Who wants to own a currency issued by an authoritarian government with a huge deficit, a massive public debt burden and a central bank beholden to a populist autocrat?

Don’t answer that. It’s a trick question.

I’m talking about the US dollar and the irony is that most people — where “people” means everyone from drug cartels in the Sinaloa mountains to FX reserve managers — have no choice but to own a currency with deteriorating fundamentals at a time when the issuing nation’s experiencing an acute institutional credibility crisis.

The dollar ain’t what it used to be, but it’s still the dollar and to say that’s “not nothin'” would be an understatement of epic proportions. Although there’s utility in diversification, the world still runs primarily on the dollar and USD paper is the collateral that makes the world go ’round, as I’m fond of putting it.

As anyone who’s endeavored to establish an alternative order over the past several decades has learned, supplanting the greenback (and/or interest-bearing versions of it) in international trade, finance, commerce and savings is mission impossible. Nothing lasts forever, but this particular set of institutional arrangements was built for durability and it’s by now so entrenched that de-dollarization on a short horizon simply isn’t possible.

Recall the figure above. It’s a bit dated, but it’s accurate enough to reuse. The crucial point is that the dollar’s role in greasing the proverbial wheels far outstrips America’s share of trade and output, a testament to the indispensability of the greenback and related financial infrastructure.

All of that said, Donald Trump delivered a jolt to the system in 2025 when, alongside a slapdash tariff rollout, people close to his administration hinted at, or at least didn’t disavow, an unsettling hodgepodge of ideas with the potential to undercut the dollar’s reserve status. Ideas including, but not limited to, a usage fee for Treasurys, a forced debt restructuring for some holders (i.e., a selective default) and de facto capital controls.

When taken in conjunction with Trump’s militant mercantilism and incessant allusions to reneging on America’s NATO mutual defense commitments, the stage was set for a relatively quick pivot away from the dollar, which in this case means away from US Treasurys. Or so said critics like myself who became obsessed with the so-called “sell America” narrative.

I don’t know about anyone else, but I was happy to be wrong. By year-end, USTs recovered losses both in absolute terms and relative to other developed market sovereign debt, a huge sigh of relief.

As the updated figure above shows, USTs still underperformed, but it could’ve been far, far worse.

What about the dollar itself? Well, it was down for 2025, and markedly so. Indeed, this was the worst year for the greenback since the first year of Trump’s first term. That’s probably not a coincidence.

The simple figure below gives you some context for this year’s ~9% drop.

Forgetting anything to do with trade and what I’ll generously call Trump’s assertive domestic management style, the albatross is this White House’s overbearing approach to the Fed.

In the event Trump nominates Kevin Hassett to replace Jerome Powell, most observers expect additional dollar weakness given the read-across for monetary policy independence at a time when inflation’s still running well north of target.

Even if Trump goes with the “other” Kevin, investors will harbor the same concerns, just with less urgency.

There’s one caveat, and it’s not a small one: If there’s a catastrophe of some kind — a real one like, say, a pandemic — all anyone will want is USD cash. And they’ll sell anything that isn’t tied down to raise it.