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Too Early to Bury the King Dollar
- Marcus Nikos
- May 4
- 10 min read
After just more than 100 days of the 'Manipulator-in-Chief' occupying the Oval Office, investors have already adapted to the new normal: Forward Confusion — a trusty blend of fear, greed, and smoke-and-mirrors, peddled by both the 47th president and his media cheerleaders. Between the grandiose announcements of ‘liberatory’ tariffs (and the inevitable flip-flops) and the latest death foretold for King Dollar, it’s clear: the same propagandists funded by shady subsidies are hard at work, spinning regime change fantasies and selling it as news.
Sure, the first four months of the so-called Jubilee year have seen the USD stumble against its G10 playmates, but let’s not kid ourselves, we've seen this movie before, and King Dollar isn’t exactly lying in a coffin yet.
Performance of G10 currencies against the USD since the start of the year.
Anyone who's been awake since 2020 — and especially since the "who-could-have-seen-it-coming" weaponization of USD assets after February 2022 — knows that de-dollarization didn’t just start; it hit the gas pedal. In a nutshell, King Dollar is still sitting on the throne, but it's looking a little shaky: its share of global reserves has been zigzagging lower for years as central banks quietly swapped dollars for other currencies... and, of course, for that barbarous relic, gold.
According to the IMF’s latest COFER data (Q3 2024), the USD’s share dropped to 57.4% — the lowest since 1994. Back in Q1 2015, it was 66%. At this rate, the dollar will slip below 50% by 2034 — not that anyone at the Fed or the Treasury seems too worried as they keep tossing gasoline on the fire.
Let’s not rewrite history: the dollar’s share already dipped below 50% back in 1990–1991, after a glorious nosedive from 85% in 1977 — courtesy of the FED’s stellar performance during the inflationary chaos of the 1970s. Confidence in the dollar was circling the drain. But surprise, surprise: by the 1990s, central banks were piling back into dollar assets, at least until the euro showed up to crash the party.
Foreign Exchange Holdings in US Dollars as a Percentage of Total Allocated
Over the last year, the euro’s share ticked up to 20%, the highest since 2022 — which is another way of saying it’s been stuck at 20% forever. Meanwhile, the messy pile of "other currencies" has quietly gained ground while the euro snoozed. China’s renminbi? Despite all the 2016 hype after joining the IMF’s SDR basket, it’s been sliding backward, now even trailing the Australian dollar. Turns out central banks aren't thrilled about capital controls and funny money rules. So much for the "end of the dollar" narrative.
The IMF found 46 “active diversifiers” among central banks — basically anyone with at least 5% of their reserves in "nontraditional" currencies. Why? Simple: better liquidity and desperate yield-chasing during the not so distant 0%-interest era. Meanwhile, the USD has been on a rollercoaster and is still miles below its 1985 glory days. Fun fact: today’s dollar index level is right where it was in December 1977, while the price of gold expressed in the same USD is eight times higher than it was that year.
USD Index (DXY Index) (blue line); Gold Price in USD (red line).
Everyone must remember that gold bullion isn’t considered a “foreign exchange reserve” asset by central banks, so it doesn’t make it into the IMF data. It’s just a “reserve asset,” no big deal, not involving any foreign currency and counterparty risks, of course. After decades of offloading their gold like it was a bad investment, central banks suddenly decided about 10 years ago that maybe, just maybe, having some gold on hand wasn’t such a terrible idea after all especially in an increasingly polarized world where the rule of law can depend on an executive order or a tweet.
IMF World Reserve Gold Holdings.
While some are jumping off the "Trumperialism" bandwagon and trying to diversify away from the USD, they’re missing a crucial point: the world still needs dollars to pay off all that past debt in greenbacks. And speaking of clever ideas to create more demand for USD assets, enter the GENIUS Act. Yes, you read that right. The "Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025" (GENIUS Act) aims to regulate stablecoins, which are essentially digital assets pretending to be as stable as the dollar and decentralized from the dollar. It's got everything: anti-money laundering provisions, a nice bipartisan stamp of approval, and the Federal Reserve overseeing the big players. So, while everyone’s busy predicting the death of the King Dollar, the U.S. is just busy making sure it stays in charge — in digital form, no less.
The GENIUS Act, which clears up U.S. regulations on stablecoins, passed the Senate Banking Committee in March and is on track for a smooth ride through Congress and a presidential sign-off by summer. This legislation would give the stablecoin industry an official seal of approval, making digital assets that mimic the stability of the USD even more legitimate—because who doesn’t want more stable, government-backed digital money?
