Economic Monitor – Weekly Commentary
by Eugenio Alemán

More on the U.S. Dollar: Still King in a Shaky Kingdom

October 10, 2025

Chief Economist Eugenio J. Alemán discusses current economic conditions.

If you are an avid follower of our weekly write-ups, you know that we are rabid defenders of the U.S. dollar as the preeminent global currency. And before you get too far into this write-up, be sure to know that we are still very much in that camp. Our arguments over the years have been many. But probably the most important is this one: “In the land of the blind, the one-eyed man is king,” as nobody has shown an alternative currency that performs better over time than the U.S. dollar. Furthermore, as is the case with investment decisions, investors should look at the long game, and while the dollar has depreciated lately, it is still very strong compared to the early part of this century.

For those who argue that the move in favor of gold is a sign of the upcoming demise of the dollar, good luck trying to clip off a piece of your ingot to pay for goods and services. If you say you will not use gold to pay for goods and services, then that means that you will probably have to sell the gold back into the market and, probably, get dollars. Of course, some fans of crypto would argue that they will sell the gold for crypto and then pay with crypto for your goods and services. But why would you have to buy a ‘currency’ that costs so much to produce, is so expensive to acquire (or not!), and whose value is so volatile over time as crypto is?

The U.S. dollar has indeed depreciated at a time when it typically should have appreciated because, in investors’ minds, the dollar is less risky than other currencies in times of crisis. Furthermore, when tariffs are imposed, economic theory indicates that a country’s currency tends to appreciate, i.e., make the U.S. dollar stronger, rather than weaker.

However, from the graph in the previous page, it is clear that the U.S. dollar had appreciated considerably, both in nominal as well as in real terms, since the late part of 2014, so it would not be strange to see some correction in the value of the dollar, even if we did not have a crisis. This is especially true with an administration that seems to prefer a weaker dollar. Does this mean that the dollar is about to fall apart? Does it mean that the dollar is losing favor with investors? Does it mean that the U.S. government is about to ditch the dollar and make us all poor?

We understand that there are lots of investors concerned with the value of the dollar. And yes, there is at least one new piece of research, from Steven B. Kamin, from the American Enterprise Institute, that seems to show that after Liberation Day, on April 2, “the dollar switched from being a safe-haven currency that appreciates in times of market volatility to a ‘risk-on’ currency that moves inversely with volatility.”1 This is, of course, concerning because there are relatively few currencies that are considered trustworthy around the world, and the U.S. dollar is the most important of them.

However, Kamin ended his research piece stating that “Most recently, the dollar’s sensitivity to the VIX (i.e., volatility) has retraced some of its earlier decline, but whether this signals a return to the dollar’s safe- haven status remains to be seen.”

The research paper makes good points and clearly shows that something was different after the April 2 Liberation Day. However, as the paper concludes, this may have only been a temporary event. At the same time, the dollar, as we have argued many times, has many more functions than being a less risky currency for investors. True, being a safe-haven currency is very important for remaining a reserve currency, but it is not the only important characteristic.

Furthermore, the current administration may be looking for a weaker dollar because it believes it is beneficial for the country’s ability to export. If this is the case, this is a new U.S. dollar policy compared to the last 40 years, when U.S. administrations promoted a “strong dollar policy.” Thus, it is no surprise that this may be helping in weakening the U.S. dollar, compared to the previous dollar policy.

However, in the grand scheme of things, and as the graph above shows, today’s U.S. dollar weakness pales compared to the value of the dollar as we approached the 2008 financial crisis.

So, in summary, are we still convinced that the U.S. dollar will remain the most important reserve currency for decades, and perhaps for generations to come? Yes.

Q: Will the U.S. dollar lose its preeminent place in the global economy someday in the future?

A: Maybe, but we won’t see it, and neither will our children, grandchildren, or even our great- grandchildren see that happening.

Q: Is losing its reserve currency status a serious issue?

A: Probably not. If you don’t believe us, ask any of your British friends how they have survived after the British pound lost its importance as the preeminent reserve currency.

Q: What are the real threats to U.S. dollar supremacy?

A: It is hopefully not the YouTube videos that try to sell doomsday, so you pull your U.S. dollar investments out so the person making it can collect ad fees from the YouTube videos and go on “living la vida loca”.

The real threats to U.S. dollar supremacy, in terms of importance, and according to our analysis, are:

• Lack of Federal Reserve independence
• Failure to keep inflation down and close to the target
• Not reducing the fiscal deficit to stabilize the growth rate of S. debt
• Continuous weaponization of the S. dollar in geopolitics
• Further central banks reserve diversification
• Trade and tariff policies

---

Economic and market conditions are subject to change.

Opinions are those of Investment Strategy and not necessarily those Raymond James and are subject to change without notice the information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no assurance any of the trends mentioned will continue or forecasts will occur last performance may not be indicative of future results.

Consumer Price Index is a measure of inflation compiled by the U.S. Bureau of Labor Studies. Currencies investing are generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.

The National Federation of Independent Business (NFIB) Small Business Optimism Index is a composite of ten seasonally adjusted components. It provides a indication of the health of small businesses in the U.S., which account of roughly 50% of the nation's private workforce.

The producer price index is a price index that measures the average changes in prices received by domestic producers for their output. Its importance is being undermined by the steady decline in manufactured goods as a share of spending.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.