Battle for Preeminence of the U.S. Dollar
In a thought-provoking debate, Ellie Groves, head of strategy at State Street Investment Management, and David Marsh, chairman of OMFIF, are discussing the long-term stability of the US dollar as the world's supreme transaction and investment currency. The discussion, which forms part of a broader conversation about the potential long-term implications of the US dollar's status, has raised questions about whether the US dollar will remain the world's primary currency for the longer term.
The debate comes amidst concerns that the US could be knocked off its monetary pedestal in the next five years. America's chaotic foreign, economic, and trade policies in the six months since Donald Trump returned to the White House have intensified doubts about the US dollar's long-term stability.
The potential rivals to the US dollar's dominance in global transactions and investments over the next five years are primarily the Chinese yuan (CNY) and digital currency alternatives such as cryptocurrencies and Central Bank Digital Currencies (CBDCs), especially digital yuan.
The Chinese yuan, with China actively promoting its digital yuan, a CBDC designed to facilitate international trade and payment settlements independently of the US dollar, poses a significant challenge. Despite some near-term USD strength, the yuan’s resilience and policy support from the People's Bank of China make it a formidable competitor in global finance as China's economy remains a major trade partner.
Cryptocurrencies like Bitcoin and Ethereum, along with stablecoins pegged to fiat currencies but operating outside traditional banking systems (such as USDT and USDC), are enabling faster and decentralized cross-border payments that reduce dependency on the U.S. dollar and SWIFT networks. These are particularly important in regions with capital controls or economic instability. Emerging economies increasingly use crypto as a hedge against dollar volatility and sanctions.
Beyond China’s digital yuan, other nations developing CBDCs could offer state-backed alternatives to dollar-dominated trade and finance systems, diluting the dollar’s hegemony.
While not a currency, gold’s increasing adoption by central banks, especially with China’s significant purchases, reflects diversification away from the dollar as a reserve asset, which could indirectly weaken dollar dominance over time.
In summary, the digital yuan (China’s CBDC) backed by state power is the most direct currency threat to the dollar’s status, while cryptocurrencies and stablecoins increasingly offer decentralized, dollar-independent alternatives in international finance. Together with shifting reserve preferences like gold, these factors form the core challenges to the US dollar’s global leadership over the next five years.
The discussion is in reference to themes in David Marsh's new book, Can Europe Survive? The Story of a Continent in a Fractured World. The article focuses on the uncertainty surrounding the US dollar's future as the world's primary currency.
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