In 2025, the US dollar faced significant challenges as traders began to “sell America.” The ongoing conflict in Iran did lead to a temporary uptick in the currency’s value, raising questions among analysts about whether the dollar might regain its footing.
A recent prediction from Deutsche Bank stirred some debate when one of its strategists suggested that the dollar’s long-standing dominance could be at risk if nations start pricing oil in currencies besides the greenback.
Malika Sahadeva, the managing director of Deutsche FX, stated in a note on March 24 that the Iran conflict might be considered a pivotal moment for “the decline of the petrodollar and the rise of the petroyuan.”
In response, Franklin Templeton issued a critique on April 14, labeling Sahadeva’s view as “grossly simplistic” and arguing that she misunderstands the connection between oil prices and security, particularly concerning Saudi Arabia.
“Oil isn’t traded in U.S. dollars merely because the U.S. has acted as the global enforcer,” stated Sonal Desai, chief investment officer at Franklin Templeton Bonds. “Oil exporters want payment in dollars because the currency grants access to extensive and liquid capital markets, supported by robust legal frameworks that safeguard property rights and enforce contracts, all backed by a vibrant economy.”
The dollar experienced its worst decline in over 50 years during the first half of 2025, following President Trump’s rollback of “Emancipation Day” tariffs earlier in April, which undermined confidence in US assets.
By mid-2025, the dollar index, which measures its performance against a basket of currencies, had dropped nearly 10%.
It saw a brief recovery after the onset of the Iran conflict on February 28, appreciating against major currencies in tandem with oil price spikes, but this recovery dwindled as oil prices declined amid peace negotiations.
The contrasting viewpoints of Deutsche Bank and Franklin Templeton highlight the varied perspectives in the ongoing de-dollarization discussion. Germany perceives the currency’s value as decreasing, while Franklin Templeton remains skeptical of viable alternatives.
the best
The proportion of dollar reserves has been reducing steadily for years, slipping from over 70% in 1999 to just above 50% today. Other currencies like the renminbi and euro are claiming a bigger share of the market, yet the dollar continues to hold a dominant position.
Despite its issues, many analysts struggle to envision a scenario where the dollar doesn’t lead global trade.
“There is no substitute,” said Elias Haddad, global market strategy chief at Brown Brothers Harriman, in a recent CNBC interview. “No other currencies are close to being able to replace the dollar.”
China currently accounts for 3% of global central bank reserves and is slowly expanding its influence in a bid to globalize its currency.
“However, it’s improbable that China will reach 50% anytime soon, especially given the current restrictions in capital markets. The same is true for the euro area,” Haddad remarked.
Desai from Franklin Templeton emphasized that establishing a credible alternative would require a mix of “deep markets, rule of law, full convertibility, and macroeconomic stability,” which could take decades.
Moreover, hints from Germany about increasing strains on the US security umbrella in the Gulf since the war began serve as further evidence of waning confidence in US trade policies, which can tarnish the dollar’s image, Haddad noted.
He pointed out that shrinking U.S. fiscal confidence and a weakened Federal Reserve under Trump are other factors contributing to this ongoing downward trend.
This situation could result in a gradual erosion of the dollar’s reserve status, although it wouldn’t vanish entirely. It’s losing strength but hasn’t been replaced just yet.
Desai added that the dollar’s recent decline aligns with its role as a global reserve currency. “The level of weakness in the dollar is consistent with its position,” Desai stated. “Unlike the renminbi, the dollar is a free-floating currency, which means it can go up and down.”
