The imminent collapse of the US dollar

Bob Hancké

6 May 2025

Over the last few weeks, I have read more than one column in the FT, NYT, Guardian and book reviews discussing the imminent collapse of the US Dollar and its effect on the US and world economy — including the possible rise of the euro as a reserve currency. 

I think I understand the arguments about potential causes of the collapse, ranging from the effects of Trump’s ill-informed tariffs over the vaguer but no less real concerns about the rule of law and potential economic mismanagement. I also see how this may all lead to a deep reluctance to hold US Dollars or even US government bonds that are denominated in Dollars. 

But I rarely read counterarguments, ie why the US Dollar would survive the Trump circus and keep its central role in the global monetary system. I always used to tell my students that if you have no idea how you could be wrong, the question is not worth asking and the answer not worth giving (Lakatos and Popper informed me). So, here is a way for me to make sense of that question. 

One of the main reasons, it seems to me for the persistent dominance of the dollar is a form of inertia associated with network effects. While the big holders of dollar reserves may have concerns over the path that the US has chosen — both before and after Trump; US declinism is not a new phenomenon — they also, erm, hold a lot of dollars. Abandoning the currency would inevitably lead to massive losses on their foreign reserves, probably more than they can handle.  If I know that my action will make me significantly worse off in the short term, with uncertain gains further down the line, I will, on balance, stick to the status quo.

The second point that speaks in favour of the Dollar is that it not only represented US economic might, but also its military backup. Since probably the First World War, the US has been the strongest military power in the world, and even the rise first of the soviet Union and now China seem to do little to break that monopoly. As long as that remains the case, it is hard to see an alternative reserve currency emerge. I could imagine some niche effects — think of the D-Mark in Europe, or the Swiss Franc in periods of economic uncertainty — but a total challenge to the Dollar appears out of the question as long as the US military remains as dominant as it is today. 

Both arguments combined — economic inertia and military power —  to me suggest a long life ahead for the US Dollar as a reserve currency. What am I missing? Anyone with ideas, please use the comments section below. I may even republish with your permission.

 ews discussing the imminent collapse of the US Dollar and its effect on the US and world economy — including the possible rise of the euro as a reserve currency. 

I think I understand the arguments about potential causes of the collapse, ranging from the effects of Trump’s ill-informed tariffs over the vaguer but no less real concerns about the rule of law and potential economic mismanagement. I also see how this may all lead to a deep reluctance to hold US Dollars or even US government bonds that are denominated in Dollars. 

But I rarely read counterarguments, ie why the US Dollar would survive the Trump circus and keep its central role in the global monetary system. I always used to tell my students that if you have no idea how you could be wrong, the question is not worth asking and the answer not worth giving (Lakatos and Popper informed me). So, here is a way for me to makeOver the last few weeks, I have read more than one column in the FT, NYT, Guardian and book reviews discussing the imminent collapse of the US Dollar and its effect on the US and world economy — including the possible rise of the euro as a reserve currency. 

I think I understand the arguments about potential causes of the collapse, ranging from the effects of Trump’s ill-informed tariffs over the vaguer but no less real concerns about the rule of law and potential economic mismanagement. I also see how this may all lead to a deep reluctance to hold US Dollars or even US government bonds that are denominated in Dollars. 

But I rarely read counterarguments, ie why the US Dollar would survive the Trump circus and keep its central role in the global monetary system. I always used to tell my students that if you have no idea how you could be wrong, the question is not worth asking and the answer not worth giving (Lakatos and Popper informed me). So, here is a way for me to make sense of that question. 

One of the main reasons, it seems to me for the persistent dominance of the dollar is a form of inertia associated with network effects. While the big holders of dollar reserves may have concerns over the path that the US has chosen — both before and after Trump; US declinism is not a new phenomenon — they also, erm, hold a lot of dollars. Abandoning the currency would inevitably lead to massive losses on their foreign reserves, probably more than they can handle.  If I know that my action will make me significantly worse off in the short term, with uncertain gains further down the line, I will, on balance, stick to the status quo.

The second point that speaks in favour of the Dollar is that it not only represented US economic might, but also its military backup. Since probably the First World War, the US has been the strongest military power in the world, and even the rise first of the soviet Union and now China seem to do little to break that monopoly. As long as that remains the case, it is hard to see an alternative reserve currency emerge. I could imagine some niche effects — think of the D-Mark in Europe, or the Swiss Franc in periods of economic uncertainty — but a total challenge to the Dollar appears out of the question as long as the US military remains as dominant as it is today. 

Both arguments combined — economic inertia and military power —  to me suggest a long life ahead for the US Dollar as a reserve currency. What am I missing? Anyone with ideas, please use the comments section below. I may even republish with your permission.sense of that question. 

