The global monetary architecture is currently navigating one of its most volatile phases since the Second World War. In 2025, a double-digit depreciation of the US Dollar against the Euro marked a preliminary flashpoint of mounting political and fiscal uncertainty. While critics are already proclaiming the end of the “Greenback Era,” a more granular analysis reveals a nuanced reality: the US Dollar is walking a tightrope between systemic risk and structural indispensability.
The United States’ fiscal fundamentals have reached a critical inflection point. With national debt exceeding $38 trillion, the administration faces a precarious reality: debt service costs are higher than the defense budget. This dynamic reduces fiscal headroom and fuels skepticism regarding the long-term sustainability of US finances—particularly in the absence of credible frameworks for expenditure discipline.
Compounding this pressure is the increasing politicization of monetary policy. The attempts to influence the Federal Reserve—culminating in legal maneuvers against Chair Jerome Powell—have brought the independence of the central bank to the forefront of market attention. Since institutional autonomy is a prerequisite for many global capital allocators, its erosion threatens to undermine the currency’s credibility. Global players like China are already responding; amid persistent trade frictions, they have reduced their Treasury holdings from well over $1 trillion to under $700 billion, simultaneously bolstering their gold reserves.
In the midst of these tensions, the nomination of Kevin Warsh to lead the Fed marks a potential paradigm shift. Warsh, an experienced former Fed Governor, is considered an advocate of restrictive balance sheet policy. His nomination triggered immediate market relief, reflected in a short-term rebound of the US Dollar. Warsh champions a hybrid approach: while he identifies room for rate cuts driven by AI-led productivity gains, he consistently rejects any unnecessary expansion of the Fed´s balance sheet, arguing it leads to massive capital misallocations. He famously demonstrated this principled stance in 2011 by resigning from the Board of Governors in protest of QE2.
For the Greenback, his appointment is a paradox. On one hand, Warsh is seen as a safeguard for Fed autonomy. On the other, his skepticism toward market-stabilizing interventions raises a critical question: in future scenarios of market stress, who will serve as the “buyer of last resort” for US Treasuries? A reticent Fed could significantly heighten volatility in fixed-income markets.
Despite these idiosyncratic risks, the US Dollar remains the gravitational center of the global financial system. The United States continues to host the world’s most innovative and profitable enterprises—including a software sector that has faced an unprecedented sell-off in recent weeks. A somewhat diffuse fear of AI disruption has compressed valuations to levels not seen by investors in years.
Furthermore, the unparalleled depth of liquidity remains a strong argument for the US currency. The US Treasury market remains the world’s premier trading venue; its nearest rival, Japan, commands only a third of its volume. Similarly, trading volumes in US equity markets dwarf those in Europe. For institutional investors, neither Europe nor Asia currently offers a viable, liquid alternative. Europe continues to struggle with the war in Ukraine, stalled structural reforms, and a uncertain fiscal outlook in France—factors that contribute to ongoing skepticism among international investors.
The US Dollar is unlikely to lose its status as the global reserve currency abruptly. The nomination of Warsh may provide a temporary stabilization of institutional confidence. Nevertheless, the US administration is walking a fine line: market trust is a finite commodity that could be squandered in the long term by unchecked deficit spending, attacks on Fed independence, and protectionist trade barriers. From a risk-management perspective, a balanced currency allocation between the US Dollar and the Euro therefore appears advisable at present.
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