By Martin Baccardax

Corporate America is littered with the logos of former giants, from Sears to Blockbuster Video, highlighting the fact that dominance, while powerful, isn't permanent. The U.S. dollar, the world's reserve currency for the past sixty years, could potentially face a similar historic challenge.

At first glance, that looks unthinkable. Around half of all invoices for global trade are in greenbacks, according to data from the Brookings Institution, as is about two-thirds of global debt.

But its share of global reserves, the amount of dollars and other currencies held by foreign central banks, has been in sharp decline over the past two decades. According to figures from the International Monetary Fund published last year, it has fallen from around 72% in 2000, just after the birth of the euro, to around 56%.

The IMF noted, as well, that while the dollar has become less dominant as a reserve currency, no counterpart, such as the euro, the yen, or the pound, has emerged to replace it. European Central Bank President Christine Lagarde, a former IMF managing director, thinks that could change.

"In the history of the international monetary system, there are moments when the foundations that once seemed unshakable begin to shift," she said during a speech in Berlin on Monday. In a less-than-subtle nod to U.S. changes in trade, taxation, immigration, and foreign policy, Lagarde said that there is developing "uncertainty about the cornerstone of the system: the dominant role of the U.S. dollar."

There is at least some evidence to support this view. The U.S. dollar index, which tracks the greenback's value against a basket of its biggest currency peers, has fallen nearly 11% over the past three years as domestic budget deficits have ballooned and overall debt levels swelled.

Alternatives such as gold and Bitcoin, meanwhile, have surged. Their prices have rallied 80% and 453%, respectively, over that time.

The euro's rise, while not as meteoric, has also been impressive. The common currency, now shared by 20 of the 27 nations in the European Union, has gained almost 19% against the dollar since 2022, with a 9.5% advance so far this year.

The currency is still a long way away from challenging the greenback. It accounts for only around 20% of global reserves, comprises around 30% of global trade invoices, and denominates a fifth of global debt, but it is gaining.

Lagarde says that advance could be quickened by action from EU officials that integrate financial systems, deepen capital markets, and overhaul domestic economies within the bloc's domestic economies. She called it a "global euro moment."

The dollar may not have a singular moment of collapse, but it could suffer from poor decisions, just as Blockbuster did during its reign in home entertainment. Examples include teaming up with the scandal-ridden energy trader Enron to develop an online streaming service and turning down an offer to buy Netflix for $50 million in early 2000.

In the U.S.'s case, errors could include threatening trading partners that use the currency with tariffs, failing to protect its value through irresponsible borrowing and spending and alienating the overseas lenders crucial to funding its budget deficits.

No reader who remembers browsing a packed Blockbuster outlet on a Friday night in the late 1990s, free popcorn in hand, would imagine it collapsing into bankruptcy just over a decade later. The dollar isn't likely to meet a similar fate.

But if current themes persist, it isn't likely to hold on to its "exorbitant privilege" as the world's only true currency option that former French President Valéry Giscard d'Estaing once ascribed to it.

Write to Martin Baccardax at martin.baccardax@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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May 28, 2025 03:30 ET (07:30 GMT)

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