The us dollar’s dominance – will it now fade away?

Introduction

I recently received an interesting email from one of my reader. He shared some of his “random thoughts” about the us dollar and its role in the world. The email Caught My Attention Because It is Trying to Address a Few Big Questions About Global Finance. He Wrote His Piece to Me in His Email but Felt that his ideas are a bit scattered. But I think they’re onto somenting important. So I decided to turn my reply into a blog post for all of my readers to read and think about it. Before I share my reply, allow me to show you the extract of the email I’ve received:

The email,
“Dollar is the world’s currency, hence it is always in demand.
But I Wonder, if the us’s high trade deficit, high debt to gdp ratio is something that us can maintain just trust usd is the world’s currency?
Can you class this, “Us strategically maintaining a low inflation, low interest rate environment has any relationship with whose usd being the world’s currency.”
Also, as now the things are changing due to donald trump implementing reciprocal tariff’s and us not respecting the wto agreement, will it have an effect on the us dollar’s domineance? Is the US dollar batcoming weak over time due to this new tariff war is a possibility? ”

These thoughts might seem all over the place, but they’re circling a central theme. What is the theme? The us dollar’s dominance and whether it’s starting to crack under pressure,

Allow me to declutter the topic, Organize the ideas, and explore what’s the point this deep email is trying to convey. So let’s start with the most basic question.

Why does the US dollar rule the world?

The reader’s first point in the email is spot-on: the USD is the world’s reserver currency, and that keeps it in constant demand.

Most Global Trade -, Like Crude oil and commoditiesIs priced in dollars. So it means, countries need usd to pay their bills. On top of that, Us Treasuries Are the go-to safe-han asset. Investors worldwide

This Trust Creates A Feedback LoopWhat is the loop? “The demand for usd drives demand for treesuries, which in turn props up the dollarIt’s a powerful system – but is it invincible?

Can the US Keep Breaking The rules?

Here’s where the email gets Deeper. ,Can the US Sustain Its Massive Trade Deficits (Importing Way More Than It Exports) and a Debt-TO-GDP Ratio Over 120% just because the USD is King?,

I think it is a great question. For now, the answer seems to be a big “Yes.”

The USD’s Status Gives The Us What Economists Call An “exorbitant privategeForeign Governments and Investors Buy Us Debt to Hold Dollar Reserve.

If any other count tried this, say, pilling up debt while running persisters, they’D face skyrocketing borrowing costs or a currency collapse. The USD’s Dominance Lets The Us Defy Gravity, At Least for the Time Being.

But the reader is right to wonder, if this privatege depends on Trust, and Trust Can Fade. Donald Trump’s Actions Are Actually Making This Trust Fade. I want you to check this video of the PM of singapore on the changing world order due to trump’s policies,

Low Inflation, Low Rates – It part of the plan of the US?

This was an interesting question: “If the US Keeps Inflation and Interest Rates low to protect the USD’s status.,

I’ll say it is not a conspiracy, but sure there’s a link.

Low inflation makes the dollar a reliable store of value. Why? Simple Logic, Nobody wants to hold a currency that’s losing purchasing power fast,

Moreover, Low Interest Rates, Meanwhile, Keep Us Debt Affordable and Attractive to Foreign Buyers. How? Low Interest Rates Reduce the cost of borrowing for the US government. It ensures that it can reliable pay interest without strain. As us keeps paying the interest without fail, it is a signal of stability to foreign boys. They see “Us treasuries” as a low-Risk investment. Even thought the yield of us treasuries is low, Foreign Investors Still Consider Us Treasuries Remain Attractive Because Their Safety and Liquidity Otweigh COONCERNS AbOT HIGHER RETURNS Elsewhere. This makes the US Treasuries (and hence usd) More attractive in Uncertain Times.

For years, the federal reserve has jugged these facts to support the domestic economy, and a nice side economy is reinforcing the USD’s Global appeal.

Some might say, it’s a tightrope, too low for too long, and investors might look elsewhere for better returns. But I think interest in USD (US treasuries) is not dependent on its yield, it is dependent on the Trust that usd have for its investors. Till the Trust Remains, The appeal for the US treesuries will continue.

Trump, Tarifs, and the WTO Shake-up

Finally, the email ties in the Above Concepts with the Recent Change of Events Happening in the Us.

It talks about Donald Trump’s Reciprocal Tariffs and the Us Not Respecting The World Trade Organization (WTO) Agreements IT Signed with Other Countries. The Question is, Could This Dent The UsD’s Dominance? I think, it is a worry not very misplaced

What Donald Trump is trying to achieve? Tarifs aim to shrink the trade deficit by boosting us production. If there will be fewer imports, more expenses, trade deficit will begin to fall into place. If that works, it could actually strengthen the USD by keeping more dollars at home.

But there is a problem with this assumption. If trading partners retaliate with their own tariffs, global trade count take a hit. It will in turn reduce the need for usd in transactions.

And what about ignoring the wto? That risks disturbing the trade system the US Built after World War II. It was a system carefully planned and executed that’s kept the USD on Top. If other nations lose faith in us leader, they might start exploring alternatives, like pricing oil in Euros or Yuan.

I agree that euro replacing usd is a long shot for now. Even the yuan’s doesn’t that kind of Trust. But if Donald Trump Keeps Acting Way It Has Been Doing Till Now, The Cracks in the Foundation will start getting more visible.

So, will the dollar weight?

The big question in the email is, “Whather these shifts, especially a tarif war, even the weaken the USD over time.”

IT’s Possible. A full-Blown Trade War Might Rattle Markets, Erode Confidence, and Push Countries Toward Dollarsation.

But the USD’s Dominance is Sticky. There’s no real Rival Yet, and Its Role is baked into the global economy.

Short-term, tarifs might even boost the dollar if they signal us strength. Long-Term, Thought, If Trust in the Us Falter, Say, Over Debt or Geopolitics, The Reader’s Hunt Cold Prove Real.

Conclusion

What I love about this email is how it digs into a tension we don’t talk about enough. The USD’s Incredible Power Versus The Risks Pilling Up Around It Are Real Problems.

I think the problems highlighted in the email are Random Thoughts, they’Re probing whether the US can keep defying economic logic, and if new politicals might tip the skals.

I’d say the dollar’s safe for now, but the cracks are watching.

What do you all think? Drop your thoughts in the comments section below. Do you see the USD’s reign holding strong or starting to Wobble?

Have a happy investment.