Why the US Dollar’s Reserve Currency Status Remains Firm

Despite persistent speculation, the idea that the US dollar is on the brink of losing its reserve currency power is largely misplaced.

For one, much of the recent dollar weakness appears cyclical rather than structural. The decline mirrors changing interest rate expectations, with markets pricing in a more dovish Federal Reserve. While tariffs have raised concerns about economic fallout, markets are not seriously pricing in any meaningful erosion of the dollar’s reserve currency status.

There’s also the enduring TINA problem—There Is No Alternative. The euro, often viewed as the most viable challenger, has failed to displace the dollar since its inception nearly 30 years ago. The key obstacle? The eurozone still lacks a true fiscal union—a foundational weakness that has yet to be resolved and likely won’t be.

Then there’s the stability of reserve allocations. Central bank allocations to the US dollar have remained remarkably consistent over time. Even during periods of strong US economic outperformance, these allocations didn’t rise significantly. So it’s unreasonable to expect them to fall now after just a few months of tariff-related volatility.

Supporting this, the IMF’s latest COFER data (through March 2025) shows that dollar holdings among global reserve managers remained unchanged at 58%, exactly where they stood at the end of 2024—and 2023. This includes the immediate aftermath of tariff announcements targeting Canada and Mexico, which triggered the first big drop in the dollar this year.

While there were minor fluctuations in allocations to the Swiss franc and Australian dollar, these are negligible in the broader context and may even be revised.

In short, the threshold for a real shift away from the US dollar remains extremely high. The latest data shows no evidence of reserve currency decline. Markets have it wrong—the dollar’s global reserve status is firmly intact.