One of the main reasons, it seems to me for the persistent dominance of the dollar is a form of inertia associated with network effects. While the big holders of dollar reserves may have concerns over the path that the US has chosen — both before and after Trump; US declinism is not a new phenomenon — they also, erm, hold a lot of dollars. Abandoning the currency would inevitably lead to massive losses on their foreign reserves, probably more than they can handle.  If I know that my action will make me significantly worse off in the short term, with uncertain gains further down the line, I will, on balance, stick to the status quo.

The second point that speaks in favour of the Dollar is that it not only represented US economic might, but also its military backup. Since probably the First World War, the US has been the strongest military power in the world, and even the rise first of the soviet Union and now China seem to do little to break that monopoly. As long as that remains the case, it is hard to see an alternative reserve currency emerge. I could imagine some niche effects — think of the D-Mark in Europe, or the Swiss Franc in periods of economic uncertainty — but a total challenge to the Dollar appears out of the question as long as the US military remains as dominant as it is today. 

Both arguments combined — economic inertia and military power —  to me suggest a long life ahead for the US Dollar as a reserve currency. What am I missing? Anyone with ideas, please use the comments section below. I may even republish with your permission.he last few weeks, I have read more than one column in the FT, NYT, Guardian and book reviews discussing the imminent collapse of the US Dollar and its effect on the US and Over the last few weeks, I have read more than one column in the FT, NYT, Guardian and book reviews discussing the imminent collapse of the US Dollar and its effect on the US and world economy — including the possible rise of the euro as a reserve currency. 

I think I understand the arguments about potential causes of the collapse, ranging from the effects of Trump’s ill-informed tariffs over the vaguer but no less real concerns about the rule of law and potential economic mismanagement. I also see how this may all lead to a deep reluctance to hold US Dollars or even US government bonds that are denominated in Dollars. 

But I rarely read counterarguments, ie why the US Dollar would survive the Trump circus and keep its central role in the global monetary system. I always used to tell my students that if you have no idea how you could be wrong, the question is not worth asking and the answer not worth giving (Lakatos and Popper informed me). So, here is a way for me to make sense of that question. 

One of the main reasons, it seems to me for the persistent dominance of the dollar is a form of inertia associated with network effects. While the big holders of dollar reserves may have concerns over the path that the US has chosen — both before and after Trump; US declinism is not a new phenomenon — they also, erm, hold a lot of dollars. Abandoning the currency would inevitably lead to massive losses on their foreign reserves, probably more than they can handle.  If I know that my action will make me significantly worse off in the short term, with uncertain gains further down the line, I will, on balance, stick to the status quo.

The second point that speaks in favour of the Dollar is that it not only represented US economic might, but also its military backup. Since probably the First World War, the US has been the strongest military power in the world, and even the rise first of the soviet Union and now China seem to do little to break that monopoly. As long as that remains the case, it is hard to see an alternative reserve currency emerge. I could imagine some niche effects — think of the D-Mark in Europe, or the Swiss Franc in periods of economic uncertainty — but a total challenge to the Dollar appears out of the question as long as the US military remains as dominant as it is today. 

Both arguments combined — economic inertia and military power —  to me suggest a long life ahead for the US Dollar as a reserve currency. What am I missing? Anyone with ideas, please use the comments section below. I may even republish with your permission.world economy — including the possible rise of the euro as a reserve currency. 

I think I understand the arguments about potential causes of the collapse, ranging from the effects of Trump’s ill-informed tariffs over the vaguer but no less real concerns about the rule of law and potential economic mismanagement. I also see how this may all lead to a deep reluctance to hold US Dollars or even US government bonds that are denominated in Dollars. 

But I rarely read counterarguments, ie why the US Dollar would survive the Trump circus and keep its central role in the global monetary system. I always used to tell my students that if you have no idea how you could be wrong, the question is not worth asking and the answer not worth giving (Lakatos and Popper informed me). So, here is a way for me to make sense of that question. 

One of the main reasons, it seems to me for the persistent dominance of the dollar is a form of inertia associated with network effects. While the big holders of dollar reserves may have concerns over the path that the US has chosen — both before and after Trump; US declinism is not a new phenomenon — they also, erm, hold a lot of dollars. Abandoning the currency would inevitably lead to massive losses on their foreign reserves, probably more than they can handle.  If I know that my action will make me significantly worse off in the short term, with uncertain gains further down the line, I will, on balance, stick to the status quo.

The second point that speaks in favour of the Dollar is that it not only represented US economic might, but also its military backup. Since probably the First World War, the US has been the strongest military power in the world, and even the rise first of the soviet Union and now China seem to do little to break that monopoly. As long as that remains the case, it is hard to see an alternative reserve currency emerge. I could imagine some niche effects — think of the D-Mark in Europe, or the Swiss Franc in periods of economic uncertainty — but a total challenge to the Dollar appears out of the question as long as the US military remains as dominant as it is today. 

Both arguments combined — economic inertia and military power —  to me suggest a long life ahead for the US Dollar as a reserve currency. What am I missing? Anyone with ideas, please use the comments section below. I may even republish with your permission.