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The United States dollar remains the most widely used currency on the planet1.
- Market participants wishing to trade in almost any global, high-volume commodity, from coffee to copper, will need to transact in US dollars2.
- Recent rumblings around de-dollarisation are misplaced, but the dollar has certainly shed some of its value due to government policy, debt concerns and other safe-haven assets.
The global reserve currency
The United States dollar is the most widely used currency on the planet3. and the functioning of the global economy is heavily reliant on the dollar. The coffee market is an example of this. The price for coffee beans is effectively set through trading on exchanges across the US and Europe and is priced in dollars4 5. Any multinational food company, coffee chain or wholesaler will need to transact exclusively in dollars in order to buy coffee. This pricing is not limited to coffee, and is replicated across the overwhelming majority of global, high-volume commodity trading such as gold, silver, copper, aluminium, corn, wheat, cocoa etc. Even Brent Crude, which refers to oil produced in the North Sea, is traded in dollars6.
Central banks globally use reserve funds to intervene in foreign exchange markets. To prevent their domestic currency from depreciating, central banks will sell foreign reserves and buy their own currency. Conversely, they will buy foreign currency to curb excessive appreciation. Typically, central banks use the dollar for this process7.
Foreign countries also frequently issue debt in dollars, meaning rather than borrowing in their domestic currency they borrow in dollars instead8.
These factors, among others, cause disproportionately high dollar demand and therefore a strong exchange rate. This lowers the cost of imports and attracts foreign capital into US assets, such as Treasury bonds and corporate debt, allowing the US government and businesses to borrow money at lower interest rates.
De-dollarisation?
In recent years concerns have been raised that the dollar is losing its reserve currency status. The dollar has weakened recently when compared to a basket of other currencies – see Figure 1 – and the dollar has fallen to levels not seen for four years.
Figure 1: US Dollar Index (DXY or “Dixie”), which compares the dollar’s value to the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc, over the last five years.
However, as a share of international payments there is no sign that the dollar is becoming less relevant. We are seeing a greater incidence of Chinese renminbi usage, which is mooted as a challenger currency9, but a move towards alternative payment methods and robust infrastructure that reduces reliance on the dollar have not yet materialised.
Figure 2: major currencies as a share of international payments.
One of the most topical reasons investors are nervous about the dollar is the policies of the Trump administration. Erratic trade policies and unpredictable tariff threats have weakened the dollar’s reputation as a “safe haven”. Furthermore, political pressure on the Federal Reserve has raised concerns about the independence of U.S. monetary policy.
In addition, the ballooning level of US debt is another potential issue. If the market were to see this as unsustainable, it would undermine the trust in the dollar’s value.
Further issues are the increased buying of gold by central banks, rather than safe-haven US government bonds, and risks posed by digital currencies.
What does a weaker dollar mean?
A weaker dollar makes US exports more attractive around the world. Boosting manufacturing is a key policy of Trump and a weaker currency helps make that a reality. However, it also increases prices domestically for anything imported into the US; the US is a net importer10 and therefore this could lead to inflation.
For foreign investors when the dollar weakens the value of US holdings effectively falls when converted back to their own currency. Investors need to decide whether to maintain this exposure or pay to immunise against it i.e. hedging.
Foreign countries and companies issuing debt in dollars find it cheaper to service interest and principal payments, therefore giving them more fiscal space, or enabling faster debt repayment and stronger balance sheets. This has been a boon for emerging markets.
Bowmore portfolios
As stated above, a weak dollar helps countries manage their debt, and this has particularly helped emerging economies who issue a lot of dollar debt. The Redwheel Next Generation Emerging Markets Fund that we hold in Core portfolios has considerable exposure to frontier markets, i.e. countries that particularly stand to gain from a weak dollar. Since 1st January 2025 this fund has delivered a total return of 41%11.
The JPM Emerging Markets Income fund, held in Core and Income portfolios, has exposure to relatively more developed countries, with not quite as much dollar sensitivity, and delivered 32% since 1st January 202512.
Source: AlphaTerminal, data as at 06/02/2026
The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a guide to future performance.
Sources:
[1] De-dollarization: The end of dollar dominance? | J.P. Morgan
[2] Commodity Prices | Commodity Market | Markets Insider
[3] De-dollarization: The end of dollar dominance? | J.P. Morgan
[5] Coffee C Futures
[7] The Fed – The International Role of the U.S. Dollar – 2025 Edition
[8] The Fed – The International Role of the U.S. Dollar – 2025 Edition
[9] The Fed – The International Role of the U.S. Dollar – 2025 Edition
[10] United States Balance of Trade
[11] AM Insights
[12] AM Insights