretton Woods Agreement in 1944, the dollar became the world’s primary reserve currency, with many international currencies pegging to it.
The trust in the US dollar stemmed from America’s unparalleled economic power and the reliability of its financial institutions and rule of law.
Recently, however, a Financial Times article highlighted a significant decline in the dollar’s performance, marking its worst showing since 1973, a point of concern for many investors.
Officials from President Donald Trump’s administration dismiss these concerns as partisan-driven, citing the recent Senate passage of a budget bill which could escalate the national debt by over $3 trillion.
They confidently argue that the dollar’s trend is cyclical and that the American economy is on the verge of a boom with trade agreements in the pipeline.
However, foreign exchange strategist Francesco Pesole pointed out that the dollar seems to be bearing the brunt of erratic policies from the Trump administration. Factors such as the ongoing tariff war, the extensive borrowing needs of the United States, and apprehensions about the Federal Reserve’s independence are all contributing to a diminished appeal of the dollar as a safe investment.
This moment represents a potential turning point, as global confidence in the dollar has begun to wane. Unlike before, trust in the dollar is not as automatic as it once was; it requires continuous reinforcement.
During the recent International Monetary Fund-World Bank meetings, leading financial officials publicly acknowledged the absence of a viable alternative to the US dollar. However, privately, many expressed a growing interest in finding other options.
The dollar’s value dropped by more than 10 percent in the first half of 2025, a downturn not seen since the end of the gold-backed Bretton Woods regime.
In contrast, the euro surged by 13 percent, reaching over $1.17 as investors eyed German bonds favorably due to mounting concerns over US tariffs and potential recession.
While some depreciation of the dollar was expected due to its overvaluation, the current market reactions signal broader anxieties about the dollar’s stability.
Recent volatility in the US Treasury markets also indicates uncertainty among investors; rising debt levels, inflation fears, and the unpredictability of US trade policies have all added to the turbulence.
Despite this backdrop, the bond market has yet to fully react to the implications of the new budget bill.
Regaining lost confidence is often a more challenging endeavor than maintaining it, and history has shown that the US economy possesses significant resilience and strength. Predictions of the dollar’s collapse have consistently proven unfounded in the past.
At the NATO Summit held in The Hague, President Donald Trump reaffirmed the US commitment to European security, which somewhat eased concerns.
This was accompanied by a new pledge that European defense spending should surge to 5 percent of GDP within ten years, up from its current 2 percent.
Nevertheless, uncertainty continues to loom over Europe due to Trump’s unpredictability, which was evident in the recent cessation of US weapons deliveries and intelligence sharing with Ukraine for a period of ten days.
Further complicating matters, the Pentagon recently announced it would pause certain arms deliveries to Ukraine, reportedly including critical air defense capabilities.
Rebuilding international confidence in US financial leadership will require serious efforts towards fiscal discipline, credible deficit reduction, and the preservation of Federal Reserve independence.
Moreover, the US must re-establish itself as a reliable anchor of the global economic system while steering clear of weaponizing the dollar in sanctions and trade disputes.
This situation is not a call for panic but rather a warning.
As the nation celebrates its independence this weekend, concerns about the dollar are becoming more evident. Ignoring these signals may have long-term consequences.
Frederick Kempe, president and CEO of the Atlantic Council, emphasizes the importance of addressing these issues to maintain the US dollar’s role in global finance.
This article is part of the Atlantic Council’s ‘Inflection Points’ newsletter, delivering insights from a world in transition.
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