The world’s starting to swipe left on the greenback

• As trust in America’s stability wavers, more countries have been trading in local currencies, trimming their US dollar reserves, and exploring alternatives like gold, euros, and even digital currencies
• Reduced demand for US assets could lift the country’s interest rates, pressure American markets, and boost overlooked areas like gold, emerging markets, and non-dollar reserves
• As de-dollarization gains traction, you may want to spread your exposure across currencies, geographies, and real assets. Doing so could help you stay ahead of this slow-moving but significant shift.

The US dollar has always had a kind of financial gravity – everything orbits around it. It’s the currency the world uses most for investing, trading, and holding in reserves. From commodity buys to international debt payments, the greenback has earned its “almighty” stature. But lately, the halo’s been slipping.

More and more, folks are talking about de-dollarization – a global shift away from using the US dollar. And while it might not mean a sudden, all-at-once upheaval, it does indicate that the world is starting to hedge its bets. So you’ll want to pay attention to that.

What is de-dollarization – and why is everyone talking about it?

Put simply, de-dollarization is what happens when fewer people want to rely on the dollar. It’s the end result when central banks opt to hold fewer greenbacks in their massive reserves, when countries sell fewer USD-denominated bonds, and when new payment systems pop up that don’t rely on American banks. It’s not so much that the dollar is being replaced – more that it’s being dodged.

At the heart of this shift is trust – or the lack of it. Geopolitical tensions, US unpredictability, and tariff battles have been rattling the global stage, and that’s led confidence in the dollar’s long-term stability to teeter.

And this isn’t all about one US president. When Russia invaded Ukraine in 2022, a string of sanctions from the West sent a loud and clear reminder to the world – the dollar can be a powerful weapon. That was a wake-up call for countries like China, India, and Saudi Arabia. Those countries (and some others) have stepped up their efforts to do more business in their own currencies, aiming to reduce the risk of being cut out of the dollar-based system.

More recently, of course, there’s been the Trump tariff war. The US has hit its long-standing partners with unpredictable new duties, tearing up previous agreements. And that shift toward economic nationalism made allies increasingly uneasy. After all, a trading partner that’s willing to rewrite the rules can also destabilize the currency framework that supports global commerce.

And that’s worrying, especially because the US has been quietly cheering on a weaker dollar. When the dollar is cheap, that tends to give a boost to US exports, supporting American manufacturing and broadly aligning with Trump’s trade agenda. But the downside is no small matter: it’s reputational. If the people perceive that the dollar is being deliberately kneecapped, they start to lose trust. Global markets respond not just to authority, but to stability and credibility – and, right now, that’s being tested.

On top of all that, America isn’t exactly looking rock-solid financially. Government debt levels have done nothing but climb. Political gridlock has become more intense and inflation has proved persistent. Some investors now expect the dollar to drop another 10% to 15% over the next few years. That’s a big deal if your portfolio is built entirely in dollars.

What does this mean for markets?

If the world shifts further away from the dollar, even gradually, that could shake up the whole investing landscape. For a start, US stocks and bonds could see lower returns. And that makes sense: a weaker dollar would make them less attractive to foreign investors, leading some to pull away.

For decades, countries have bulked up their monetary reserves with US Treasuries, basically lending money to the US government in exchange for safety and stability. But if the world’s central banks start diversifying their holdings, demand for American debt could shrink. As a result, the US might have to offer higher interest rates to attract buyers, which would raise borrowing costs not just for the government, but also for businesses and consumers. It’s like the world’s investors asking for better terms on a loan because they’re no longer sure the dollar’s a sure thing.

As all of this happens, countries that are reducing their dollar holdings will need to put that money somewhere else – and that will lead to a second ripple: the rise of other reserve assets. Some central banks are shifting into gold, others are buying more euros, a few are even dabbling in Chinese yuan. There's also growing interest in digital currencies issued by central banks (CBDCs), which could further diversify global reserves. This matters for investors because it reshapes the financial power map. Assets that were once overlooked – like gold or emerging market currencies – may become more important. Look at it this way: when the S&P 500 has underperformed in the past, international markets like Europe and the developing world have had the upper hand.

So, how should you invest in a world that’s shifting?

Let’s talk practical steps.

First, diversify beyond the dollar. If your entire portfolio lives in USD-denominated assets, it’s like betting all you’ve got on one horse. Check out funds that hold foreign currencies or invest directly in international markets instead. You can find ETFs that track European, Asian, and emerging market stocks, giving you a currency and geographic mix in one move.

Next, consider some gold or digital currencies. Central banks are buying gold like it’s going out of style – over 1,000 tons just last year, one of the biggest hauls in modern history. It’s easy to see the allure: gold doesn’t rely on any one government and it’s been the ultimate hedge against uncertainty for thousands of years. If de-dollarization picks up speed, gold is likely to keep shining. Digital currencies are also benefitting from this shift. And it’s not just bitcoin here, but CBDCs – official digital versions of national currencies. Countries like China are already rolling them out, and others have begun testing the waters. These digital currencies make it easier to trade and settle transactions directly between nations without funneling everything through US banks or the dollar. As more countries adopt them, these assets could chip away at the dollar’s dominance in global payments. For investors, that could open up new themes – from digital payment infrastructure to fintech and blockchain-backed systems that support this evolving financial architecture. It’s early days, but the foundation is being laid for a more decentralized and diversified global currency system.

Emerging market stocks are also worth a look. Countries like India, Brazil, and Indonesia have been growing, and their financial systems are becoming more self-sufficient. If the dollar’s dominance fades, these economies could see a boost. Exchange-traded funds (ETFs) or country-specific funds could give you a way to get in without having to pick individual stocks.

And don’t forget real assets – things like oil, copper, lithium, and infrastructure. These are tangible, globally needed resources that tend to do well when currencies wobble. The same goes for global companies that earn revenue in multiple currencies. A diversified earnings base can act as a built-in hedge.

Finally, if you’d rather stay mostly in US assets, there are ETFs that hedge against dollar weakness. Or you can look at US “value” stocks that tend to hold up better when growth slows and inflation speeds up.

But what are the risks?

This de-dollarization trend isn’t unfolding in a straight line – it’s been a gradual process. And for now, the greenback still holds a central place in global finance. The dollar has remained the default safe-haven in times of crisis, and US markets have continued to offer unmatched depth and liquidity.

What’s more, some of the areas that stand to gain the most from the trend – particularly emerging markets – come with real risks. Political uncertainty, inflation, and sudden shifts in money flows can create volatility. And currency hedges can eat into your returns if not managed carefully.

Rather than making big bets based on where things might be heading, you’d be better off preparing steadily over time. The shift away from dollar dominance may take a while, but the direction of travel is becoming clearer – and investors who adapt gradually will be better placed than those who wait for perfect clarity.

Theodora Lee Joseph is an analyst at finimize.

ii and finimize are both part of Aberdeen.
finimize is a newsletter, app and community providing investing insights for individual investors.
Aberdeen is a global investment company that helps customers plan, save and invest for their future.