“The end of the dollar’s reserve status will be a process, not an event." ~ Ray Dalio, Author, founder of Bridgewater Associates

Markets entered 2025 high on U.S. exceptionalism and expectations of a Mar-a-Lago-Accord to alleviate the headwinds form the strong U.S. Dollar. How quickly things change. Whispers are now about a once unimaginable debt crisis and the threat to the U.S. Dollar's reserve currency status.

In the gilded halls of global finance, few ideas are more heretical than the fall of the U.S. dollar. Yet, those whispers are growing louder. Could the unthinkable happen? Could the United States — issuer of the world’s reserve currency and anchor of the post-WWII era — stumble into a sovereign debt crisis?

The warning lights are definitely flashing. America’s debt has surged past the highs of WWII (Exhibit 1), with interest costs for the first time in over 100 years greater than defence spending. The Congressional Budget Office (CBO) projects that by the 2030s, debt service will consume more than 20% of federal revenue.

Enter DJT!

President Trump’s second term – so far – has been defined by tariffs and trade wars. Making enemies and threats accepted norms. Dollar bashing, fiscal chaos and political uncertainty, will only serve to weaken the global faith in U.S. governance and the Treasury market’s sanctity. As Howard Marks once pointed out: confidence, once lost, is hard to rebuild.

History offers uncomfortable parallels. The British pound, once the crown jewel of global finance, slowly lost its reserve status after WWII as debt ballooned and empire waned. The Dutch guilder and Spanish real before it followed similar arcs. In each case, a mix of overreach, fiscal strain, and loss of geopolitical dominance catalysed decline. Today, the U.S. faces a toxic brew of rising debt, political polarisation, and waning global trust.

But before the doomsayers’ cheer, let’s remember: the U.S. remains uniquely powerful. It controls its own currency, commands the deepest capital markets, and benefits from a network of alliances and military reach that no rival can match. Treasuries are not just assets — they are global collateral.

Whilst there are certainly increasing support for a global trading system NOT based on the U.S. Dollar, the reality is there is currently no alternative.

Yet, even reserve currencies are not immune to slow erosion. If the U.S. continues to weaponise its financial system and abandon fiscal prudence, the shift from supremacy to doubt could happen faster than most expect.

Seeing how and why the United States might default on its interest payments is practically impossible and a full-blown sovereign debt crisis implausible. However, the road they are on has been walked before. Ignore the smoke, and someday, you may all feel the fire.

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A sovereigndebt crisis occurs when a country cannot repay its government debt, leading todefault or restructuring. This undermines investor confidence, raises borrowingcosts, and often triggers economic instability, currency devaluation, inflation,and austerity measures. It may require international bailouts to restorefinancial stability and prevent broader contagion. Debt crises are most commonin fragile emerging market economies.

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