London Daily

Focus on the big picture.
Sunday, Sep 28, 2025

US dollar at risk of sudden collapse? Ex-IMF official warns ‘blow-up event’ could sink greenback

US dollar at risk of sudden collapse? Ex-IMF official warns ‘blow-up event’ could sink greenback

A fresh stimulus package worth at least US$1 trillion could spell relief for millions of Americans in pandemic, but could raise financial stability risks. Federal Reserve’s aggressiveness in easing financial conditions has succeeded in halting a further decline in the US economy, but that could change if major companies start going bankrupt

With the United States expected to double down on its fiscal stimulus measures to mitigate the economic fallout from the coronavirus pandemic, and the Federal Reserve continuing its aggressive monetary policy easing, there is a rising risk of a sudden loss of confidence in the US dollar, according to a former senior executive with the International Monetary Fund (IMF).

Zhu Min, who was deputy managing director of the IMF from 2011 to 2016, said the US dollar’s position as the dominant global currency was at risk of being eroded because of mounting US government debt.

The US Congress is considering a fresh round of relief to support the US economy that will likely cost at least US$1 trillion on top of the more than US$2 trillion passed earlier this year. Leaders of the Democratic-led House of Representatives and Republican-led Senate will have to reach a compromise on separate bills, with the House having already passed a US$3 trillion package, while the Senate is expected to pass a smaller bill of about US$1 trillion in the coming days.

“The concern isn’t whether the US dollar will see an accumulated decline of 30 per cent in the future, but whether there will be a blow-up event that causes a sudden loss of confidence in the US dollar, and its market to collapse,” said Zhu, who is currently head of the National Financial Research Institute at Tsinghua University in Beijing.

At the same time, companies have become much more vulnerable globally compared with during the 2008 global financial crisis because the low interest rate environment has sharply boosted corporate borrowing, Zhu said.

While the Federal Reserve’s aggressiveness in easing financial conditions has succeeded in halting a further decline in the US economy, companies could still go bankrupt as they adapt to the new norm where work resumption must coexist with social-distancing measures because the Covid-19 crisis has persisted longer than expected, Zhu said.

“So, the question of whether there will be a financial crisis will depend on whether a major company will be the next to go bankrupt, and thereby result in a jump in the corporate default ratio, leading to a sovereign debt crisis,” Zhu said.

The US became the lender of choice for many countries that were willing to buy US-dollar-denominated bonds. This provided the US with what’s been dubbed an “exorbitant privilege” to run with soaring public deficits and debt, as international funds have chased the safe-haven status of US dollars and assets during times of turmoil.

Indeed, foreign investor demand for US dollars, equities and bonds surged earlier this year amid worries over a global economic recession, pushing the US currency to a three-year high in March.

But the global role of the US dollar is being complicated by America’s engagement in a geopolitical struggle with China, said Michael Every, a global strategist at Rabobank.

“Past an unknown critical threshold, [using monetary policy to deal with public deficit] could see the collapse of US dollar currency hegemony as people lose faith in it,” Every said. “All systems can only be pushed so far. Does the world still want a US-dollar-centric system if US dollars are openly printed to fund the state spending that drives the external deficit?”

The most recent figures from the Swift system showed that the US currency is still by and large the most widely used in international transactions, accounting for 40.33 per cent on traffic on the Swift international payments system.

The top position in the share of official foreign exchange reserves is held by the US dollar, at 62 per cent in the first quarter, followed by the euro at 20 per cent, according to IMF data. The Japanese yen was third at 6 per cent, and the British pound took fourth place at 4 per cent.

The Chinese yuan’s share of Swift transactions was just 1.76 per cent, and its share of global currency reserves was just 2 per cent, in fifth place. That would make it difficult for the yuan to supplant the global standing of the US dollar, even as Chinese authorities continue to open up the nation’s markets, according to Li Liuyang, a currency analyst at China Merchants Bank who spoke at a media conference held by Refinitiv late last month. The US dollar has been the world’s leading currency since 1919, when it overtook the pound in the aftermath of World War I.

China’s efforts to internationalise the yuan, especially in trade with Asian countries, will be seen as successful if the yuan can increase its global reserve role to match that of the yen or the pound in 10 years, Li said.

Steven Englander, global head of G10 currency research and North America macro strategy at Standard Chartered Bank New York, said the slide in the US dollar’s share of global reserves in the past two decades represents the combination of a lower US dollar share in China’s reserves and the selling of US dollars by reserve managers.

The ability to exploit its reserve currency status for political purposes is reflected in the US’ use of the global financial system to sanction opponents. This began in the Clinton era (1993-2001) and expanded under subsequent administrations. The threat of such sanctions probably conflicts with the US dollar’s public role as a reserve currency, Englander said.

“The US dollar looks worse as a reserve currency when financial markets are tranquil,” Englander said. “When the liquidity is no longer required, unneeded US dollar balances will be put back into the market, and the US dollar will likely fall.”