Stablecoin supply is set to skyrocket from USD 230bn today to a cool USD 2tn by 2028, thanks to the GENIUS Act. This surge has big implications for US Treasury buys and the almighty USD’s grip on the global stage. Currently, stablecoins are mainly tethered to Ethereum (60%) and Tron (30%), with USDT (Tether) and USDC (Circle) dominating at 63% and 25%, respectively. Originally used for crypto trading and lending, stablecoins are now becoming a go-to for saving, transacting, and cross-border USD-to-USD dealings. Stablecoin growth has been on fire, with a 50% annualized increase over the past two years. Once the GENIUS Act takes effect, we’re looking at 100% annual growth, pushing monthly transaction volumes from $700bn to $6tn by 2028. This would boost stablecoin usage to 10% of global FX spot-market volume. The Federal Reserve’s Waller sums it up: stablecoins are just another way to keep the USD in charge. And with issuers like Circle stacking up short-duration T-bills, we could see a $1.6tn surge in new T-bill demand by 2028. This would soak up all the new T-bills issued during Trump’s second term, leaving money-market funds as the only bigger players. In short: stablecoins, powered by USD, are reinforcing the dollar’s dominance while conveniently sidestepping threats like tariffs and trade fragmentation.
While tariffs continue to grab the headlines in 2025, the real power play lies in the US’s dominance over the global financial system. A recent Reuters report highlighted European policymakers questioning whether the FED would step up to provide dollar liquidity during financial stress. Whatever those preaching the death of the USD in financial media can spread as fake news, the FED remains the sole global lender of last resort, holding the liquidity nuclear button that can launch the crucial dollar swap lines.
New York FED Total Swap Lines since 2005
If the FED pulls back on its swap lines, it could trigger a global financial meltdown. But here's the twist: such a move could also speed up the world’s efforts to de-dollarize, giving the US a wake-up call bigger than a cold coffee on a Monday morning. It’d be the biggest push for de-dollarization since the post-WWII financial system was built—especially if America’s allies start questioning the Fed's reliability.
So, what’s the deal with Fed swap lines?
The dollar’s still king, dominating global trade and assets like US Treasuries. But where do non-US folks get their dollars? Spoiler alert: not from US imports. They borrow it through the FX swap market—basically a fancy way of saying, "Hey, I’ll trade you my currency for dollars now and give it back later." It’s like a short-term loan, but much cooler.
The FX swap market is huge, about $97 trillion. And guess what? The dollar makes up 88% of it. The best part? This borrowing is supposed to be relatively low-risk because the full exchange happens up front and institutions like Continuous Linked Settlement (CLS) keep it from turning into a financial dumpster fire.
There's a big vulnerability in the FX swap market: most of these swaps are short-term, but the corresponding dollar assets have much longer durations. This mismatch creates a liquidity headache when US banks are under pressure or when global crises, like the 2008 financial meltdown or the 2020 COVID pandemic, spark a rush for safe assets. When banks can't—or won’t—roll over these short-term dollar loans, it leads to a liquidity crunch.
Enter the FED, the international lender of last resort. When dollar funding gets tight, the FED steps in just like any central bank would for local banks. During the 2008-09 crisis, the FED set up swap lines with five other advanced economies to help out, eventually expanding to ten. The balance sheet swelled, with drawdowns peaking at $550 billion. Fast forward to the Covid crisis of 2020, and swap lines were tapped again, reaching almost $450 billion, calming the dollar chaos. So, when dollar liquidity gets tight, the FED has a special “high-powered” solution, and everyone else gets a lifeline.
Could the FED use its swap lines as an economic weapon? You bet. While the FED controls the dollar liquidity kingdom, the US administration can still pull a few strings—whether through charm (moral suasion) or the occasional friendly FED board appointment. But let’s look at the fun stuff: what happens if the US decides to stop being the world’s dollar supplier?
If the FED pulls back during a crisis, chaos would ensue. Remember 2008 and 2020? Without Fed intervention, foreign central banks and the IMF would’ve struggled to meet dollar demand, jacking up borrowing costs, triggering defaults, and possibly blowing up the global system. But here’s the catch: using the swap lines as leverage is like playing with fire. First, the dollar would skyrocket in value as the world scrambles for it, causing stress to come right back home to the US. Second, since FX swaps hedge foreign assets in the US, it could trigger a panic sale of US assets, like Treasuries. Bad news for the home team.
Could the US be selective with its swap lines? Sure, they could dangle them as a geopolitical bargaining chip. But this might strengthen the dollar in the short term, while sending a big "We’re not all in on the dollar" message in the long run. This could speed up the de-dollarization movement, especially with rivals like China and Russia already building financial systems outside the dollar.
