The dollar endures, but for how long?
Reports of the currency’s demise are greatly exaggerated, writes Massimiliano Castelli, head of strategy and advice, sovereign institutions, UBS Asset Management.
For decades, the dollar has been the bedrock of the global financial system. Its liquidity, trust and centrality in trade and capital markets have made it the unrivalled dominant reserve currency. But in today’s fractured geopolitical landscape and evolving macroeconomic environment, that dominance is no longer taken for granted.
The UBS Reserve Manager Survey 2025, conducted with close to 40 central banks, confirms that the dollar retains its central role. Nearly 80% of respondents expect it to remain the dominant reserve currency in the foreseeable future. But scratch beneath the surface, and a more complex picture emerges: one where confidence is waning, hedging is increasing and inertia – not conviction – is what continues to anchor the dollar’s role.
Trump 2.0 and the trust factor
The second Donald Trump presidency has introduced a new level of uncertainty and central banks are less forgiving than in the first mandate. According to the 2025 RMS survey, 65% of central banks fear for the independence of the Federal Reserve, and 47% worry about a deterioration in the rule of law in the US – both core institutional pillars that underpin the credibility of the dollar as a safe haven. Additionally, nearly half the respondents believe that a restructuring of US debt could be a plausible scenario in the years ahead, marking a notable increase in perceived credit risk for US sovereign assets.
There is also concern that economic data and market regulation could become politicised under the current administration. The survey found that 47% of reserve managers fear a deterioration in the quality and independence of US economic data, and 29% worry about potential restrictions in capital market openness.
These concerns strike at the very foundation of why the dollar has long been perceived as a 'safe' reserve asset.
The dollar: dominant, yet doubted
Despite this, reserve managers have not yet acted decisively. Only 29% report having reduced their exposure to US assets, and most still expect demand for both US Treasuries and the dollar to stagnate rather than fall sharply. A mere 6% foresee a ‘fundamental negative shift’ in demand for the dollar, and only 3% expect a steep decline in demand for US debt.
This reflects an important truth: the dollar may be increasingly questioned, but no serious alternative has emerged to unseat it.
Liquidity, transparency and trust in the rule of law – even if now contested – continue to set the US financial system apart. Moreover, the network effects of the dollar's role in trade invoicing, energy markets and cross-border finance are self-reinforcing. In moments of crisis or geopolitical stress, the expectation is that capital will still flow towards the US, not away from it, even though this assumption was tested during April’s tariff-related market meltdown.
Europe: high hopes, limited tools
One of the great hopes among reserve managers is the euro: 74% of survey respondents believe it will benefit from global macroeconomic and geopolitical shifts over the next five years. In fact, the euro was the most frequently added currency to reserves in the past year, while the dollar was the most frequently reduced.
But here too, optimism comes with caveats. The euro area lacks the institutional and fiscal unity necessary to fully rival the dollar. No pan-European Treasury market exists, and capital markets remain fragmented across jurisdictions. Political cohesion remains fragile, and the euro still lacks the deep, liquid pool of safe assets that US Treasuries provide.
One of the great hopes among reserve managers is the euro: 74% of survey respondents believe it will benefit from global macroeconomic and geopolitical shifts over the next five years.
While many reserve managers view Europe as a hedge against US political risk, this hedging remains tactical rather than strategic. For the euro to move from contender to true competitor, Europe must act boldly and structurally. That means: a) completing the capital markets union to deepen liquidity and unify regulatory frameworks; b) expanding supranational issuance, creating a euro-area equivalent of US Treasuries; c) pursuing fiscal integration to enhance stability and market confidence during downturns; d) ensuring strategic autonomy, especially in technology, defence and trade policy.
Without these reforms, Europe will remain a regional pillar, not a global monetary anchor.
China’s renminbi: rising, but still restricted
The Chinese renminbi also continues to attract attention. The survey found that 59% of reserve managers expect it to benefit from global shifts, and 61% either hold or consider holding renminbi reserves. The 10-year target allocation rose to 5.9%, up from 5% last year.
Despite this progress, actual renminbi allocations remain modest and structural barriers persist. Capital controls, limited financial market openness and US-China confrontation constrain the renminbi’s global appeal. The recent US-China tensions have accelerated some central banks’ interest in diversifying towards Asia – but not enough to produce a systemic reallocation away from the dollar.
The renminbi may well play a larger role in a multipolar currency world, but that world remains years – if not decades – away.
Digital currencies and gold: hedges, not heirs
Digital currencies have entered the conversation in a more serious way. This year, 44% of reserve managers believe cryptocurrencies or stablecoins could benefit from macro shifts, putting them ahead of traditional currencies like the yen or Swiss franc. However, the market remains fragmented, and regulatory clarity is still lacking in most jurisdictions.
Interestingly, there’s also a geopolitical angle: some central banks see dollar-pegged stablecoins as a tool to enhance demand for short-dated Treasuries, while others view central bank digital currencies as a pathway to reduce reliance on the dollar altogether. The battle between decentralised and centralised digital monetary systems will undoubtedly shape future reserve strategies – but for now, the impact remains peripheral.
Gold, meanwhile, has reasserted itself as a hedge against geopolitical dysfunction. The survey found that 67% of central banks believe gold will offer the best risk-adjusted returns over the next five years, and 88% cite geopolitical hedging as the primary motivation for increasing allocations.
But even gold has its limits. At current elevated prices, many reserve managers are cautious, viewing further allocation as defensive rather than strategic. The idea of gold as an inflation hedge also carries less weight today than it did in previous high-volatility periods.
The real trend: rebalancing, not replacing
The key takeaway from the survey is not one of revolution, but recalibration. Central banks are not rotating wholesale out of the dollar, nor are they rushing towards new currencies or exotic asset classes. But they are preparing for a more fragmented and unstable world by building optionality into their portfolios.
That means incremental diversification, a tilt towards assets like green bonds, and a more active approach to managing geopolitical tail risks. It also means a greater willingness to re-evaluate the assumptions that have underpinned reserve management for the past 30 years.
The 2025 UBS Reserve Manager Survey does not suggest the imminent decline of the dollar. But it does underscore a crucial turning point in how central banks think about currency dominance. The tone has shifted from certainty to scenario planning, from conviction to caution.
In this world, the dollar remains the anchor of global reserves—but the moorings are under stress. If the US continues to drift towards institutional erosion, debt overhang and unpredictable policy-making, the willingness of global reserve managers to tolerate these risks may eventually erode as well.
As Mark Twain might have said, reports of the dollar’s demise are greatly exaggerated. But they’re no longer entirely unfounded either.
The views expressed are as of July 2025 and are those of the authors and not necessarily the views of UBS Asset Management. This article is a marketing communication and the information herein should not be considered investment advice or a recommendation to purchase or sell securities or any particular strategy or fund. Information and opinions have been provided in good faith and are subject to change without notice.