A sell-off against a basket of major currencies has continued since March, and on Thursday the US dollar hit its lowest level since September 2018.

Comments

Oh ya 5 year ago
When it does collapse that will knock the smile a lot of smug faces. And it has been coming for a long time so it should not be a surprise to anyone that has been paying attention

Newsletter

Related Articles

0:00
0:00
Close
U.S. Defense Chief Orders Sudden Summit of Hundreds of Generals and Admirals
Global Cruise Industry Posts Dramatic Comeback with 34.6 Million Passengers in 2024
Trump Claims FBI Planted 274 Agents at Capitol Riot, Citing Unverified Reports
India: Internet Suspended in Bareilly Amid Communal Clashes Between Muslims and Hindus
Supreme Court Extends Freeze on Nearly $5 Billion in U.S. Foreign Aid at Trump’s Request
Archaeologists Recover Statues and Temples from 2,000-Year-Old Sunken City off Alexandria
China Deploys 2,000 Workers to Spain to Build Major EV Battery Factory, Raising European Dependence
Speed Takes Over: How Drive-Through Coffee Chains Are Rewriting U.S. Coffee Culture
U.S. Demands Brussels Scrutinize Digital Rules to Prevent Bias Against American Tech
Ringo Starr Champions Enduring Beatles Legacy While Debuting Las Vegas Art Show
Private Equity’s Fundraising Surge Triggers Concern of European Market Shake-Out
Colombian President Petro Vows to Mobilize Volunteers for Gaza and Joins List of Fighters
FBI Removes Agents Who Kneeled at 2020 Protest, Citing Breach of Professional Conduct
Trump Alleges ‘Triple Sabotage’ at United Nations After Escalator and Teleprompter Failures
Shock in France: 5 Years in Prison for Former President Nicolas Sarkozy
Tokyo’s Jimbōchō Named World’s Coolest Neighbourhood for 2025
European Officials Fear Trump May Shift Blame for Ukraine War onto EU
BNP Paribas Abandons Ban on 'Controversial Weapons' Financing Amid Europe’s Defence Push
Typhoon Ragasa Leaves Trail of Destruction Across East Asia Before Making Landfall in China
The Personality Rights Challenge in India’s AI Era
Big Banks Rebuild in Hong Kong as Deal Volume Surges
Italy Considers Freezing Retirement Age at 67 to Avert Scheduled Hike
Italian City to Impose Tax on Visiting Dogs Starting in 2026
Arnault Denounces Proposed Wealth Tax as Threat to French Economy
Study Finds No Safe Level of Alcohol for Dementia Risk
Denmark Investigates Drone Incursion, Does Not Rule Out Russian Involvement
Lilly CEO Warns UK Is ‘Worst Country in Europe’ for Drug Prices, Pulls Back Investment
Nigel Farage Emerges as Central Force in British Politics with Reform UK Surge
Disney Reinstates ‘Jimmy Kimmel Live!’ after Six-Day Suspension over Charlie Kirk Comments
U.S. Prosecutors Move to Break Up Google’s Advertising Monopoly
Nvidia Pledges Up to $100 Billion Investment in OpenAI to Power Massive AI Data Center Build-Out
U.S. Signals ‘Large and Forceful’ Support for Argentina Amid Market Turmoil
Nvidia and Abu Dhabi’s TII Launch First AI-&-Robotics Lab in the Middle East
Vietnam Faces Up to $25 Billion Export Loss as U.S. Tariffs Bite
Europe Signals Stronger Support for Taiwan at Major Taipei Defence Show
Indonesia Court Upholds Military Law Amid Concerns Over Expanded Civilian Role
Larry Ellison, Michael Dell and Rupert Murdoch Join Trump-Backed Bid to Take Over TikTok
Trump and Musk Reunite Publicly for First Time Since Fallout at Kirk Memorial
Vietnam Closes 86 Million Untouched Bank Accounts Over Biometric ID Rules
Explosive Email Shows Sarah Ferguson Begged Forgiveness from Jeffrey Epstein After Taking His Money
Corrupt UK Politician Ed Davey Demands Elon Musk’s Arrest for Supporting Democracy
UK, Canada, and Australia Officially Recognise Palestine in Historic Shift
Alibaba Debuts Open-Source Deep Research Agent with Benchmarks Rivaling OpenAI
Marcos Faces Legacy-Defining Crisis as Flood Projects Scandal Sparks Massive Tide of Protests
China’s Micro-Drama Boom Turns Stalled Real Estate Projects into Lavish Film Sets
New Eye Drops Show Promise in Replacing Reading Glasses for Presbyopia
'Company Got 5,189 H-1B Visas, Then Laid Off 16,000 Americans': US Defends New $100,000 H-1B Visa Fee
Golf legend tells Omar she should be 'sent back to Somalia' after her Kirk comments
EU Set to Bar Big Tech from New Financial Data Access Scheme
China Bans Livestreaming and AI in Religion Amid Crackdown on Shaolin Temple Scandal
×