In the end, if the US allies start questioning the FED’s commitment to keeping the dollar flowing, the dollar could lose its crown as the world’s top currency. This could lead to a drop in foreign ownership of US assets and a major blow to the dollar’s dominance. So, pulling back would be like yanking the rug from under the dollar, triggering the most epic de-dollarization wave ever.
Meanwhile, the Global South is growing impatient with the geopolitical risks tied to accessing USD liquidity, especially at a time when USD is still needed to service the massive debt accumulated during the Covid lockdown era and less dollars are generated since the global south is increasingly trading in respective local currencies as a pillar of its mercantilist development. On November 13, 2024, China made its first-ever sovereign USD bond debut in Saudi Arabia—raising a cool $2 billion, with demand hitting $39.73 billion. This wasn’t just a financial move; it was a clear shot at strengthening ties with Saudi Arabia and aligning with Vision 2030. It’s a strategic play, not just a bond. This issuance wasn’t just about money—it’s a diplomatic jab, diversifying the global financial system. The funds raised could fuel China's Belt and Road Initiative, reducing reliance on USD liquidity that’s beyond the reach of the FED and, ultimately, the US government.
Looking at the facts rather than listening to the propaganda spread by desperate news outlets with no track record in financial investment, if the real ultimate goal of implementing retaliatory tariffs is to promote Foreign Direct Investment (FDI)—as attracting foreign investors to build plants and manufacture goods in the US is seen as key to reindustrialization and "making America great again"—then a look at the past 30 years of data shows a close correlation between FDI in the US and the evolution of the DXY (US Dollar Index). As common sense should dictate, when foreign investment increases, the DXY tends to strengthen, suggesting that FDI flows have a positive impact on the value of the US dollar. This dynamic reinforces the idea that fostering FDI could be a crucial driver of both economic growth and dollar strength.
USD Index (DXY Index) (blue line); FDI In the US (red histogram).
Outside the propagandistic narrative of the mainstream media, investors who understand the business cycle and analyse it through market data know that when the US economy shifts from boom to bust—like when the S&P 500 to oil ratio falls below its 7-year moving average—the USD index has historically strengthened and recorded its best 12-month returns. With real economic problems looming not in the US, but in Europe, including the UK and Japan, it’s hard to see how the next US economic downturn won’t trigger another wave of USD strength.
Upper Panel: S&P 500 to Oil Ratio (blue line); 7-Year Moving Average of S&P 500 to Oil Ratio (red line); Middle Panel: USD Index (DXY Index); Lower Panel: USD Index 12-Month Rate of Return (Yellow histogram).
When the Gold to Bond ratio breaks above its 7-year moving average in an inflationary environment, unlike the S&P 500 to oil ratio, it hasn't triggered a clear trend in the greenback or its 12-month rate of return. This suggests that while inflationary pressures may be present, they don't always translate into a consistent impact on the US dollar's performance over the following year.
Upper Panel: Gold to Bond ratio (blue line); 7-Year Moving Average of Gold to Bond Ratio (red line); Middle Panel: USD Index (DXY Index); Lower Panel: USD Index 12-Month Rate of Return (Yellow histogram).
For equity investors, the recent dip in the USD index should raise some eyebrows. Historically, a weak DXY tends to signal an economic bust in the US, which—surprise, surprise—also leads to lower EPS for the S&P 500 over the past 35 years.
S&P 500 12-month forward EPS (red histogram); USD Dollar Index(DXY Index) (blue line).
So, it’s no shocker that a weaker USD against its fiat peers has historically been the trigger for lower valuations of US equities. The trend speaks for itself!
S&P 500 12-month forward P/E (red histogram); USD Dollar Index(DXY Index) (blue line).
If anyone still thinks the EUR, GBP, or JPY are better for wealth preservation than the USD, they should remember that the Eurozone is practically falling apart. They’re teetering on the edge of a sovereign debt default—nothing like not being able to pay off your old debt with new debt, right? And let's not forget the endless media drumbeat about war in the region. If you’re still buying European debt at this point, you must have a death wish. Europe needs war to keep the whole thing from collapsing, and it's all about keeping the power in the hands of those who can't admit their mistakes—like Macron, Tusk, and Merz. They're so desperate to stay relevant, they might just drag the world into World War III. Russia? Doesn’t want it. But Europe keeps crossing red lines, hoping Putin will bite so they can point fingers and call him the aggressor. It’s only a matter of time before Europe pulls a "false flag" and blames it on Putin, just like the CIA wanted to do with Cuba in Project Northwoods. But sure, any mention of this is just a “conspiracy theory,” right?
