How will the US dollar perform in the future?

The dollar is more likely to remain the world’s leading currency than collapse, but that leadership does not ensure appreciation.

Network effects, broad international use, and unmatched US market depth leave no complete rival, while reserve diversification remains gradual.

Still, falling Treasury convenience yields and fiscal or policy uncertainty raise depreciation risk; next-year direction remains uncertain.

Bottom line

The dollar is more likely to remain the world’s leading currency than to collapse. However, leadership does not guarantee appreciation. The best-supported outlook is continued dominance, gradual diversification, and large cyclical exchange-rate swings. Recent evidence raises downside risks, but it does not justify a short-term target or confident directional forecast.

Reserve status and market price are different. The dollar can depreciate against other currencies while remaining dominant in reserves, trade, payments, lending, and foreign-exchange markets.

Why dominance should persist

International use remains unusually broad. Latest available measures put the dollar at 51% of cross-border loans, 51% of international debt securities, and 89% of foreign-exchange turnover. It also represented 57% of official reserves, 42% of export invoicing, and 51% of SWIFT payments. Most measures changed little from 2020 through early 2026. J.P. Morgan Asset Management, June 2026

The reserve share is slowly declining, not collapsing. It fell from 60% in 2020 to 57% in 2025. Diversification went toward many smaller currencies rather than one successor. The Federal Reserve similarly found a 58% share in 2024, unchanged from 2022. Its composite usage index stayed between 65 and 70 since 2010. The euro scored about 24 and the renminbi only 3. Federal Reserve, July 2025

Network effects make this position durable. Dollar invoicing encourages dollar borrowing, reserves, and exchange-rate management. Those uses reinforce one another and benefit from unmatched US market depth and liquidity. IMF, July 2025

No rival yet offers the complete package. Europe has strong institutions, but its capital and sovereign-bond markets remain fragmented. China is a major trade hub, but its capital controls, limited convertibility, and smaller liquid bond market restrict international use. Dollar-backed stablecoins may even extend dollarization through new payment systems.

Why depreciation risk has increased

The strongest warning comes from safe-asset pricing. An NBER working paper finds that Treasury convenience yields fell sharply after 2022. Foreign ownership of public dollar safe assets dropped from nearly 45% in 2016 to 30% in 2025. Private dollar safe-asset ownership remained steadier, suggesting concern concentrated in government debt. Jiang and others, June 2026

That is not yet a broad foreign exit. Foreign investors held $9 trillion of Treasuries in early 2025, or 32% of marketable securities. The share declined partly because Treasury supply expanded. J.P. Morgan reports that foreign Treasury holdings continued rising in dollars, alongside corporate-bond and equity holdings.

The IMF nevertheless identifies tentative softening in America’s role as global banker and insurer. Treasury convenience yields turned negative across several maturities, external return advantages narrowed, and April 2025 stress produced dollar weakness alongside higher US yields. That unusual combination suggests confidence can weaken when fiscal or policy uncertainty rises.

A calibrated NBER counterfactual shows the stakes, not a forecast. Complete disappearance of foreign reserve demand produced an 8.8% long-run real depreciation and about a 90-basis-point rise in US real rates. Adding endogenous production reduced depreciation to 3.54%, illustrating substantial model sensitivity. Transition dynamics, inflation, monetary policy, and risk premiums could produce different market outcomes.

What will determine performance

A stronger dollar becomes more likely if US productivity keeps outpacing peers, inflation stays controlled, and foreign demand for US assets keeps growing. US labor and total-factor productivity led the G10 from 2010 through 2025. Nonfinancial corporate productivity accelerated from 1.1% before COVID to 2.6% from late 2022 through early 2026. If AI sustains that advantage, long-run real value should benefit. The cause and durability of the pickup remain uncertain.

Persistent depreciation becomes more likely if debt issuance overwhelms safe-asset demand, inflation revives, or unpredictable policy weakens property rights and institutional confidence. Rising protectionism, sanctions-driven fragmentation, and reduced scientific investment would add pressure.

Practical outlook

Base case: global leadership survives, the reserve share drifts lower, and the exchange rate moves in both directions with growth, inflation, and interest-rate expectations.

Adverse case: sustained fiscal and institutional deterioration reduces demand for both public and private US assets. The dollar weakens and US real yields rise, yet displacement remains unlikely without a credible rival.

Structural-break case: several usage measures decline together for years, foreign holdings fall in absolute terms, and reserves concentrate in a deep, open alternative market. Current evidence does not show that configuration.

The conclusion would change if Treasury convenience yields remain persistently negative and weakness spreads beyond government debt. Until then, gradual erosion is better supported than either a dollar boom or collapse.

Evidence limits

The official studies mostly describe data through 2024 or early 2025. The June 2026 NBER paper is unreviewed and models an extreme counterfactual. J.P. Morgan supplies newer observations, but it is one institutional assessment. Consequently, confidence is much higher about continued international leadership than about the dollar’s next-year exchange rate.